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Microsoft Bowing Xbox One in China

30 Apr, 2014 By: Erik Gruenwedel

Microsoft in September will begin selling its flagship Xbox One video game console in China, becoming the first manufacturer to offer an over-the-top video service via game console in the communist country. Xbox One will also be the first foreign console sold in China since the country imposed a ban on the devices in 2000.

Microsoft has sold more than five million $500 Xbox One consoles to retailers in 13 countries since its launch last fall. It expects to have the console available in 42 markets worldwide by the fourth quarter.

"Launching Xbox One in China is a significant milestone for us and for the industry, and it's a step forward in our vision to deliver the best games and entertainment experiences to more fans around the world," Yusuf Mehdi, VP of marketing and strategy for devices and studios at Microsoft, said in a blog post.

A key factor to Microsoft getting into the China market is its partnership with BesTV, a subsidiary of Shanghai Media Group, and its strategy is to deliver not only game content, but over-the-top television content, according to Wedbush Securities analyst Michael Pachter.

Game consoles are allowed in China as long as they are manufactured in the recently created Shanghai Free-Trade Zone, and approval from the authorities has been granted.

“We expect to see Microsoft roll out its OTT strategy in China at around the same time it rolls out the strategy in North America; this suggests to us that there will be additional announcements (and partnerships) for a U.S. rollout later this year,” Pachter wrote in a note.

Challenges entering the Chinese market include piracy, which Microsoft is hoping to circumvent by working with regional developers to build, publish and sell specific games targeting local gamers.

“We think that the company will likely have to develop a new business model for publishing games, as the packaged $60 console game is unlikely to be popular in a culture that invented free-to-play gaming,” Pachter wrote.

The analyst believes Microsoft can eventually sell 10 million Xbox One units in China, despite the console carrying the highest retail price in the video game industry.

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