Gaming — One silver lining amidst the gloom and doom of CoVID-19 — India perspective
Ever since the first video games were invented in the 50s and 60s, gaming has constantly captured our imagination. Riding on multiple technological innovations and several decades later, gaming is a huge market globally worth USD152B and continues to grow fast at 10% (YoY). Gaming is not only expanding but constantly evolving, giving birth to new genres like HyperCasual and formats like AR/VR.
Amid the current lockdown, investors worldwide are rushing to salvage their investments and scrambling for safe havens. One of the bright spots amid the gloomy backdrop has been Gaming. With the lockdown and self-isolation measures in place, people are retreating towards the online world as an escape from the real world and games across the globe are seeing a huge surge in activity.
Verizon has reported a 75% increase in US video game usage since the quarantine kicked in. Gaming streaming has also surged with Twitch reporting a 30% increase in viewership/hours viewed. China, the first country to be hit by the outbreak, saw a 40% increase in average weekly downloads of apps during the first two weeks of February compared with the average for the whole of 2019.
With the country under lockdown, Indian gaming companies are also seeing an uptick. Our own portfolio company 9Stacks (Real money poker and fantasy) has seen a 50% increase week on week on user engagement and gaming $’s bet. Other games like PayTM First Games & Winzo, have reported a 2–3x jump in new installs, daily users and time spent among other metrics. With in-person interactions restricted, people have turned to games for socialising. People have flocked to online multiplayer games like Ludo King, with their DAU surging past 50M+ users (80M MAUs before the lockdown).
Past events have shown that gaming companies have been successful in weathering downturns. Games are an inexpensive form of entertainment, with a high price to value proposition (measured by cost divided by time consumed). As the economic fallout from COVID takes shape and people begin to cut down on discretionary spending in other big-ticket areas, games are expected to be largely resistant to the downturn. A 2009 Nielsen study reported consumers spending one to two additional hours playing games in the early months of 2009 compared to the year before.
The current surge in user activity presents the best conditions to experiment, optimise and produce the next big hit. We at WaterBridge have been on the hunt for our next gaming bet for a while and under the current climate, our interest in space has only heightened.
Indian Gaming v2.0
I vividly remember playing my first Video Games on my 8-bit console, being glued to the TV for hours playing titles like the Mario, & Street Fighter among others. But as the world moved on from the 8-bit platforms to the likes of PlayStation and Xbox, the consoles were sidelined as an improvident burden on family finances and till date, the console adoption remains dismally low. Gaming had to come in a very different form to be adopted by the Indian masses, one that wouldn’t hurt their pockets.
Propelled by cheap 4G data, affordable smartphones and a mature payments ecosystem, mobile gaming has taken Indian gamers by a storm and opened the doors to a new generation of gamers. Today, there are roughly 250 Million Indians who spend an average of 45 min a day playing games. The market is worth USD 920 Million today, and this is growing rapidly at 22% annually. Lockdown and isolation will only thrust these numbers further.
The top downloaded (Free) and top-grossing games in India as on 31st March 2020-
Broadly the Indian games can be categorised into two buckets-
Free to Play — as the name suggests, these games are essentially free to play with the developer employing in-game ads or in-app purchases to monetise the user. Historically, this model has been difficult to monetise in India but the recent phenomena of MMORPG games (PUBG/Garena/Call of Duty)have proven that willingness in customers to pay for engaging content.
PUBG which commands a cult-following in this part of the world with 25–30 MAUs in India is estimated to have grossed USD 90 Million in FY20. A startling fact is that the monetisation comes from selling vanity — virtual clothing items like jackets, mini-skirts and accessories. PUBG’s effective monetisation of the Indian gamer has only laid out a roadmap for future developers to follow.
Real Money Games / Skill games — real money games based on the casino model were pioneered by RummyCircle, Ace2Three(Rummy) & Adda52 (Poker). The last few years have seen real money games comeback in a new avatar — Fantasy Sports, Casual Games & eSports — and have garnered the bulk of the VC funding. Ever since the time of Rummy & Poker, skill games continue to grow fast, monetise well & engage the Indian players.
Funding trends in India
Indian investors are warming up to Gaming as a sector and the numbers reflect their growing conviction in this space. Investments in Indian gaming companies kicked-off with the Free-to-play/Freemium model back in 2014/15 with the likes of Octro and Moonfrog raising $15M+ rounds.
But over the years, with better clarity over laws and regulations, Real money games have garnered investor’s interest and continue to dominate the funding landscape (99% of the funds raised in 2019). In 2018, Dream11 raised $100M in the largest ever round by an Indian gaming company. Real money gaming platforms were the breakout theme of 2019 with $60M invested between MPL, PayTMFirst & WinZo. More about our conviction in this space and our investment in 9stacks here.
The game developers
Indian developers have realised the potential and have pounced on this opportunity. Gamer developers have grown in numbers, 250 currently from the handful 25 around in 2010. Recognising the growth in gaming talent, large Intl’ studios — Electronic Arts, Ubisoft, Rockstar and Tencent have set up their offices in India. We believe there’s a lot in store as the future generation of game entrepreneurs gain the required experience working on global AAA titles.
All said, Indian game developers, face an uphill challenge against global powerhouses in a quest to gain a share of the massive and fast-growing market. Gaming unlike other content/media and best viewed as a global market and through the well-oiled distribution channels of Play store and App store, a gaming company in any corner of the world can access 2.5 billion gamers across the globe. This poses a unique challenge for India’s fledgeling game-developer ecosystem.
In China and Japan, domestic game studios have capitalized their understanding of the local tastes to build a sizeable local following, before going international. As the Indian gamers mature and willingness to pay increases, the Indian studios will have a draw a leaf from China & Japan’s book and develop games for the local tastes.
Lessons from global success stories
Game development is often viewed as a hit-and-miss business due to the non-scalability of the creative processes and very little room to create long-lasting moats. This begs the question — “How does one build a sustainable & scalable businesses model in such an industry?”.
- Optimise for creativity in user engagement — King Digital and SuperCell have championed this model over the years. Be it King Digital’s parallel-studios model or SuperCell’s upside-down organisation structure, both models have employed the use of data-based decision making to define new experiences for its customers and remain relevant.
- Community-based / UGC content network effects — Roblox is a platform that allows users to design their own games and play a variety of games created by other users. Last year, it surpassed 100M MAUs with a $110 Million payout to its developer community. With its latest fundraise ($150M at $4B Valuation), Roblox is defining the user-generated content wave for Gaming.
- Grow by acquisition — The likes of Tencent, Electronic Arts and Zynga among others, often relied on acquisitions of other studios/developers with promising and scalable concepts in a bid to stay relevant.
We at WaterBridge believe there hasn’t been a better time than now to invest in gaming companies. It’s a great opportunity for Indian gaming companies to take advantage of the surge in demand, dish out the next hit and establish themselves. If you’re working on interesting game ideas, do feel free to reach out me. My coordinates can be found here.
With inputs from Manish Kheterpal.
