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Nintendo Finally Brings Switch to Tough Chinese Market

Zheping Huang, Yuki Furukawa and Vlad Savov
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Nintendo Finally Brings Switch to Tough Chinese Market

(Bloomberg) -- Tencent Holdings Ltd. and Nintendo Co. announced they’ll begin selling the Switch console in China Dec. 10, a long-anticipated entry into the world’s biggest gaming arena.

Nintendo’s signature device will sell for 2,099 yuan ($297), about the same as elsewhere around the world. Mario Kart 8 Deluxe and Mario Odyssey will join the already-greenlit Super Mario Bros. U Deluxe among the first crop of Switch titles in the coming weeks. Nintendo is also preparing to introduce the Switch Lite -- a cheaper version of the console intended to boost the device’s mainstream appeal -- to China at a future date, development partner Tencent said in a social media post Wednesday.

But for all the name recognition, marketing muscle and fan enthusiasm behind it, Nintendo’s Switch is unlikely to get off to a fast start in the world’s largest gaming market.

The Switch’s impending release in China has excited Nintendo investors hopeful of tapping a new market. Yet it’s constrained by the rise of smartphones as the dominant gaming platform in China, and by the reluctance of gamers to buy consoles via official channels because of their limited range of Beijing-approved games.

Nintendo’s Switch retains its global popularity three years after its international launch, in an industry where consoles are often revamped every half-decade or so. Getting into China could extend its longevity, though Nintendo’s first issue is that many fans in China who might have wanted and could afford a Switch are likely to already have one.

“Nearly 10% of Nintendo Switch sales are from the Asia market, excluding Japan, with Mainland China accounting for a notable portion via grey market shipments,” said Daniel Ahmad, gaming industry analyst at Niko Partners. “Demand for Nintendo Switch hardware and software has been strong in China prior to the official launch.”

Read more: Nintendo Will Prove the Switch’s Longevity This Holiday Season

At the packed Switch booth in August during ChinaJoy -- the country’s biggest gaming show -- fans waited as long as two hours to try marquee titles like The Legend of Zelda: Breath of the Wild. Many in line brought their own Switch -- whether acquired overseas or on the gray market -- and just wanted to check whether the Chinese versions of their favorite games would be any different due to censorship.

Worries about Tencent’s potential influence on Nintendo’s content are not unfounded. Two of the Chinese internet giant’s recent hits have been patriotic versions of SimCity and PlayerUnknown’s Battlegrounds, and it has also imposed strict playtime limits on minors -- all in an effort to appease Beijing. Nintendo, for its part, has said that its games are designed for the family and shouldn’t have trouble with regulators.

“The Chinese government often changes the regulations,” said Tomoaki Kawasaki, an analyst at Iwai Cosmo Securities Co., warning about the unpredictability of a regime that earlier this year granted Tencent approval to distribute Super Mario Bros. U in the country.

“We have always been developing game consoles that parents can rest assured to let their children play, that are family-friendly, and that are highly praised by parents,” Nintendo Senior Executive Officer Satoru Shibata said at ChinaJoy.

Read more: Tencent Teams Up With Nintendo-Backed Pokemon to Create Games

This isn’t Nintendo’s first attempt to crack the market. Official console sales in China remain a fraction of the overall gaming arena, as region locks and delayed hardware releases push gamers toward imported options. Nintendo confronted similar challenges in attempts to enter China dating back to 2003. It tried to sell, via a joint venture, its Game Boy Advance, Nintendo 3DS and a peculiar China-only portable console called iQue Player. Rampant piracy and slow game launches made those products unappealing.

The rise of smartphone gaming places a new obstacle in Nintendo’s path, as the Japanese company will have to convince players to carry yet another handheld gadget. Its library of first-party franchises like Super Mario will help, though China already has an inventory of copycat titles -- Let’s Hunt Monsters, a commercially successful Pokemon Go clone, was authored by partner Tencent.

Nintendo will now be hoping to lean on its partner’s local expertise. Tencent’s ability to reach a billion-plus users via its WeChat messaging service and established partnerships with developers all have analysts more optimistic about Nintendo’s longer-term prospects.

“Tencent is working closely with third parties, including Chinese indie developers, to build up a library of high quality titles that will increase the appeal of the console in China,” said Ahmad. IDC analyst Yexi Liao agreed: “At the moment, Nintendo is getting a greater benefit from the deal as it will finally be able to penetrate the biggest gaming market in the world.”

For Nintendo and Tencent, selling Switch consoles in China is just one component of a partnership that’s ratcheting up. The two are reported to be working together on games for the U.S. as well as China, and Tencent this summer announced a collaboration with the Nintendo-backed Pokemon Co. The social media titan on Wednesday said it’s working to localize Zelda and the Pokemon Let’s Go titles, while teaming with global studios and developers to bring more third-party Switch titles to the country.

For now, the Japanese company “does not count on business in China,” said Kazunori Ito, an analyst at Morningstar Investment Services in Tokyo. “Nintendo needs to get know-how for selling games in China” and is widely deemed to have chosen a good partner in Tencent instead of trying to go it alone.

(Updates with analyst’s comment from the sixth paragraph)

--With assistance from 院去信太郎 and Takashi Amano.

To contact the reporters on this story: Zheping Huang in Hong Kong at zhuang245@bloomberg.net;Yuki Furukawa in Tokyo at yfurukawa13@bloomberg.net;Vlad Savov in Tokyo at vsavov5@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net, Vlad Savov, Edwin Chan

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