Tencent announced at a press conference on December 4, 2019 that it would launch the Nintendo Switch in China on December 10, 2019 for RMB 2,099 ($300). The console will come with a one-year warranty and a demo version of New Super Mario Bros. U Deluxe. The full version of the game will be available for purchase on launch day for RMB 299 ($42), with other titles such as Mario Kart 8 Deluxe and Super Mario Odyssey available for purchase in the coming weeks. Nintendo first announced in April that it was working with Tencent to bring the Switch, which released globally in March 2017, to China. We predicted at the beginning of this year that Nintendo would launch Switch in 2019 and are glad to be proven right once again, even if it is cutting it close.
Nintendo Switch hardware is priced competitively, grey market installed base already notable
Tencent has priced the Nintendo Switch fairly competitively at RMB 2,099 (US $298). This compares well to the launch prices of PlayStation 4 and Xbox One in China, which were RMB 2,899 (US $412) and RMB 3,699 (US $525) respectively. The PlayStation 4 now retails for approximately the same price as the Nintendo Switch, whilst the Xbox One is slightly higher at RMB 2,399 (US $340). Tencent offers a one-year warranty with the Nintendo Switch in China whilst Sony offered a two-year warranty with the PlayStation 4. Tencent notes that the console itself is region free for packaged games, but that online services and the eShop are indeed region locked to take advantage of Tencent’s local servers.
The global version of the Nintendo Switch is fully region free and has been available on the grey market since its launch in March 2017. The hybrid nature of the console, social gaming experiences, high quality localised software and the lack of region lock have been key drivers of grey market Nintendo Switch sales in China. We note that nearly 10% of total global Nintendo Switch sales to date are from the Asia (excl. Japan) market, with China accounting for a notable portion of those sales. The Tencent Nintendo Switch is priced similarly to the grey market version and offers officially localised games and integration with Tencent services as unique selling points.
Tencent has invested in a robust distribution channel for Switch that consists of online sales via JD.com and TMall, as well as offline retail partnerships with Suning and other retail brands. Sony has also taken advantage of partnerships with offline retail brands and has installed demo PlayStation 4 units across multiple Suning stores, allowing people to try before they buy. This strategy has been successful for Sony and we expect Tencent to adopt a similar strategy with Switch. Pre orders for the console began on December 4 and we note that 80,000 people have expressed interest in pre-ordering the console across JD.com and TMall.
Tencent has a robust software pipeline for Switch, but only one game at launch
Tencent has made the bold move to launch the Nintendo Switch in China with only one launch game, New Super Mario Bros. U Deluxe. A trial version of the game will be pre-installed on the console and the full version of the game will be available for purchase from the Nintendo eShop for RMB 299 ($42). A packaged version of the game will be made available later, around Chinese New Year in February. We note that the Xbox One launched in China with 10 games whilst the PlayStation 4 launched with 6 games. That being said, Chinese Nintendo Switch owners will be able to import packaged games from overseas to play on their console. However, online services will not be accessible for these games as only Chinese games can access Tencent servers.
Tencent has confirmed that Mario Kart 8 Deluxe and Super Mario Odyssey are currently in the final stages of approval by China’s gaming regulator and are expected to launch in the coming weeks, also priced at RMB 299. Pricing for software looks to be competitive in China as import games can cost upwards of RMB 400 in many cases. We note that software pricing for PlayStation 4 in China varies between RMB 250 to RMB 350 for AAA titles and RMB 150 to RMB 250 for AA/Indie titles. Whilst one title at launch will be disappointing to many, we expect a sizeable number of day one buyers to be existing grey market Nintendo Switch owners who will be able to play the official Chinese versions of games with local servers and imported games on one console.
Tencent and Nintendo announced a robust software pipeline for 2020 and beyond with plans to launch key first party titles, well-known third-party titles and even games from independent Chinese developers. First party titles set to receive an official China release include Mario Tennis Aces, Yoshi’s Crafted World, Super Mario Party, Kirby Star Allies, The Legend of Zelda: Breath of the Wild and Pokemon Let’s Go Pikachu and Eevee. Including the three launch window titles, Nintendo is set to bring nine first party titles to China in the first year. We note that top sellers such as Splatoon 2 and Pokemon Sword and Shield are missing from the list and Chinese gamers have expressed frustration at this.
Third party developers such as Konami, Bandai Namco, SEGA, Square Enix and Ubisoft plan to bring titles to China. Ubisoft is especially notable, aiming to publish 4 titles for the console, including Rabbids: Adventure Party which is developed with Chinese gamers in mind and is set to be a China exclusive title. Tencent has confirmed that it will support the Nintendo Switch with games through its Next Studio and other Chinese games, including hit indie titles such as ICEY and Chinese Parents are also set to launch on Switch. In total, Tencent estimates that it will receive approval to launch between 10 to 20 titles for the console over the next year.
Nintendo is set to be the console market leader in China by 2022
Our current market model, published in July 2019, noted that we expected the Nintendo Switch to launch in China this year and sell 100,000 units before the end of the year. We maintain this forecast for 2019 and believe that the Nintendo Switch will replace PlayStation 4 as the market leader in China by 2022 when accounting for both legal and grey market sales. The launch of the Switch next week will mark Nintendo’s re-entry into China. Nintendo previously tried to enter the China market through a joint venture with iQue in 2003, which was ultimately unsuccessful.
We believe that Nintendo is better positioned to reach a broader audience than Sony and Microsoft have been able to in China. Nintendo’s first party IP such as Mario and Pokemon are well known in China and we believe that gamers in the country recognise Nintendo as a high-quality software developer. The Nintendo Switch is the only place that gamers can play these high-quality titles. The family friendly nature of Nintendo’s first party titles will lead to both faster approval times and a higher quantity of approvals in China when compared to Sony and Microsoft first party titles, many of which have been unable to obtain approval as they contain excessive violence or other content that is restricted in China. Third party Nintendo Switch games should also have an easier time being approved due to similar reasons.
The hybrid nature of the Nintendo Switch is a key selling point of the console and we believe the ability to play games at home and on the go will appeal to Chinese gamers who like to play mobile games both at home and in social environments. High quality localised software, online and local multiplayer on the go, the ability to play both official Chinese games and over 500 packaged import games as well as support from Tencent are also key reasons why we expect the Switch to do well. Tencent has confirmed that it is working to bring the cheaper and portable Switch Lite to China next year, which will appeal to a more price conscious and diverse audience. It can also increase the number of Switch owners per household.
Tencent’s partnership with Nintendo will grow the console market, but consoles will still remain niche
Tencent is a strong partner for Nintendo in China due to its experience in games software and services development, publishing and distribution across China. Tencent has increased the appeal of the Nintendo Switch in China by including a one-year warranty with the console, Tencent servers to power online play, WeChat pay support and high-quality localised titles. Tencent is also locking the official Chinese game releases to official Chinese consoles. Whilst the grey market version does not support these features, we note that people will continue to import grey market consoles, albeit at a lower rate, in order to access the global eShop and global servers to play games online that have not yet received an official Chinese release.
We believe that Tencent can continue to increase the appeal of Switch in China through the introduction of the cheaper Switch Lite, cloud gaming services, free to play titles and self-developed Tencent titles. Tencent’s self-developed titles were curiously missing from the launch event, despite the fact that the company had already launched Arena of Valor (Known as Honor of Kings in China) for Switch in North America and Europe in 2018. A selection of top free to play titles from Tencent, such as Honor of Kings or Call of Duty Mobile, could greatly enhance the value of the Switch console in China.
We expect Nintendo to see the full benefit of the official China launch in its next fiscal year, after a full year of hardware sales and the introduction of multiple Switch games. We note that Nintendo has already seen an impact from the China market over the past couple of years due to grey market imports, so do not expect this official launch in China to provide a significant boost like many expect.
China is primarily a PC and Mobile games market, with console software and services set to account for only 1.3% of total games revenue in China this year. Whilst the console ban was overturned in 2014 and new consoles from Sony and Microsoft were launched in the region, a number of barriers such as prohibitive hardware and software pricing have held back the console industry from expanding beyond a niche in China. We expect Nintendo to become the market leader, and even project game software and services revenue to grow by 34% in 2020, but ultimately note that the overall position of the console market in China will not change.
For more on console gaming in China, see our China Console Gaming Report.