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In certain key regions of the world, consoles are king for traditional game releases. Consumers in the United States spend more on console games than PC, for example. But that dynamic is not universally true. In China, consoles have only just started to find their footing after the government ended its ban on such devices in 2014. Now, console gaming is quickly approaching $1 billion in annual revenue, according to a new report from intelligence firm Niko Partners. And console revenues may reach $1.5 billion by 2023.

Nintendo, Microsoft, and Sony have all launched devices in China over the last several years. The Xbox One debuted in the country in 2014. Sony launched the PlayStation 4 later that same year. Now, after testing out other hardware, Nintendo is partnering with publishing giant Tencent to release the Switch, according to a Reuters report. And with Sony and Microsoft planning to launch next-generation followups for their Xbox and PlayStation boxes, those companies are likely factoring China into their plans in a major way.

And those new systems are where most of the growth is going to come from, according to Niko. The industry generated $767.1 million in revenue in 2018. Niko estimates that business will grow to $851.1 million by the end of this year. That’s an 11% increase. China obviously has a growing interest in consoles. But a PlayStation 5 and a Next Xbox (they don’t have official names yet) should supercharge that.

So Niko expects the industry to double its 2018 total by 2018 with more than $1.5 billion in sales. Of that $1.5 billion, approximately 25% will come from hardware and then the rest will come from software sales.

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Gray market

China has a massive, thriving gray market. This is where crafty business finds ways to bring products into the country outside of the official channels. Products are often cheaper and more readily available on the gray market because they avoid tariffs and sellers more directly benefit from the transactions. Traditionally, the Chinese gray market is also less likely to have counterfeit products.

Those market forces have ensured that most people still turn to the gray market to make their console purchases. In 2018, Niko estimates that the gray market sold 730,000 consoles while legal retailers sold 450,000. That gap is shrinking. And by the end of this year, Niko expects the gray market to account for 670,000 console sales while legal retailers will sell 510,000.

 

Niko’s analysts claim that the gray market will slowly fade relative to legal consoles. And by 2023, legal devices will make up a majority of hardware purchases.

If you’re looking for more on China, Niko is selling its full report now. It includes a sales forecast for each device, outlook on Chinese regulation, and more. You can get it from the company’s website.

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