Microsoft Forms China Game Venture to Capitalize on Trade Zone

Microsoft Corp. (MSFT) is forming a video-game venture with a Chinese company to capitalize on proposed free-trade rules that would end a 13-year ban on foreign companies selling consoles in the world’s largest nation.

Microsoft and BesTV New Media Co. (600637), a subsidiary of Shanghai Media Group, formed a $79 million gaming venture, the Chinese company announced in a statement to Shanghai’s stock exchange on Sept. 23. BesTV will invest $40.29 million for a 51 percent stake, while Microsoft will invest $38.71 million for the rest, according to the filing. BesTV surged by the 10 percent limit to 51.11 yuan in Shanghai trading yesterday.

Consoles such as Microsoft’s Xbox 360, Nintendo Co.’s Wii U and Sony Corp. (6758)’s PlayStation were banned by China in 2000 to protect youths from the perceived corrupting influence of video games. They turned to online games including Tencent Holdings Ltd. (700)’s “League of Legends,” and game consoles are on a list of items to be liberalized when Shanghai’s free-trade zone opens, according to a draft plan seen by Bloomberg News. The zone will open on Sept. 29, China’s official Xinhua News Agency said on its microblog yesterday, citing the local government.

Photographer: Nelson Ching/Bloomberg

Microsoft Corp.'s China headquarters stands in Beijing. Close

Microsoft Corp.'s China headquarters stands in Beijing.

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Photographer: Nelson Ching/Bloomberg

Microsoft Corp.'s China headquarters stands in Beijing.

“We believe there is great market potential and partnership opportunities here,” Joanna Li, a Beijing-based spokeswoman for Microsoft, said in an e-mail yesterday. “This is the first step of many to come for Microsoft and BesTV and we look forward to exploring new opportunities for bringing entertainment offerings to China.”

Xbox One

The investment by both parties will reach $237 million, the filing said. The venture will design and develop games and gaming-related products, sell self-produced and third-party games and entertainment-related software, and provide technical assistance services for video gaming machines.

Li declined to provide details on the venture’s products. Microsoft is releasing the new Xbox One console later this year in the U.S. and Europe.

Foreign-funded companies will be allowed to make and sell game and amusement devices inside the Shanghai free-trade zone after passing a content inspection, the document seen by Bloomberg states. With the U.S. industry mired in a two-year slump, console makers may be looking to China’s $10 billion market for a boost.

Sony has no plans with regard to the Shanghai free trade zone, according to Yo Kikuchi, a Tokyo-based spokeswoman. Yasuhiro Minagawa, a spokesman at Kyoto-based Nintendo (7974), declined to comment on whether the company had any plans related to the zone.

Photographer: Nelson Ching/Bloomberg

Employees work inside Microsoft Corp.'s China headquarters in Beijing. Close

Employees work inside Microsoft Corp.'s China headquarters in Beijing.

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Photographer: Nelson Ching/Bloomberg

Employees work inside Microsoft Corp.'s China headquarters in Beijing.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net; Alfred Cang in Shanghai at acang@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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