What is happening in the video game industry in Russia in 2022-2023?

The gaming industry around the world has been showing good growth for the last few years, except this and past year. Along with it there is a development of related industries and technologies — not only computing power, monitors, VR helmets and graphics engines (technological joys that gave us the video game industry), but also, for example, artificial intelligence, which not only controls the characters in the game, but also helps to create illustrations, setting, objects, etc. accelerating the development process. In a number of countries, the market growth is supported by national governments and around governmental structures (e.g. in the Korea, UK and Poland).

The Russian segment faced a number of difficulties this year, due to which some companies left the market completely or partially, and many gaming divisions of foreign companies closed down. System-forming corporations like VK (ex Mail.ru Group) sold their game development division to Leta Capital, Sber just closed its gaming unit (Sber Games) less than a year after its creation.

In February 2022, we published the Live Report on the State of the Video Game Industry in Russia (only in Russian, so that all remaining developers in Russia would be on the same page), and it was recently updated with data from February through September. Based on this report, I highlighted the most interesting and important points that concern both the industry in the country and in the world. The report was called “live”, so it can be clarified and supplemented. And early next year there will be an update for the period from September this year.

Video game market in general, globally and in Russia

Computer games have long ceased to be a way to “kill the time”. Now it is the most capital-intensive multi-genre mass interactive entertainment available on almost any electronic device. Someone likes to wander around post-apocalyptic cities — from Fallout to ATOM RPG, fight in the arena Dota2 or LoL, for someone closer shooters like CS:GO or CoD, for someone in Tekken or FIFA (now EA Sports FC) rolls. Maybe someone enjoys solving quests, complex plot with many branches — like in Detroit Become Human, someone just likes to mindlessly poke at balls and so relaxes, like my lovely wife, for example.

The gaming market is constantly growing in every sense, both financially and culturally. At the beginning of the pandemic, the global market grew by 23.1% year-on-year. Last year, its volume reached 180 billion dollars, a 1.4% growth rate. And in a couple of years, in 2024, someone predicted that it could reach a volume of 218.7 billion. This year, however, analysts expect the video game market to decline.

The market has changed in recent years also due to online sales: digital sales accounted for 93.4% of all revenue in 2021. Only consoles retained a 22.7% share of physical copies.

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Mobile games aren’t lagging behind with over a billion downloads on smartphones in 2021, 25% increase from 2019. People spent more than $1.7 billion on games on the App Store and Google Play last year. Android users spent 35% more time playing mobile games compared to 2019 and 810 games earned more than $1 million each in the first half of 2021. 7 of them exceeded $100 million in revenue.

Only browser games are falling: the volume of this part of the market has decreased by 30% in 5 years. Although many people talk about another branch of popularity of browser games with the emergence of more midcore and multiplayer games in them.

Along with games, the number of gamers is growing. Gamers make up 38.7% of the population at the end of 2018. The percentage of women ranges from 45% to 52%. 35% of the total number of gamers are people aged 21–35 years old, 28% — 36–50 years old. And this is a very solvent and active audience.

We have talked about the world, now about Russia. The country ranked 13th in the world and 6th in Europe in terms of the volume of this market. In 2021, the volume reached 158 billion rubles, which is 7.7% higher than in 2020. The drivers for the Russian market are mobile, casual and social games.

Last year, advertising sales in games reached 3.8 billion rubles, which is 2.45% of the gaming market volume.

Russian gamers

So what is happening in Russia? How are the players in our country different?

Let’s start with the fact that 60% of the population plays games. In 2020 this figure was almost twice as low — 33%. In the gaming environment Russian was one of the three most popular languages in the world, with only English and Chinese higher in the ranking.

On the territory of Russia live 88 million people who regularly play video games. In a year they spend from 100 to 160 billion rubles on this business, although according to sociological surveys they think that they spend about 3 times more — 383 billion rubles (our research with NAFI).

Half of the audience belongs to the “paying” audience, they buy games or pay for in-game purchases. But for some reason this figure is lower than in many other countries with a comparable consumption structure and income level.

And this is a good indicator for the possibility of market development. It also opens up opportunities for Russian developers in the home market.

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Major companies and top transactions (to the attention of non-core investors)

And now to the most interesting thing — the key manufacturers and the games they release.

The largest developer is Activision Blizzard. This company with a capitalization of $61.7 billion we know from World of Warcraft, Diablo, Starcraft, Call of Duty, Sekiro: Shadows Die Twice. This company is being acquired by Microsoft.

On the Russian market the biggest player is VK (ex Mail.ru Group) which has released 150 games for PC and mobile devices under the MY.GAMES brand. One of the games, Hustle Castle, has monthly revenue of 3 billion rubles. The division was sold to the portfolio of Leto Capital, an international venture fund.

Gaijin Entertainment is the largest independent developer of games for PCs, consoles and mobile devices, as well as related technologies founded by immigrants from Russia. Among the games developed by the company, there are those that have become popular all over the world: Oniblade, Blades of Time, Apache: Air Assault, War Thunder. At the moment, these are international companies that do not work in Russia, just like MyTona, Playrix and many other companies.

New players from “related” industries also entered the market. In 2021 “Sber” launched a subsidiary SberGames, but shut it down in the summer of 2022. “Svyaznoy” launched a subsidiary brand to sell gaming devices, apps and subscriptions to gaming services, helping users facing restrictions on their ability to purchase games and pay for subscriptions to gaming services.

Many companies in Russia are involved in mobile gaming, as in this segment the development cycle and time-to-market of the final product is high and costs are generally lower than in the case of consoles and PCs. Among the most significant independent, Russian game producers in Russia are: Gaijin Entertainment, Playrix, PlayKot, Herocraft, Zeptolab. Most of these studios had closed the Russian part of their business by September.

Globally, we can highlight two key deals that have come to light this year:

• Microsoft and Activision Blizzard. For 68.7 billion dollars Microsoft decided to buy this game publisher. In the spring of 2023, the deal can be finalized — you need the approval of a lot of regulators from different countries. In that case, Microsoft will gain ownership of multiple franchises, including Crash Bandicoot and Spyro. The deal would not just be the biggest of the year, but the biggest in the history of video games. Interestingly, the announcement of the deal dropped Sony’s stock by 13%!
• Tencent and Ubisoft. Chinese-American Tencent bought 49.9% in Guillemot Brothers Limited, the parent organization of Ubisoft. Everyone knows, but it’s still worth reminding that from under the pen of Ubisoft we got such series of games as Far Cry, Tom Clancy’s Rainbow Six and Assassin’s Creed. The IT giant gave 300 million euros and received 5% of Ubisoft, increasing its share to 11.3%.

Technology and moving beyond the industry

The gaming industry is developing related industries in parallel with its own growth. Among the trends is the development of artificial intelligence and neural networks. The level of development of NPCs, which once long ago could only attack the player or participate in a dialog with a couple or three answers (at best), have long since begun to interact with each other and the environment, learned to hide and so on. Neural networks are evolving because of artificial intelligence and its ability to learn itself.

Neural networks, which contain thousands of parameters, exhibit increasingly complex behavior. This leads to plausibility and variability of events in a game.

Neural networks make games better — and games act as a platform for training neural networks.

There are examples of implementing neural networks into gameplay:

• Google has made a project called Chimera, which helps optimize the process of testing game balance. The system also trains new players and allows you to create sophisticated AI opponents.
• Ubisoft has implemented AI in the player selection system: it performs multifactor analysis of post-match data and takes into account involvement in the game process. Selection is based on player skill and other factors.
• The Andreessen Horowitz venture fund told about the upcoming revolution in the video game market, which can be led by generative artificial intelligence. Thanks to new technologies, it is possible to create graphics with the involvement of a minimum number of specialists.

Other related industries include entertainment and education. Games have been massively used for work meetings, lectures, and concerts since 2020. Studies show that critical and reflective thinking and reaction can be developed through games. Lessons are conducted in virtual reality.

The nongovermental Institute for Internet Development in Russia has proposed to include Dota 2 or World of Tanks in the school program — according to IRI experts, these games develop creativity, logic and teamwork.

While real actors have been used to play the role of avatars in games before, now, thanks to the development of computer graphics, they look even more realistic. It is worth remembering Death Stranding and Cyberpunk 2077. The difference between games and movies is becoming more and more blurred.

Support for the gaming industry

Why it is important for the government to support the gaming industry in the country:

1. Rapid growth of the industry, increasing potential contribution to GDP. Opening up related sectors.
2. Increase in the number of jobs — gaming companies are increasingly becoming a major employer in the entertainment industry in many countries.
3. Developing and gaining a reputation in gaming and cybersports is beneficial to a country’s image.
4. The gaming industry expands leisure opportunities for the country’s residents and improves the quality of life.
5. That is why many countries have launched various support measures.

United Kingdom

Tax credits from 25% to 80% for game creation can be obtained for passing the “Cultural Test”: in the “Cultural Content” category points are awarded for the location in which the action unfolds, for the nationality of the main characters, for the relationship of the game’s theme to British history, culture or everyday life; in the “Cultural Contribution” category — for an innovative approach to interpreting British culture, a significant representation of British cultural heritage or an original story. There are also sections “Cultural Centers” and “Cultural Representatives”, they are related to the place where the game was developed and to the citizenship of designers, writers and programmers.

Grant from the Games Fund. The condition is that half of the budget must be raised from external sources. In 2020, the fund received 170 applications and has paid out £5.2 million since 2015.

In 2020, the UK Interactive Entertainment Association, the main trade body of the gaming industry, has developed a plan for the development of cybersport in the UK. In order to develop this direction, it is supposed to support the state, regulation, interaction between media and sport.

South Korea

South Korea is the 11th largest video game development center in the world.

The Korea Cybersports Association subsidizes amateur cybersports clubs. The organization’s annual budget is more than $60 million.

Strong amateur clubs can be sponsored by global brands like Logitech and Razer or regional companies like DouYu, as well as local software companies, creative agencies, educational and medical institutions. This allows players to get paid and spend more time practicing.

There are 20,000 PC bangs gaming centers in the country where players can play for an hourly fee. Computers and peripherals are picked up specifically for gaming.

The industry is supported by the South Korean Ministry of Culture, Sports and Tourism

Saudi Arabia

In Saudi Arabia, 67% of the population identify themselves as game enthusiasts — that’s 23.5 million out of 34.8 million people. The country is trying to develop the potential of young citizens and help them pursue careers in game development and cybersports.

The Ministry of Communications and Information Technology of Saudi Arabia and DigiPen (the world’s leading game design academy) jointly launched the “Game Change” program: it is a 6-week course of game development and entrepreneurship basics, followed by 16 weeks of training in one of three areas — game design, game art and animation or game programming. After that, it’s another 8 months of game development and incubation. Selected participants are eligible to receive a grant.

Saudi Arabia’s Ministry of Communications and Information Technology invests in the development of telecommunications and IT infrastructure, and support for relevant business sectors, and creates a favorable regulatory environment. The ICT sector strategy has five main objectives, and each of them for 2023 involves direct support for gaming and cybersports.

Poland

In 2014, the Polish games industry was valued at 279.6 million dollars, in 2015 this figure rose to 400 million, and now it has reached 600 million. It is the 20th largest games industry in the world. One of the reasons for the rapid growth is government support.

The GameINN Game Development Industry Support Program has been in place since 2016. In two years, it has given 70 game studios grants and subsidies worth 200 million zlotys. And among the companies that received money is CD Projekt RED, which released Cyberpunk 2077 and the Witcher series of games.

Another initiative, the Bridge Alfa program was aimed at creating investment mechanisms. It created several investment funds that financed young companies.

The Polish Agency for Enterprise Application Development (PAED) launched the Go to Brand program to support the industry in terms of exporting products and services and promoting brands.

Various programs are in place in France, Germany, Finland, Sweden, Canada, Hong Kong, and Belarus. These are mainly preferential tax regimes, grants, investments, creation of infrastructure facilities, state awards, marketing support, holding specialized events, opening of specialized educational programs.

Challenges facing the industry in Russia

In early March, international game marketplaces began refusing to allow Russian users to pay for purchases with Visa and Mastercard cards issued in the country. Revenues were affected by the inability to pay for games in foreign app stores and platforms — AppStore, PlayMarket, PS Store, Xbox Store, Steam, PlayStation Store and Nintendo eShop. Due to the shutdown of billing in Google Play and App Store, operating any games in Russia has become pointless for local and foreign companies, and the falling dollar exchange rate has almost doubled the cost of Russian teams.

As a result, alternative app stores appeared in the country, but only for Android: RuMarket, NashStore, RuStore.

A number of foreign companies left the Russian market, leaving employees unemployed or relocated. Studios that will remain in Russia received an influx of new staff, but only those who had money could use it.

Access to Unreal Engine and Unity was closed from the outside for the game division of Sber (which got all in SDN). Therefore, by May 2022, all those who were close to releases, did not risk and moved, and the government began to discuss the issue of creating a domestic engine. First, Rostec (Chemezov) appealed to the Ministry of Digitization (Shadaev) with a proposal to start developing such a solution, as it is needed not only for the game, but also for the future of the industry, and in September it became known that VK requested from the Ministry of Digitization 3 billion rubles for such a development.

There used to be a lot of competition for projects, now that the main investors have left, there is an opportunity to invest in the most promising projects.
Video game content has become less accessible, but it is still in demand among people who have stayed in Russia (this is a fairly large audience) and they are willing to pay for video game content.

Popularization of the Russian language, culture and history

Since computer games are maximally integrated into mass culture, values and history can be communicated through them — and this is directly supported financially in the UK. Also, the Polish Witcher — both the source material and the game — is based on Slavic mythology. Assassin’s Creed is set in different eras, and World of Tanks is based on real World War II locations and equipment from that period.

At the beginning of the year, IRI (Autonomous Nonprofit Organization “Internet Development Institute”) announced their desire to support games with an embedded historical or patriotic narrative. And one of the first projects was a game from the Siberian studio Cyberia Nova — “Distemper” from. It is an action-RPG, the action of which unfolds in the period of troubled times. Prince Miloslavsky performs quests, pumps skills. The game is based on Mikhail Zagoskin’s novel “Yuri Miloslavsky, or the Russians in 1612”.

Hundreds of projects from all over Russia applied for the next IRI competition in the summer of 2022, but only a few of them were supported.

We can also mention the Atomic Heart project from the until recently Moscow-based studio Mundfish — it’s an RPG-shooter. Its action unfolds in an alternative USSR of the 1950s with developed robotics. The player will have to fight against rebellious robots.

What, in our opinion, is essential and urgently needed globally to save or restore the industry, which had a very high growth potential in Russia (partially there are already prerequisites for this):

1. Direct financial support for new companies specializing in game creation, including exactly the initial funding up to the stage when the project can become interesting to investors. Most likely these are some kind of state, university, or quasi-state donations to organizations that specialize in such selection and business development of startups.
2. Creating their own business incubators and gas pedals in regions and under state corporations, which will help develop such startups, teams of developers and entrepreneurs, as well as activate existing players. Helping projects to attract investment, and possibly with publicizing from Russia.
3. Directing existing support measures towards the video game development industry. The current ones are very different from what the gamedev used to. Although there is no formal ban on either RFRIT, the Presidential Grants Fund (Cultural Initiatives), or the FSI (Bortnik’s Foundation). Developers are not capable of traditional preparation of grant documentation, administration, estimates, reports, etc., in competition with organizations specializing in life for grants.
4. Providing tax incentives applicable to other industries. In September, gamedev became one of the main activities in the IT sector. It can now be subject to all the exemptions that apply to IT companies. But the removal of VAT, regimes like “ip boxes” and “digital residencies” could be in demand.
5. Replacement by local (or friendly countries today) and possibly non-profile investors of the niche created by the departure of many other profile investors.
6. Helping to promote domestic games in the domestic market. Forming a culture of game content consumption, improving the image of games in society. To make parents play together with their children and shape their gaming preferences.
7. To solve the problem of education and training employee for the growing industry after its recovery.

In the comments, write what you think, what do you disagree with? Is it useful to do general industry overviews like this?