I have to credit telecoms equipment maker ZTE (00763.HK) for chasing an interesting new idea, following reports that it’s preparing to launch a gaming console later this month. Such a plan plays to ZTE’s telecoms strength, since such consoles are almost inevitably connected to the internet these days and are rapidly merging with a similar group of internet TV set-top boxes. But that said, I have some serious doubts about the chances of success for this new foray, due to the company’s late arrival to the space, and also because I question its choice of venture partner, faded online game operator The9 (NCTY.US).
According to the reports, ZTE and The9 will launch their device, called Fun Box, later this month through a joint venture called ZTE9. The reports are filled with specifics about the device’s hardware and also its capabilities, indicating the information is probably being carefully leaked to create some buzz before the launch. Apart from its core gaming capabilities, the device will also be able to stream video from the internet and from files on USB drives.
Word of the launch comes after China lifted a decade-long ban on gaming consoles last year. That move has prompted Sony to plan a launch for its popular PlayStation consoles in China, and many believe that Microsoft (MSFT.US) will make a similar move for its Xbox. Many others are also piling in, including leading TV maker TCL (01070.HK), which is preparing to launch its own gaming console and also specialized gaming TVs.
Such consoles are quickly becoming obsolete as improvements on the internet make online gaming equally or more attractive. Nearly all consoles now also include an online connection anyhow, blurring the lines between them and traditional computers that people use to play online games. Further blurring the lines is a new generation of set-top boxes for internet TVs, devices that allow people to play games and also stream video over their TVs. TCL announced a separate internet TV tie-up with leading search company Baidu (BIDU.US) last year, and others getting into the game include leading e-commerce firm Alibaba and smartphone sensation Xiaomi.
With so much competition already, it’s a bit hard to see how ZTE will be able to differentiate its new Fun Box from the rest of the crowd. The company does have an advantage of strong experience in telecoms, meaning its product may have better internet connectivity than some of its rivals. A well-designed product could have a distinct advantage over its rivals, since demand should be strong and there is no clear market leader. ZTE is also desperately looking for new product lines to offset the slowdown over the last two years in its core older business of building networks for big telcos.
But, I really don’t hold out too much hope for ZTE to succeed here. One of its biggest handicaps is its choice of partner. The9 was once a fast-rising star in China’s online gaming sector, largely based on its Word of Warcraft franchise that it licensed from US game designer Activision Blizzard (ATVU.US). But The9 lost that license to rival NetEase (NTES.US) back in 2009, kicking of an extended period of stagnation for the company’s business and its New York-traded shares.
The9 has made some strategic moves since then to try to reignite its growth, but they have not met with much success. All of that brings me back to my point that this new initiative, while admirable, doesn’t appear to have much chance of success. Apart from its telecoms experience, ZTE lacks the proper sales channels to promote this kind of product. It also has relatively little marketing experience in this area. The9 can’t really help in either of those areas, and a lackluster record in its own core gaming business isn’t too inspiring either.
Bottom line: A new gaming console from ZTE and The9 is likely to fizzle due to stiff competition and lack of experience by this pair of second-tier players.