Oriental Pearl’s radio and TV tower in Shanghai. The firm is blasting off via a joint venture with Sony to market PS4s in China.

MAY 27, 2014 • Sony Computer Ent. has set up two joint ventures with state-owned Shanghai Oriental Pearl Co. Ltd. to release the PlayStation 4 to China. One of the joint ventures will be responsible for console hardware manufacturing and sales; while the other is concerned with software development, distribution, marketing, and network services. The agreement runs for 10 years and will be operated out of the Shanghai Free Trade Zone (FTZ). The main joint venture with total registered capital of 10 million yuan ($1.6 million) will be 51% owned by Oriental Pearl and named Shanghai Oriental Pearl Solatube Culture Development Co., Ltd. SCE will hold a 70% share of the second joint venture named Sony Computer Entertainment (Shanghai) Co., Ltd. with total registered capital of 43.8 million yuan ($7 million). Oriental Pearl – which has major investment, hotel, media and tourism divisions – made the disclosure in a statement filed with the Shanghai Stock Exchange. The company also promised in the statement that the joint ventures will adhere to relevant state policies to introduce quality and healthy video games that respect China’s national conditions as well as the tastes of Chinese gamers. Sony will also co-operate with domestic game development teams to promote original products on the PlayStation platform as a means of further improving the Chinese gaming industry. No target launch date for the PS4 in the Chinese market was disclosed.

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Impact: Oriental Pearl is an interesting partner choice. A state-run firm should have a positive impact on navigating Chinese government regulations on content, and likely will have some weight to throw around in commercial negotiations. Yet Oriental Pearl is not a video game company. It does distribute television content to smartphones – network experience that should complement digital distribution to consoles – yet there are no obvious synergies in game hardware manufacturing or game software development and distribution. Interestingly enough Oriental Pearl has the same ultimate corporate parent as Microsoft Corp.’s FTZ partner BesTV, which is already well established in making and selling consumer electronics. Oriental Pearl is a subsidiary of Shanghai Media & Entertainment Group, while BesTV is a division of Shanghai Media Group, itself a subsidiary of Shanghai Media & Entertainment. The overall company is huge and definitely has the resources to make initiatives such as the Sony joint venture successful. For the moment, Oriental Pearl’s securities statement is not specific about which partner is helming the hardware or software joint ventures. Different reports out of China provide conflicting accounts on who is responsible for what. It does appear that Sony will be shouldering the majority of responsibility where video game industry competency is concerned. SCE is definitely shouldering the lion’s share of the registered capital contribution for these joint ventures: $5.7 million out of $8.6 million total. A key point is that Sony is expected to drive Chinese console development. Then again, Oriental Pearl may simply contract with Foxxconn Technology Group, which already produces PS4s for Sony. As we postulated on news of the Xbox One’s entry into China, much depends on how extensively local market content is ramped up, how much of it is deliverable via digital distribution, and how expensive the PS4 experience will be. For the well-to-do, we have to expect that those who desired a PS4 or Xbox One have already acquired one in Hong Kong or Taiwan. Price will be a major consideration for the mainstream Chinese consumers these joint ventures are aimed at.  Right now DFC Intelligence is expecting the impact of console launches in China to be minimal.