Sony to launch video gaming JVs in Shanghai FTZ

Sony Corp, a major maker of video game consoles, took a big step to enter the Chinese market where a longstanding ban on sales of the machines has recently been lifted, with an announcement on Monday revealing a deal about joint ventures to produce and market Sony's PlayStation gaming consoles in China.

In a filing with the Shanghai Stock Exchange on Monday, Shanghai Oriental Pearl (Group) Co, owner of the Oriental Pearl Tower, an icon of China's financial hub, said its wholly owned subsidiary Shanghai Oriental Pearl Culture Development has struck an agreement with Sony's Chinese arm to establish two joint ventures in the Shanghai free trade zone (FTZ).

Sony will have a 49 percent stake in Shanghai Oriental Pearl Suole Culture Development with 10 million yuan ($1.6 million) in registered capital, and 70 percent in Sony Computer Entertainment (Shanghai) Co with registered capital totaling 43.8 million yuan, according to the filing. Its Chinese partner will account for the remaining stakes in the two ventures.

Shanghai Oriental Pearl Suole Culture Development will be responsible for software business, while the other unit will be focused on hardware products, Masaki Tsukakoshi, a Tokyo-based spokesman for Sony Computer Entertainment Inc, told the Global Times on Monday via e-mail.

When asked about more details such as the completion of the deal, the timing for starting sales in the Chinese market as well as the pricing, the spokesman said in the e-mail response that "it is too early to comment on the specific business plans."

The move will open Sony to vast untapped opportunities in China's video game market, Gu Haoyi, a senior analyst at Beijing-based research firm Analysys International, told the Global Times on Monday.

China's video game sector is expected to generate about $10 billion in sales in 2015, according to PricewaterhouseCoopers. Statistics from the firm also showed China is the world's third-largest video game market after the US and Japan in terms of revenue.

In announcing the joint venture move, Sony joined Microsoft Corp in capitalizing on China's marketplace for video game machines in the wake of the suspension of a 14-year ban on selling the machines in the country. However, consoles that will be sold nationwide must be manufactured in the FTZ.

In late April, Microsoft Corp made an announcement to sell its flagship video game console Xbox One in the Chinese market starting from September, in partnership with BesTV New Media Co, a Chinese Internet television company with which Microsoft had formed an alliance in September 2013, boasting an investment of up to $237 million from both sides.

Earlier in April, the Shanghai government released detailed rules for the oversight of applications by foreign-invested video game console makers to make and sell their products in the Shanghai FTZ, after the State Council temporarily lifting the ban in January.

In addition to the alliance with BesTV to develop "family games and related services," Microsoft also purportedly collected its business license for a wholly invested gaming machine manufacturing company registered in the FTZ on Friday.

Without responding to the news, Cao Lei, senior public relations manager for Microsoft China, said on Monday when contacted by the Global Times that the shipping date and price information about the Xbox One for the Chinese market has yet to be disclosed.

The Xbox One console is priced at about $450 on Amazon, while Sony's latest PlayStation 4 goes for roughly $350 on the e-commerce site.

Tsukakoshi, the spokesman for Sony Computer Entertainment, didn't reveal whether the PlayStation 4 will be shipped in China or plans to design any China-specific models after it starts selling the machines.

While a virtually untapped Chinese market would definitely offer opportunities for video game console makers such as Sony and Microsoft, it would also be a concern for them to enter a market that has already been flooded with a wide array of smartphones and tablet devices that offer users scores of free game options, said Gu at Analysys International.

"We will promote the charm of game consoles in [the] Chinese market that enable users to enjoy quality entertainment with ease at their home," Tsukakoshi wrote in the e-mail without elaborating.

As for Kyoto-based Nintendo Co, an ambitious expansion into the Chinese market remains uncharted, as the company's Chief Executive Satoru Iwata said in an interview with Reuters on May 8.

"We think the Chinese market has a lot of potential, but I don't think the lifting of the ban has solved all of the difficulties in entering it. We need to study it more... For us, Microsoft's approach wouldn't work."

Nintendo actually got around the game console ban by investing in a joint venture set up in China in 2002 to co-develop video game consoles sold locally under the Chinese iQue brand.

Nintendo and the Suzhou-based joint venture could not be reached for comment.

Tsukakoshi also brushed off concerns over counterfeiting and piracy, which he said is "a problem in all markets worldwide."

Specifically for the Chinese market, Sony will "actively corporate with police authorities and government offices... when intellectual property rights infringements are exposed."