In a little over 12 months, Tencent - Nintendo's joint venture partner for the Switch console business in China - has achieved one million shipments of the Chinese version of the console following its launch in December 2019. The information was disclosed by Weide Hu, Director of Sales and Marketing of Tencent Games N-Business Department on January 9th, 2021. 

While this achievement may seem relatively small on the international stage, where Switch sells millions of units every quarter in markets like the USA and Japan, it took Sony and its joint venture partner Shanghai Oriental Pearl four years to achieve sell-through of one million Chinese PS4s. The speed of adoption reflects the popularity of Nintendo content IP and products in China, and the appeal of Switch's hybrid form factor which aligns more strongly to the mobile-first gaming audience and the marketing strength of its partner Tencent. 

The console business has had a turbulent recent history in mainland China. Prior to 2015, official sales of consoles were banned for a 15 year stint, due to official concerns about the psychological and physical "harm" of gaming to minors. The ban was lifted in 2015 with the establishment of the Shanghai Free Trade Zone, followed by the arrival of Microsoft's Xbox One and Sony's PlayStation 4.

Although official sales were banned for many years, Chinese gamers actually had relatively easy access to imported consoles and software from other regions on the grey market most actively through Hong Kong. The lifting of the ban means that gamers can legally obtain consoles and software with after-sales support from more distribution channels.

Even so, console culture in China remains comparatively small scale, with gamers who once used PCs as their platform of choice now shifting to mobile gaming, illustrating, amongst other factors, the long-lasting impact the console ban has had on undermining the market's potential for console manufacturers.

Tencent is creating a differentiated console product strategy

Unlike the strategies of Microsoft and Sony for the Xbox One and PS4 consoles, Nintendo chose to partner with Tencent, undisputedly the largest gaming company in China. The partnership is an exploration of a mutually beneficial model for both parties: Nintendo is able to utilise Tencent's advantages in localised distribution channels and its operation team, and Tencent, which specialises in mobile games, is able to gain experience in consoles and hardware.

Tencent entered the market with a price advantage. Switch's launch price was 2099 RMB ($320, Jan 2020), 10-15% cheaper than those in the grey market at that time, which became a reason for customers to pick up the official Chinese version. Tencent's marketing strategy in China is more focused on family users than on core game players. Marketing campaigns were heavily targeted on promoting fitness title Ring Fit Adventure. Such a differentiated strategy helped to open up a larger market in China and helped create a sales peak after the release of Ring Fit Adventure in September 2020.

Additionally, Tencent is establishing a big distribution network which not only includes an official online store and major ecommerce sites, such as Tmall and JD.com, but also includes 904 physical authorised stores in China's 31 provinces and 136 cities, according to data provided by Tencent. Tencent also went the extra mile by integrating Switch into its ecosystem. A mini-app for Ring Fit Adventure was released on Wechat where players can check their workout history and compare between Wechat friends. WeChat Pay is tapped into the eshop to facilitate Chinese users' spending habits. Tencent Video App on Switch is offering alternative video service to YouTube.

Table: Switch games that have been approved for sale in China (as of Jan 2021)

Switch suffers from a lack of official Chinese games

The lack of official content remains the primary problem for the Switch (and other consoles) in China, resulting in a market where the official consoles never become the first choice for players. The Chinese Switch does not have a region lock for imported physical games, but the fact that DLC and multiplayer gaming are disabled means that players are less interested. It could be argued that the Switch is less impacted as in-game monetisation, DLC and online play are less core to quite a few of Nintendo's biggest games.

Official games on the Chinese Switch have to comply with a strict approval process like those on all the other platforms in China. The Chinese Switch had only one game, New Super Mario Bros. U, for the first three months after its launch, which caused consumer dissatisfaction, and Tencent had to appease consumers with a six-month warranty extension. The shortage of game content was not alleviated until Super Mario Odyssey and Mario Kart 8 Deluxe were approved in March 2020, and Tencent quickly put them on sale within days.

Hu said in the interview that Tencent will support local developers to release more content on the Switch console and introduce more games in 2021. However, the actual approval progress is not within Tencent's control. As of January 2021, a total of 17 Switch games have been approved, six from Nintendo, one from EA, and the rest from indie game studios. However, only 14 games are currently available, which is obviously not enough to provide a satisfying user experience. Tencent needs to make efforts to develop a differentiated strategy and use existing resources to boost the sales performance of the console, and one million shipments represents a milestone in this respect.