Nintendo in China

Since the unveil that Arena of Valor would be coming to Nintendo Switch, the internet has been abuzz of Nintendo going to China. Not long after the announcement, another report from Digitimes came out claiming Nintendo was entering the Chinese market in 2018. Then, Nintendo released a video showing games that would receive Chinese translations. These translations may be for the Tiawan and Hong Kong releases, which Nintendo has officially announce. Nintendo has not officially announced any plans to expand into China; however, that hasn’t stop investors from speculating on the fact which results in a surge in Nintendo’s share price. With this in mind, let’s talk about how Nintendo’s move could impact Switch’s sales numbers.

Chinese Economy

Investors love China because of it’s massive population. Essentially, launching a product there reaches far more people that could be reached in any other market. That said, the economy is not all that it’s cracked up to be.

Yes, China is one of the largest economies in the world with a GDP of  11.2 trillion as compared to the US’s GDP of 18.57 trillion. This GDP seems to be driven not by output, but by size of the country. Since GDP is based on a country’s spending, size plays a major role on how much its spending. This is why GDP per capita can be a better measure. China’s GDP per capita totals $8,123.18. For comparison, here is the GDP for other major regions for video games.

As you can see, Chinese consumers do not have near the same level of wealth as consumers in other countries. Video Games depend on a strong middle class. Chinas consumers don’t have the wealth needed to sustain a console gaming market.

Sony and Microsoft in China

As a result in changes in regulations, Sony and Microsoft released their systems in China back in 2014 and 2015. Despite the analyst and investor hype, the systems haven’t fared well. Niko Partners expected XBox One and PS4 to sell only 550,000 system in 2015. Niko expected that TV-based gaming to increase to 27 million in 2019. While the increase is promising, it remains to be seen. For comparison, the Nintendo 3DS sold 23 million over its lifetime in Japan alone. The prospects don’t look promising.

The issue Sony and Microsoft have is the market doesn’t care for TV-based consoles games. Mobile and PC dominate the Chinese gaming market. Mobile games use a freemium model, and consumers can go to PC Cafes at a low cost. The price sensitive nature of Chinese consumers is consistent with the countries pitiful GDP per capita.

Nintendo in China

However, Nintendo Switch has two key advantages that could help the system fair better. First, Nintendo Switch is a portable console, which may make it more appealing to a mobile-dominated market. The other is Chinese love Japanese culture. As Forbes notes, Japanese pop-culture is popular in China, especially anime and manga. Games like Animal Crossing, Splatoon and Fire Emblem, all of which are popular in Japan, could flourish in China. It also doesn’t hurt that two of these series are on mobile.

These factors alone won’t guarantee success. Nintendo must readjust their current strategy to be successful in China. I’m no expert on the market, but from my research (albeit limited), here is how Nintendo could be successful. First, Nintendo releases their mobile titles in China. Give Chinese consumers a chance to become familiar with these properties while generating a nice amount of revenue. Then, Nintendo needs to release a lower cost Nintendo Switch system in the country after a year or so. The current price tag of $300 will scare away potential consumers who can get games far cheaper. I expect Nintendo will release a Nintendo Switch Mini in the future with a lower price point which could appeal to the Chinese market.

Investors hype the Chinese market. On paper, the country has a lot of people and is growing economically. However, China doesn’t have the same middle class other developed nations have, which is crucial for video games. Nintendo may do better here than their competitors, but I don’t think they will. I don’t see China having a major impact on the system’s sales, at least not now. I don’t think it will be the same massive success investors are hoping for.

 

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