The Forbidden Kingdom

China represents a great opportunity if the obstacles can be overcome.

Published as part of our sister-site GamesIndustry.biz' widely-read weekly newsletter, the GamesIndustry.biz Editorial is a weekly dissection of one of the issues weighing on the minds of the people at the top of the games business. It appears on Eurogamer after it goes out to GI.biz newsletter subscribers.

The rapid growth of China as a major market for videogames has the potential to be one of the most important factors in the future development of the industry. For years, conferences and publications have been thrilled by the prospect of a middle-class China with an appetite for gaming, with experts (defined here as just about anyone who's ever been to China and played a videogame, even the two events were not concurrent) being hauled in from across the spectrum to feed the hunger for knowledge on this emerging market.

It's a wild overstatement, of course, to talk about China in terms of "a billion new consumers". When we think in terms of the rapidly modernising China and its new wealthy classes (wealthy enough to consider spending money on their leisure activities, at least), we're really only talking about the coastal states and cities. Vast regional inequalities within the country mean that huge swathes of its 1.3 billion people, especially those in areas deep inland, continue to live in conditions not dissimilar to feudal peasantry. It will be many years before the modernisation of China reaches those regions.

Yet even if we're only considering the new "wealthy" classes, China as a consumer nation for videogames is still a hugely exciting prospect. China's urban population, even counting only cities with a population of over two million, is well over 110 million people - almost twice the size of the United Kingdom, and similar to the size of Japan.

There are, of course, major hurdles to be cleared in opening up a market like this. Developing markets are extremely price sensitive, which doesn't just mean that manufacturers need to think carefully about the types of hardware they introduce - it also means that software pricing, and even the pricing models on which the industry has relied for many years, may need to be reconsidered.

Piracy, too, is a serious issue. In part, this is due to the pricing issue, since a market in which consumers are less wealthy is also a market in which consumers will seek cheaper (or free) alternatives to paying full price for products. Additionally, the governments of these countries simply aren't likely to be terribly bothered about piracy. Developing economies rarely develop IP of their own, and may in fact thrive on cloning products from the first world more cheaply - making it tough to get their authorities to care about software piracy.

Such hurdles, however, can be cleared. A few weeks ago I mentioned the interesting direction Nintendo is taking with the DSi, a console which continues to drive down manufacturing costs while introducing technologies that would allow for (mostly) secure digital distribution of content, as opposed to easily copied cartridges. This seems likely to be a prelude to the launch of a cut-price DS system in China, with a digital distribution model instead of a cartridge slot in order to combat piracy.

Other consoles will follow, as the Chinese market becomes increasingly appealing and digital distribution technology becomes increasingly well understood. If neither Sony nor Microsoft have a roadmap which includes a cut-price version of their flagship consoles for the developing world, lacking a physical media slot but designed to take advantage of secure digital distribution, then both companies are almost certainly missing out on a huge opportunity.

However, if such a product is lacking from their future plans, it may be because of the other hurdle which companies hoping to do business in China must surmount - the elephant in the room during any discussion of China's emerging markets, the Chinese government itself.

The Chinese government demands various regulatory conditions be met in order for any product to be launched in China. Some of them are complex and arcane, and far beyond the scope of this article - others are simple and fairly profound, such as the general requirement for any business operating in China to be significantly Chinese-owned. As a result, Western franchises (including game publishers) who set up in the nation must find a local business to enter into a partnership with.

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