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Microsoft Xbox One To Be Made And Sold In China

NEW YORK (TheStreet) -- Microsoft (MSFT - Get Report) has won a huge battle in the video game console marketing wars, as China Telecom (CHA - Get Report) announced it has completed an exclusive carrier deal to begin selling new Xbox One devices in September.

Microsoft stock was gaining 0.09% to $44.44 in early afternoon trading in New York.

According to China's Xinhua news the deal involves Microsoft investing $80 million to begin manufacturing the devices in that country China Telecom plans to sell the console in its retail stores starting in the fall. The devices will be manufactured in Shanghai's free trade zone by Internet TV set-top box maker BesTV. The company's CEO, Tao Mingcheng said the new Xbox will target family users in the "mid- to high-end market" and will be a "popular, mainstream product."

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Microsoft proudly boasted about the deal with BesTV in April, calling it "monumental" on its Xbox blog.

Lewis Ward, IDC's Research Director of Gaming says Microsoft now appears to be better positioned to take advantage of this big, new opportunity. Reached by phone, Ward said Microsoft understands the Chinese market because of its a long history - since the 1990's - of dealing with its popular Windows operating system there. He thinks the Xbox One has the potential of a providing Microsoft with a big "leg-up" on its Japanese competition. 

The Xbox One will be the first game console to be released in mainland China since the government banned sales of the devices in 2000. At the time, the Ministry of Culture cited the effect video gaming was having on the mental health of the country's young users following what it said were numerous complaints from parents. Officials instituted measures to control both game content and playing times.

Michael Pachter of Wedbush Securities believes the Xbox One's primary target could target a different audience in China. In a phone interview, Pachter said, "Look at Microsoft's new partner. A set-top box company." He believes the Xbox One will be marketed there as primarily a TV, not a gaming device and could be a success with China's growing upper-middle class.

In the 14 years since instituting the ban the People's Republic of China's home-grown PC gaming industry has developed into the world's largest - estimated to be worth $6-billion. The ban didn't work. A very successful black market has evolved in those years to provide buyers with outlawed video games and consoles. The government's official ban, which involved all Microsoft, Sony (SNE) and Nintendo (NTDOY) devices, was officially lifted at the beginning of this year.

Since its release in November 2013, sales of Xbox One have trailed Sony's PS4, despite both being released nearly at the same time. As of the latest estimates, Sony has sold more than 9 million units of the PlayStation 4, while Microsoft has sold more than 5 million Xbox One consoles worldwide.

Microsoft is trying to turn the tables. Last month, the company announced it was unbundling its console from the Kinect motion sensor unit to knock $100 off the price and sell the Xbox One for $399 - the same price as Sony's PS4.

No exact release date or pricing for the Chinese version of the Xbox was disclosed.

In his open letter announcing today's deal, Yusuf Mehdi, Microsoft's Corporate Vice President for Xbox proudly gloats over the fact that his will be the first system of its kind to launch in China and promises Microsoft will be "working hard over the coming months, along with our partners, to ensure we delight a new set of Xbox fans in China in September."

-- Written by Gary Krakow in New York.

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Gary Krakow is TheStreet's Senior Technology Correspondent.

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