Consumer Electronics

The End of China's Game-Console Ban Won't Save Nintendo


The End of China's Game-Console Ban Won't Save Nintendo

Photograph by Scott Eells/Bloomberg

Nintendo (7794:JP) investors have been waiting more than a decade for good news from China. Since 2000, the company and other makers of video-game consoles have been shut out of the world’s largest market, with the Chinese government banning the sale of machines like Nintendo’s Wii, Sony’s (SNE) PlayStation, and Microsoft’s (MSFT) Xbox.

China will soon no longer be off-limits to console makers. A year after the official media first started reporting that the prohibition’s days are numbered, the government is suspending the ban, which it had said was designed to protect the country’s fragile youth from the evils of excess gaming. The State Council now says it’s drafting rules that will allow companies to make game consoles in the new free-trade zone in Shanghai.

That news was enough to send Nintendo’s stock price soaring today. The Kyoto-based company’s shares jumped more than 10 percent to hit a 52-week high of ¥15,850 ($151), almost double its 52-week low, reached last February.

As exciting as it might be to get official access to the Chinese market, don’t count on consumers there coming to the rescue of Nintendo, a company struggling to keep up with the buzz of Sony and Microsoft’s new machines. Nintendo had a net loss of ¥8 billion ($76 million) in the third quarter—and that was before it had to compete with new versions of the PlayStation and Xbox that have proven to be hits with consumers.

Sony has sold 4.2 million of its new PlayStation 4 consoles since the device’s November launch, the company revealed yesterday, and Microsoft on Jan. 6 said it had sold more than 3 million units of its new Xbox One console. Poor Nintendo managed to eke out sales of only 460,000 of its new Wii U machines in the second and third quarters of 2013.

China isn’t likely to provide a major boost to the rival console makers, either. With the console market closed for so long, the country’s gamers have found easier and cheaper alternatives to games played on expensive machines sold by Nintendo, Microsoft, and Sony. Just as China’s ban on Facebook (FB) and YouTube (GOOG) has created opportunities for local services that might have had difficulty going up against the foreigners, game-console prohibition has allowed Chinese companies to gain strength marketing games that are available to play for free online. Tencent (700:HK), for instance, has become one of the world’s most valuable Internet companies, thanks to its popular free-to-play games.

The market opening “would have been useful if it happened 10 years ago, when most gamers were really interested in consoles,” says Michael Clendenin, managing director of Shanghai-based market-research firm RedTech Advisors. With the government finally opening the market after so long, “it’s sort of like saying the old CRT TVs are legal in China, now that everyone has LCD TVs.”

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Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.

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