Why Chinese Preorders are not impressive for Xbox One

[freedquaker]

As an economist, I will have some simple assumptions to guide you through the math, and compare the Japanese figures with Chinese expectations

Assumption 1 :  Total Demand for a video game console is a function of GDP per capita (nominal as the product is sold at near or over worldwide price with the given exchange rate).

Assumption 2 : Total and especially initial Demand for a video game console is a function of the wealthier early adopters, which is particularly the case in developing countries where the median income is too low to afford a console, or its games unless they are pirated.

Assumption 3 : The gini coefficient applied on relatively homogenous increments is a good proxy to determine the percentiles of income distribution in the population.

Assumption 4 : The Japanese demand and the Chinese demand are comparable.

 

Now here are the FACTS

Fact 1 : gdp per capita china / japan = 0.1769
* Average Chinese GDP/cap is 17.69% of the Japanese one
* source : http://www.wolframalpha.com/input/?i=gdp+per+capita+china+%2F+japan

Fact 2 : population china / japan = 10.8
* Average Chinese population is 10.8 the size of Japan
* source : http://www.wolframalpha.com/input/?i=population+china+%2F+japan

Fact 3 : gini coefficients for china & japan are 0.421, and 0.249
* The income distribution in China is way more skewed (unequal) in China compared to Japan
* source : http://www.wolframalpha.com/input/?i=gini+china%2C+japan


Now the findings

Finding 1 :

The 90th percentile's income in China is 23.1% of the one in Japan
* So you can expect an average of 23.1% of demand PER PERSON.

However, because China has 10.8 times the population, there will be 10.8 times as many of that.

The expected total demand (relative to Japan) = 0.231 x 10.8 = 2.5 (roughly)


Finding 2 :

The 95th percentile's income in China is 24.7% of the one in Japan
* So you can expect an average of 24.7% of demand PER PERSON.

However, because China has 10.8 times the population, there will be 10.8 times as many of that.

The expected total demand (relative to Japan) = 0.247 x 10.8 = 2.7 (roughly)


In either case, the expected demand for China is 2.5-3 times the Japanese Demand, keeping everything else constant

Japanese Launch = 24 K (approx).
Chinese Expected Demand = 24 x (2.5 to 3) = 60 to 70 (approx)

However, one should remember that the PS4 had launched in Japan before XB1 while it has not yet launched in China, making the XB1 the only one available of the two there.

Also one should note that 24 K is a miserable number in Japan, just like 70 K is a miserable number in China! So a demand like 100-110 K, even though no slouch, is nothing to rejoice about, especially in the absence of any competition. It will just not have long legs, without piracy. $60-$100 games will never fly in China, except for a tiny minority.