Ever since the news broke that an anonymous source thinks China’s Ministry of Culture is considering lifting China’s decade-long ban on game consoles, the world has gone a little crazy. Somehow, a single, anonymous source about something that might happen has gotten people so excited that Sony and Nintendo both saw their stocks jump and Forbes is talking about how those companies could “make billions” if the ban is lifted. Talk about irrational exuberance.
There are so many things wrong with this, it’s hard to even know where to begin. I could, of course, begin with how the Ministry of Culture has already denied considering lifting the ban. But these rumors are sure to pop up again sooner or later, so instead let’s begin with the stupidest thing I have read so far this year, which comes to us courtesy of the Forbes article linked above:
If the ban is lifted, however, sales of new game consoles could skyrocket. Console manufacturers would be free to promote their items and sell them in every store. And since consumers would no longer have to pay black market prices, consoles would become even more desirable to own.
The assertion that gamers are currently paying “black market prices” for consoles and thus would relish the opportunity to buy legitimate versions is shockingly ignorant, and leads me to wonder if the author of this article has even bothered to look into the console market at all. First of all, game consoles are sold on the gray market in China, meaning they’re sold openly in retail stores and online. Secondly, they don’t cost much more than they do in the US or elsewhere, and the extra cost is often because they’re hacked, so it’s immediately offset by the far lower price of buying cheap pirated games for the system.
In fact, let’s do a little experiment. In the US, you can get a plain Xbox 360 console for $200, while in China it’s closer to $250. But the gray-market console in China is generally hacked to play pirated games, so when you want to add on one new game to play, the US price rises to $260, and the Chinese price rises to $251. Add another new game, and the American Xbox now costs over $300, while the Chinese one now costs $252. You get the idea: the consoles themselves cost slightly more, but Chinese console gamers actually pay far less overall than Western gamers who are buying legitimate games for their systems.
Moreover, legitimizing console sales in China would actually make them more expensive than they are in the US, because — like all other imported electronics — their prices would need to be raised to cover China’s import duties. Gray market imports, since they’re technically illegal and enter under the radar, are not taxed, but official imports would be, and thus China’s gamers would get a taste of what China’s Apple fans already know: everything electronic is more expensive in China. At the end of the day, Chinese gamers would see something like a 10 percent reduction in the cost of consoles themselves, but that’s not nearly enough to offset the 7500 percent rise in the price of a new game for the system. At the end of the day, most Chinese gamers who want to actually play games on their console would end up paying significantly more than what they’re paying now if console imports were legalized.
Now that we’ve torn apart the section of that article that’s blatantly incorrect, let’s turn to the part of it that’s just logically flawed. Why would sales of new game consoles skyrocket? Although they are technically illegal, western game consoles are widely available in China right now, sold openly in thousands upon thousands of electronics stores across the country. Any Chinese gamer who wants a console probably already has one. And since the consoles available now are for the most part hacked, gamers have access to thousands of games for extremely low prices. Legitimizing console sales might lower the prices of consoles slightly (as discussed above), but that would be nothing compared to the price of games, which would jump from at most 5 RMB ($0.79) for a pirated game to at least 370 RMB ($60) for a new, legitimately imported game.
As much fun as it is to beat up Forbes, let me stop and break this thing down for you list-style:
Why No One Should Be Excited About the Console Ban Being Lifted
1. It probably won’t happen. The Ministry of Culture has already officially denied that it’s considering dropping the ban. But even if that’s a smokescreen and the China Daily’s tip is legit (which is by no means guaranteed), I am certain the Ministry of Culture considers lots of things it doesn’t ultimately do. And no one I have seen yet has been able to adequately answer the question of why China would choose to un-ban game consoles right now, when there’s still no domestic competitor to benefit from the move. (No, the CT510 doesn’t count).
2. Consoles and console games are already widely available. Anyone who wants to can buy a game console in China for more or less the same price as anywhere else. And, as an added bonus, the games are usually extremely cheap. Chinese gamers who are interested in console gaming already own consoles. If there is a demand for consoles in China, it does not seem to have outpaced the supply available on the gray market, so legalizing consoles isn’t likely to cause any kind of sales spike.
3. Legalizing consoles just makes them more expensive. China’s import duties would almost certainly raise the price of legitimate consoles to close to what they currently cost on the gray market. And the price of legitimately imported games for consoles would be much, much higher than what gamers currently pay for widely-available pirated game discs, so the overall cost of playing games on a game console would skyrocket.
4. Chinese gamers are not dying to get their hands on Western and Japanese consoles. In some circles, people seem to be under the impression that the only thing stopping Chinese gamers from buying XBoxes in droves is the tyrannical policies of the Chinese government. This is complete bullshit. Unlike my generation in the West, most Chinese gamers did not grow up with consoles in their homes. Their first introduction to the world of games was through a PC, not a Nintendo, and most Chinese gamers continue to prefer the PC platform. That’s not because they don’t have consoles, it’s because they actually prefer playing games on a PC. And, as I mentioned above, those who do want consoles likely already have them.
5. Chinese gamers prefer game genres that don’t really work on consoles. Look at the genres of games that are popular in China: MMORPGs, RTSs, and twitchy, highly-competitive multiplayer FPS games. These are all genres that don’t work very well on consoles. There is a reason there are no console versions of games like World of Warcraft, DOTA, and Starcraft (both hugely popular in China); they both play much better with a mouse and keyboard. And while there are some twitchy FPS games on consoles, Chinese gamers seem to prefer games like Counter-Strike, where the precision of a mouse and keyboard is virtually a requirement. This is not to say, of course, that there aren’t fans of more console-friendly game genres in China, but it’s important to remember that in general, the tastes of Chinese and Western gamers are often quite different.
6. The console game sales model doesn’t work in China. Most popular Chinese games are free-to-play or very cheap, instead relying on subscription tiers and in-game transactions to generate revenue. That’s because in general, game publishers have had a very hard time getting Chinese gamers to pay large up-front sums for games. But there are almost no console games out there that generate most of their revenue with subscriptions or in-game sales right now, and it’s very difficult to do free-to-play when most games require a disc. On-demand gaming may open the door to new sales models in the next generation of consoles, but right now the vast majority of console games (even the on-demand downloadable ones) require one big up-front payment, and that’s just not something many Chinese gamers are into. (If you look at the top ten tech companies in China by revenue, many of them are game publishers that operate primarily online subscription and in-game transaction-based games.)
7. Piracy is still a big problem. Even if legalized console imports somehow generated a huge sales spike (which they won’t), Microsoft and Nintendo couldn’t expect to make a whole lot of money on games. Sony’s Playstation 3 has been more difficult to hack, but the Xbox 360 and the Wii are thoroughly compromised, and getting your console hacked to play pirated games is easy. Sure, it might cost a few extra dollars if you don’t want to do it yourself, but it pays for itself instantly when you’re buying brand new games for less than one dollar per game.
eBox iSec CT-510 may be a warning sign. Eedoo has done a lot of things wrong in the marketing of its not-a-game-console game console, but the strange and sudden pivot from an emphasis on games to an emphasis on health, apps, and other kinds of entertainment might have been a response to weak consumer demand for a traditional, gamer-demographic-focused game console. (The console was originally called the iSec and was targeted squarely at gamers, but just before release it was renamed the CT-510 and re-targeted at more of a family crowd). This shift could also have been the result of pushback from regulators, of course, but since this happened less than a year ago, if regulators wouldn’t let a Chinese company release a game console in China it seems unlikely they’re really about to let Western and Japanese companies have a go.
I could probably keep going, but I think my point is clear. China’s console market is not as big or as ready to explode with profit as some people seem to think. Time will tell whether or not any of this even matters, but if you’re the kind of person who buys stock in a console company on the basis of an anonymously-sourced report in the China Daily, well, I’ve got a bridge to sell you.