Asia's console game market 'very challenging'

The Asia market is "very challenging" for console makers such as Sony, Microsoft and Nintendo as they would have to overcome software piracy, lower buying power of users in the region, and increasing competition from online and mobile games, say industry watchers.

According to Allison Luong, managing director of Pearl Research, console makers face a number of obstacles in growing their businesses, such as high prices of the consoles, pirated games, competition from lower-priced earlier-generation console models, and import tariff duties.

Elaborating, Luong said legitimate retailers have little incentive to import the devices from official channels as they would have to pay duties for them. On the other hand, gray market channels provide an alternative for them to stock up on these consoles without having to foot the tax bills, she noted.

The relatively high prices of the hardware is a high entry barrier for consumers too, which then impacts their decision on whether to buy official or pirated versions of games software, she added. "Even if consumers purchase hardware, they often will purchase pirated software."

Using India as an example, she noted legitimate Microsoft Xbox games cost up to INR 2,500 (US$45) while pirated games cost a fraction of the price at INR 100 (US$1.80) or less.

Game publishers will then see dropping market profits and choose to invest less in the market by cutting down sales and marketing efforts, Luong said.

This negative cycle of events have played a part in declining console sales. Michael Inouye, senior analyst at ABI Research, noted game console shipments in Asia between 2007 and 2010 were between 7.7 million to 8.4 million units. This dropped to an estimated 5.9 million units in 2011, mainly due to the slowing sales of Nintendo's Wii device, he added.

The research firm tracks game console performances from Microsoft, Nintendo and Sony, Inouye said.

He added Japan and Australia are the most significant Asian markets for game consoles, whereas China does not retail devices from foreign game console makers due to regulatory issues.

Address online, mobile games competition
The console games market in the region is also facing increasing competition from mobile and online games, the ABI Research analyst said.

Luong added online games are often free-to-play and have a low barrier of entry for consumers. "The console market will always exist as there are console fans across Asia. But the high prices and high barrier to entry for consumers makes it a smaller market than the online games market," she explained.

As such, hardware makers will need to work toward addressing these markets in order to stay relevant and competitive, advised Inouye. Microsoft and Sony have already embarked on this with their Microsoft SmartGlass and Sony PlayStation Mobile initiatives, he added.

Announced in early June, Microsoft SmartGlass is an application for Windows 8, Windows Phone and other portable devices which connects phones, PCs and tablets to the Xbox 360 console. Sony's PlayStation Mobile, on the other hand, is a software framework allowing PlayStation content to run on compatible portable devices such as mobile phones and tablets.

Another long-term strategy for these console makers would be to offer free-to-play games. This will likely be a strong distribution model in developing Asia-Pacific markets, and is something Microsoft and Sony are starting to bring to market, the ABI Research analyst said.

Luong suggested console makers should also focus on bringing high-quality content to Asia's game market and develop online services to enable gameplay among friends. "Asian societies tend to be based on social bonds and any gameplay that reinforces these social bonds will have a higher chance of success," she pointed out.

When approached, a spokesperson from Sony Computer Entertainment Hong Kong said the PlayStation Vita is part of its portable strategy. The mobile console was launched in Hong Kong, Singapore, Malaysia, and Indonesia in December 2011, and it will be available in Thailand this week.

Microsoft and Nintendo did not reply to ZDNet Asia's queries.

Despite increasing competition, Jonathan Toyad, associate editor at Gamespot, believes the console market is sustainable as long as game publishers diversify their products and not flood the industry with "too many clones aspiring to be larger and sustainable franchises".

"Triple A console titles can still co-exist together with mobile titles, such as Tilt To Live and Pocket Planes, and indie-developed games, such as Braid, Bastion and Journey. Think of the latter two as complements or even point-of-entry games for the bigger and polished [console games] fare," Toyad added.