China’s Culture Watchdog Writing Game Console Rules as Ban Lifts

China’s Culture Watchdog Writing Game Console Rules as Ban Lifts

China’s Ministry of Culture, one of the government bodies that monitors media content, will be responsible for drafting new rules on video-game consoles after a 14-year-old ban was lifted.The rules will be written as soon as possible, Cai Wu, the head of the ministry, said at a press conference in Beijing today without providing a specific time frame.

Game consoles were originally banned in 2000 to protect youths from a perceived corrupting influence, a move that was temporarily lifted this week in the new Shanghai free-trade zone as China decides how hardware and software may be approved for sale by regulators. The move potentially gives Nintendo Co. (7974), Microsoft Corp. (MSFT) and Sony Corp. (6758) access to a $10 billion market that’s now dominated by mobile, online and computer games.

“Things that are hostile to China, or not in conformity with the outlook of China’s government, won’t be allowed” under the rules of the free-trade zone, Cai said. “We want to open the window a crack to get some fresh air, but we still need a screen to block the flies and mosquitoes.”

Cai, 64, has served as the nation’s minister of culture since March 2008. Last April, Cai said China’s government shouldn’t “go beyond its duties to intervene in the commercial cultural market,” saying interference should be reduced when it comes to the development of various art forms, the official Xinhua News Agency reported at the time.

Nintendo, Microsoft

Computer games in China have proliferated beyond consoles to smartphones and the Internet, so people who want to play games already can. China had announced last year that the ban would be lifted within the Shanghai zone, which opened in September.

Yasuhiro Minagawa, a spokesman for Kyoto, Japan-based Nintendo, said this week the company is studying what it can do in the zone. Sony also said it will look at opportunities in China.

Microsoft and BesTV New Media Co., a subsidiary of Shanghai Media Group, in September said they formed a $79 million gaming venture to take advantage of the new rules.

China is the world’s third-largest market for video games and will generate revenue of about $10 billion in 2015, according to data from PwC on the consultant’s website. The nation may overtake Japan to become the second-largest behind the U.S. by 2017, it said.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

Console Prize Comes to China

AARON BACK

Updated Jan. 8, 2014 5:57 a.m. ET

The console wars could finally be coming to China. That doesn’t mean investors can start running up the score.

The Chinese government said Tuesday it will allow videogame consoles to be sold for the first time in 14 years by companies in the new Shanghai “free trade zone.” Nintendo7974.TO +10.76% shares rose 11% on Wednesday in reaction.

But like so much in the mysterious Shanghai zone, details are fuzzy. It’s unclear if consoles will have to be physically manufactured in the zone, or if it would be sufficient for the game companies to merely register a business unit there. Sony6758.TO +1.39% already contracts with manufacturers such as Hon Hai Precision Industry 2317.TW +0.63% to make game consoles in China for export, but there are no production facilities in the Shanghai zone.

Clearly something is afoot. Xbox makerMicrosoft MSFT -1.26% has announced a joint venture with a Shanghai media company in the zone, but won’t say what it’s for, except that it will deliver “family entertainment experiences.” Sony and Nintendo are staying mum on their plans.

Even if the floodgates open fully, challenges abound. China banned consoles to protect the country’s youth from depraved cultural influences. In their place developed a deep culture of online gaming on personal computers, closely monitored by government ministries. Most online games in China are free to play, but charge users for add-ons such as more powerful weapons. It’s a totally different gaming experience and business model to which outsiders such as Nintendo will have to adapt. Persuading China’s gamers to fork over $300 for a Wii-U will be a tough sell.

There’s a substantial black market for consoles brought in from places like Hong Kong, suggesting latent demand does exist. But widespread piracy will make it a challenge to earn money on game sales, a profit center. Another hitch: China’s slow Internet speeds mean the user experience built into the latest devices, such as integrating streaming online video, can’t be fully utilized.

China is a massive market that holds great potential for videogame companies. For investors who bid up Nintendo’s shares, they should realize it’s hardly plug-and-play.