Accepting your 'Call of Duty,' against a kid in Beijing

Chris Morris, Special to
A boy plays with Sony's Playstation 2 at an animation fair in Shanghai, China.
Lui Jin | AFP | Getty Images

North American players started forgetting about the PlayStation 2 somewhere around the end of 2007. The PS3 had been out for a year by that point and Sony—and independent third-party game publishers—were focusing all of their marketing efforts on the new platform.

But in developing and emerging markets, the PS2 was all the rage. In fact, that rage only recently died down: with production costs on the console having become negligible, Sony kept selling the system through January of this year, when it finally halted production.

Now another console cycle is about to begin. But the game is shaping up to be different this time around. The lag between a system launch in the U.S. and developing markets is expected to be significantly shorter this generation.

That's due, in part, to changes in how games are being sold. The next-generation machines deeply integrate digital distribution into their DNA, meaning if owners of those systems want a game, they don't have to purchase a physical copy—and that removes one of the key pain points that has kept gamers around the world from playing together.

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"If you live in a disc-based world, the only way to get superior games is to own a disc playing machine, like a PS3 or Xbox 360," said John Taylor, managing director of Arcadia Investment Management. "If you live in a world where they're based in the cloud, it's a lot easier to get them to other markets."

Latin America and South America can represent 10 percent of the U.S. volume now—which puts it in the same league as what we used to assume Canada was.
John Taylor
managing director of Arcadia Investment Corp.

The global multiplayer virtual universe is coming of age in fits and starts, though. The Middle East and Africa have limited fixed broadband penetration which reduces the value proposition from features like multiplayer gaming, downloadable content and services like over-the-top video, according to a report from ABI Research.

In addition, other large markets like China have regulatory issues that prevent Microsoft, Nintendo and Sony from conducting normal operations in the country.

There's been the tax man's cut to contend with, too. "Some regions such as Latin America continue to see growth opportunity, but high prices, due to taxes and tariffs, still put a damper on expectations," wrote ABI Research senior analyst Michael Inouye in a report that took the industry to task for failing to overcome these challenges.

Historically, significant import duties forced game system manufacturers to virtually double their typical retail price. Publishers including Activision and EA were also forced to sell their titles at a premium—sometimes two or three times higher than the amount U.S. customers paid.

The industry seemingly took that criticism to heart. This past May, Sony announced the opening of a manufacturing facility in Brazil.

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"Sony Computer Entertainment continues to invest in the Brazil game market as part of our long-term commitment to the country and its gamers," said Andrew House, president and group CEO of Sony Computer Entertainment, at an event celebrating the opening in Sao Paulo. "Locally manufacturing PlayStation 3 in Brazil will benefit gamers, retailers and developers. The local manufacture of PlayStation 3 is expected to infuse the Brazilian economy with approximately $300 million over the next 12 months."

(Microsoft began manufacturing the Xbox 360 at a Brazilian plant in 2011.)

Taylor said both moves make sense, given how fast the Latin America market is growing for game companies.

"Latin America and South America can represent 10 percent of the U.S. volume now—which puts it in the same league as what we used to assume Canada was [contributing]," he said. "There's demonstrable strength in that market."

Gaming is a good way to play Asia: Pro
Gaming is a good way to play Asia: Pro

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China, meanwhile, has announced plans to end its 13-year ban on the sale of video game consoles, as it establishes a new free trade zone in Shanghai. (Products will still have to be approved by the Ministry of Culture, though, which could keep some controversial titles out.)

China enacted the ban on game systems in 2000, citing concerns about potential harm to the physical and mental development of children, but PC gaming is still a tremendous industry in the country, which has given rise to local game giants such as Tencent.

U.S. game publishers, meanwhile, are now embracing free-to-play PC games in China, given that model's popularity among players. Last July, Activision partnered with Tencent to launch the free-to-play "Call of Duty Online" in the country. The game is being financed through microtransactions—small in-game purchases from players—rather than a monthly subscription fee.

In announcing the game, Activision CEO Bobby Kotick called China "one of the most exciting places in the world for us to grow our business and to develop innovative new games."

Additionally, while the console gaming world tends to focus on Microsoft, Sony and Nintendo, there have been a number of microconsoles to hit the market this year, with more coming.

Ouya, Zeebo and GameStick offer low-cost hardware (typically under $100 in the U.S.—versus $400 and $500 for next-gen systems) and low-cost games, which are only available digitally (allowing the titles to bypass import tariffs).

Those systems are quickly branching beyond North America and are expected to enter more emerging markets in the coming year. Like the PS4 and Xbox One, their distribution model could further open up the industry in areas where players have previously been unable to keep up with the latest titles.

"As we focus to the shift to the PlayStation 4 and Xbox One generation, I think these markets will be more open," said Taylor. "Before, there was a real economic block. Now that's not the case because of broadband penetration."

By Chris Morris, Special to