Indian Gaming Market comes out of Stealth mode…
VC money raised by Indian Gaming startups in 2021 alone was 5x of the combined money raised by them between 2014 to 2020
What comes to your mind when you think about gaming? Gone are those days when we correlate gaming only with PC games like GTA and Need for speed, console driven video games like Mario and Contra, mobile phone games like Temple run and Subway surfers. Over the past 5 years, India has come a long way in terms of the gaming eco-system…
Market size
The gaming market is categorized by device: Mobile/Tablet, Console & PC/Laptop. However, mobile gaming dominates the Indian market with 90% of the market share. The sub-categorization is then by game category: Casual gaming (Candy Crush Saga, BGMI, FIFA, Ludo), Real money games [RMG](Rummy, Poker), Online fantasy sports (Dream 11, MyCircle 11), E-sports (Tournaments, Streaming). According to market estimates, Indian gaming market in 2021 is at $1.7 bn which is expected to triple to $5 bn in 2025. Although, the Indian market is at a very early stage and contributes ~1% to the total world market, India has more than 450 million gamers across all categories. Now, let us compare with China who has similar demographics as ours. The Chinese gaming market in 2021 is at $45 bn and contributes quarter to the world market. They have ~700 million gamers across all platforms. This is where it gets interesting. The number of gamers in China is only 2x the Indian number but their revenue is more than 22x. As you would have already figured out, the sole reason for this is because the ARPUs in China is much higher. This suggests that the hard task of penetrating the Indian market has already been done and the next 5–7 years is the time to monetize those users.
What has led this growth?
2021 was the year when gaming market in India saw a growth in terms of numbers but it sure took India 5–7 years to develop the whole eco-system around it. There are multiple factors contributing to this growth and we can discuss them very briefly:
- Growth of gaming friendly smartphones: The RAM of smartphones have evolved in the past 3–4 years, enabling more advanced gaming and deeper experiences
- Availability of cheap internet: This is a no-brainer. Easy availability of high-speed internet has enabled mass participation of online gamers
- Growth in digital payment infrastructure: The only way to increase the monetization per gamer is to set-up a seamless digital payment infrastructure. With UPI, it has become easy for gamers to pay and participate instantly. The easier the process for user, the better the monetization funnel
- Supply of quality games: To keep the gamers hooked, there must be a constant supply of fresh and innovative games. The quality of games developed and marketed have gone many notches up
- Increase in marketing and influencer led models: Gaming unicorns sponsoring IPL and Indian cricket team proves that they are all-in. There are more than 20 Indian gaming influencers who have a following of +1 million followers on YouTube. These are some staggering numbers which further strengthen the proposition, that the Indian market is at an inflection point.
Bottlenecks
With all this growth, there are also a few challenges faced by the Indian Gaming market. The biggest one remains monetization. Currently, the paying base for Real money games (RMG) and casual games is only 15% and 7% respectively which is very low compared to other countries. The monetization is categorized by: Subscription, Ad revenue, In-app purchases and Commission. Although there has been a gradual increase in the ARPUs, the typical Indian gamer mindset is to play the games for free. As we read earlier, the number of gamers has been quite phenomenal, but the real question arises that will the Indian gamers pay like their counterparts in developed economies. Another hurdle faced by the RMG companies is the legislation changes. There have been several lawsuits filed to demote the real money gaming companies due to a perception that they shall lead to betting and gambling. The laws are still very nascent, and we believe that over the next year, there will be a lot of clarity on the subject matter which will allow the RMG companies to operate with an open hand. Recently, google play store reduced their commissions on app downloads and in-app purchases from 30% to 15%. But, for the developers these reduced percentages do not solve the problem because Google/Apple get to dictate the price terms and they do not allow any alternate form of payment. There were talks about building an independent app store free of all commissions, but no material steps have been taken towards it.
VC/M&A activity
While we talk about the challenges, it seems that 2021 was the year for Indian gaming market. The sector has witnessed a record investment of $1.7 bn in 2021. Just to put things to perspective, the total money pumped into the Indian gaming start-ups between 2014 to 2020 was $350 mn. ~90% of the total funding/M&A was contributed by the RMG vertical. Also, 2021 witnessed M&A activity worth $700 mn which was attributed majority to e-sports vertical. With Nazara technologies completing a successful IPO, it increases the investor confidence. Also, we have seen 3 gaming start-ups turn unicorn — Dream 11, MPL, Games 247. Big investors like Sequoia, Tiger Global, Falcon edge, Chryscap, SIG, RTP global have invested in this sector. Then, we have VC funds like Lumikai fund, Eximius ventures, Tencent’s $100 mn gaming fund focusing only on gaming startups in India. This goes to show the investor confidence in the growth of Indian gaming market.
With the change in mindset, the newer generation is spending on gaming and there has been a rise of professional gamers, content creators and influencers. Also, with the introduction of metaverse, it might be a gamechanger in a way which games are being played, type of games, monetization models. Unlike the Edtech or the D2C market which is seeing a lot of consolidation in terms of market, we believe that the gaming market is at a stage where it has just begun to grow and will require growth capital over next couple of years. All 3 unicorns are in the RMG space and we expect them to consolidate a few companies within themselves over the next 2 years.
Takeaway
Gaming as a segment has indeed skipped a complete generation in India. It has become an alternate form of entertainment, competing with the share of time with other forms of entertainment such as OTT, Television, Music streaming, etc. Overall, the opportunities far outweigh the challenges, with more than 400 gaming companies in India, and all the incumbents pointing towards growth, I believe that the current market size is just the tip of the iceberg!
This is my first post on Medium hence I request everyone to show some support. I love reading/analyzing/writing about the startup space in India and you can reach out to me at kotadiajay2@gmail.com or +91 8655670830
