Xbox in Asia
Posted by benadmin on Friday, October 25 2002

London, 25 October 2002 - Microsoft has announced launch dates for its Xbox console in Hong Kong, Singapore and Taiwan. With software piracy endemic in southeast Asia, Microsoft's launch of its heavily subsidized Xbox console is a bold move. Although software sales and online gaming in Singapore and Taiwan should bring some returns, the real story is that Microsoft is paying heavily now, to gain a foothold in a market that will be lucrative in several years' time. The Xbox gaming console will be available in late November, retailing at US$205-218 - around the same price as in the US and Europe. It will also launch in South Korea by the end of the year.

Making money in the Asia-Pacific console market (outside Japan) is challenging, partly due to the region's high software piracy rate. Console makers sell their devices at a unit loss, expecting to make the money back on games sales - so where games are copied rather than sold, the business model takes a knock.

That said, South Korea should be comparatively simple for Microsoft. Korea has high levels of home PC Internet usage, while the Xbox has strong online gaming capabilities and is closer to a PC than its rivals. Korea's animosity towards Japan should also boost the Xbox over Sony and Nintendo's offerings. Datamonitor expects there to be 1.4 million Xboxes in Korea by 2005.

Taiwan and Singapore are in some ways similar to South Korea, in that Internet penetration rates are high and PC-based gaming is big. But without the cultural advantage Microsoft has in Korea, the Xbox is likely to come in far behind Sony (and maybe behind Nintendo too) in both territories.

So where does piracy come in? Piracy rates are 90% in South Korea and Taiwan - which sounds high, but still means significant revenues for legitimate software. They're lower in Singapore; with additional online gaming revenues for Microsoft, the launch in all these territories should bring in some cash - although whether it will cover costs is another question.

Hong Kong is more interesting. The piracy rate for Hong Kong and mainland China is 98% - possibly the highest in the world - and Internet penetration is relatively low. Microsoft cannot charge full price for the Xbox in Hong Kong because of gray imports, so why is it launching at all?

"Simple", says Frederic Diot, games analyst at Datamonitor. "Microsoft doesn't need or expect to make money on this incarnation of the Xbox in Asia-Pacific. Instead, it wants to establish a strong installed base, to convince Asia-Pacific developers to create Xbox games - and then Xbox 2 games. This will allow it to build its Asian base still further, convincing more developers.

At some point, the prevailing intellectual property regime in southeast Asia is certain to toughen. If Microsoft is in a key gaming position by then, it will start to make serious money in the region."
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