Games have historically struggled to make money in India. While the game industry in the US earns more than the Film and the Music Industry combined, gaming revenues dwarf in comparison to other forms of entertainment. However, with the emergence of hypercasual real-money gaming, India may have finally figured out a monetization model for this industry.
A Brief History of Game Publishing in the West
Before broadband was widely available, games on arcades, PCs, and consoles had to be advertised, packaged, and distributed physically. This distribution barrier led to the emergence of game publishers, who catered to all functions where game-development wasn't the core skill set.
These publishers provided the capital required to develop games, provided market insights, and complemented developers with all non-core game development functions such as marketing, packaging, distribution, etc., while owning and/or managing the franchises and associated intellectual property rights and other skill sets required for developers to take their games to market.
At the time, more often than not, AAA game publishers usually worked with internal studios where game development teams were hired internally, or game dev studios were acquired and fully owned by the publishers.
During the early 2000's, more often than not game development studios would build their own game engines to build games on top of, eventually, many publishers realized the value of building common game engines which could be used across their portfolio of internal studios thus also helping developers with technology (game engine, hardware, software, etc.).
The Shift To Digital And Unbundling
Once broadband came along, distribution slowly started shifting towards digital mediums.
On PC, Valve — the creator of Half-Life and Counter-Strike — was struggling to provide it's users game updates (which had to be acquired and installed manually), which often caused players to be unable to play games online for long periods of time.
To solve this problem, in 2002 Valve created a tool called Steam, which allowed them to deliver updates automatically, and enable anti-cheat and anti-piracy measures — making sure that games always remained up to date, and playable online.
By 2005, Valve opened Steam up to third party developers, allowing them to distribute games online via the Steam marketplace, while leveraging all the other features that the platform provided — battle hardened with their use in two of the most popular games of that (and all) time — without game devs having to re-invent the wheel every time.
Soon after, consoles (X360, PS3) started allowing for digital downloads as well, without requiring the use of physical media, which was useful considering the size of games on PC and consoles have been ever increasing.
Or, as tweeted by Doom (for PC, 2016):
The shift to digital downloads was also accompanied by the growth in online advertising and ad targeting, which reduced the friction which previously existed for developers while taking their games to market. This enabled many developers to act as publishers as well, such as Riot Games (League of Legends), CCP Games (Eve Online), etc.
The rise of mature, battle-tested third-party game engines such as Unreal & Unity, also spurred the growth of mid-scale publishers working with external developers, and independent game developers who could now build high-quality games, and gain easy access to distribution, while capital requirements went down distribution moved from atoms to bits.
How Mobile Game Publishing Evolved in the West
With the exception of Gameloft, the initial wave of large mobile game publishers came out of developers who were previously making games for the web and/or Facebook Platform. Rovio had made 51 games between 2003 and 2009 before making Angry Birds, King.com had been making browser-based games under the MidasPlayer brand since 2003, and SuperCell had been working on Gunshine on Facebook Platform, which was later ported to mobile before being abandoned in favor of HayDay. Gameloft on the contrary had maintained it's core focus on mobile games since the year 2000, from Motorola, Nokia, Blackberry, all the way till iOS and Android.
The mobile publishers which arose around the beginning of the App Store and Play Store, followed models similar to those that emerged when digital distribution boomed on PC, where the developers themselves were publishers of their titles, as distribution was now purely digital, the scope of development was much smaller (in terms of developers required and timeframes), the availablity of powerful third party tools & game engines like Unity - overall resulting in lower development and iteration costs as well.
At the same time, the same tailwinds around ease of discoverability, frictionless distribution (App Store), ability to leverage social mechanics for growth (honed on the Facebook Games Platform), and availability of off-the-shelf software allowed for an influx of individuals and small independent game studios to start launching their own games.
Eventually, as the dominant genre shifted to even smaller, more minimalistic hyper-casual games, publishers like Voodoo, KetchApp, Say Games, etc. emerged, focusing on mobile-hypercasual as a niche. As app marketplaces got saturated, and developers struggled to stand out from the noise, this new generation of publishers focused on helping developers get distribution, and derisked themselves by shifting the entire content risk onto third party developers.
As the play store, game-types, and the ecosystem evolved, how games monetized on mobile also evolved significantly.
When the App Store launched, there were no in-app purchases, so the entire ecosystem was games that cost upwards of $4.99 (often around $10), and the legacy pay-to-play models continued. Over time with increased competition and the desire for scale, prices fell to $0.99, reducing the entry barriers for consumers to try out different games.
In 2009, the launch of in-app purchases fundamentally changed the ecosystem. Games like Angry Birds, which were originally premium, went free to play. The entire focus shifted from charging users a small amount upfront to keeping them engaged, and spend repeatedly within those games.
Different games achieved these goals differently, some, like Zynga's Words with Friends for instance, restricted actions/moves and play-time with timers resetting daily, prompting users to make in-app purchases to continue playing games. Others optimized for session times and instead monetized via in-app purchases for cosmetic upgrades, level unlocks, etc.
The majority of the revenue for developers around this time came from a small percentage of their top players, as only 2-3% of the total player-base would ever make a transaction in the first place. To stabilize revenues, developers started to look for ways to monetize the non-paying users as well, and explored options around running mobile ads.
As hypercasual games started to take off, the game mechanics really started lending towards incentivized ad viewing - thus sparking the popularity of rewarded ads. This kind of opt-in advertising, which was prompted to a user as an alternative to an in-app purchase ("Mission failed, pay $0.99 or watch ad to continue from last checkpoint, or restart level") helped developers by increasing retention (no paywalls), enhancing user experience (doesn't feel like pay-to-win), and hence improved overall unit economics for their games.
Mobile Games In India
Game developers and publishers in India traditionally struggled to make money compared to their global counterparts. While gaming revenues (across all platforms) globally eclipse box office and music revenues combined, the case in India has been very different. Nazara for example reported $0.13 in monthly revenue per monthly active user in 2018¹, compared to $1.6 reported by Zynga².
As a result, while we have consumption in terms of # of users in India, our output in terms of content does not match. As of July 2020, only 5 out of the 50 top grossing games, and 3 of the 50 top free games on the play store were published by Indian Companies.
The Tide Is Turning
While India has lagged in monetization historically, things are changing rapidly - with cheap data³, reducing smartphone costs, and growth in frictionless mobile payments, mobile gaming is booming in India.
The rise of mid-core games on mobile starting with PUBG Mobile has had a cataclysmic effect on user behaviour, and the average gamer's propensity towards spending on mobile games. This genre, owing to it's large-scale, realtime, and multiplayer nature has become a perfect fit for being the third place⁴. Owing to these mechanics, the product makes a lot more sense for in-app purchases, compared to a single-player hypercasual experience.
While cosmetic upgrades can only take one so far in a single-player hyper-casual experience like Temple Run or Angry Birds, in the PUBG, FreeFire, COD Warzone, and Fortnite ecosystems these amount to bragging rights. Your clothing and accessories in-game are a part of your personality in the game, much like in the real world, and often also indicate your status and prowess in the game - achieved via exclusive items and rare drops, which can be seen by others in the game.
As PUBG mobile took India by storm, Tencent reported $7M in revenue for 23M MAUs in May 2019⁵ ($0.30 per MAU), while Garena reported that in April 2020, over 10% of all FreeFire MAUs in India were paid users⁶ (a number which hovered around 2-3% for mobile publishers globally back in 2014-15). PUBG crossed 175M installs in India In July 2020⁷.
Enter Real Money
With the growth in smartphone penetration and mobile payments in India, the initial wave of monetization came from real money card games - such as Poker, Rummy, and Teen Patti - games that the Indian audiences were familiar with.
Then came fantasy sports platforms such as Dream11, Halaplay, Nostragamus, etc. Riding the passion for cricket in India, Dream11 became India's first unicorn in the gaming space⁸, which reported 50M MAUs in April 2019. KPMG estimated⁹ that India had 70M fantasy sports players active in 2018, who spent around $1.73 billion that year on these platforms. 85% of the activity was centered around cricket.
Next came real-money e-sports, where platforms such as GamingMonk (an AdvantEdge portfolio company) are spearheading the rise of e-sports at scale in India, thanks to the proliferation of mid-core mobile gaming. Such platforms target competitive gamers across a highly monetizable base at scale, by allowing users to compete in real money tournaments and win cash prizes.
Eventually, we saw the rise of hypercasual real-money tournament platforms like MPL and Winzo in India.
The Future of Game Publishing In India
Where developers struggled to monetize hypercasual games via ad and in-app-purchase revenues in India, real-money hypercasual platforms figured out the India centric way to monetize these games. Leveraging the increased comfort with mobile payments among young gamers, MPL and Winzo built platforms that added a real-money thrill to playing hyper-casual games.
In addition to that, these platforms add an asynchronous multiplayer component to what were traditionally single-player games, allowing them to build a community of gamers and use network effects to grow their platforms.
Most importantly, these companies publish games from third-party game developers, while helping them acquire users, and facilitate the developers with tech around off-play store distribution (real money games are not allowed on the Play Store), payments, anti-cheat, etc.
In 2019, Winzo announced a $1.5M fund¹⁰ to support game developers building games for their platform, in the process helping them with capital, distribution, and technology.
Just as Steam enabled the indie games ecosystem on PC, and the Play Store and App Store enabled the indie game ecosystem on mobile, the new real money hypercasual platforms now make mobile game development a viable business in India.
According to KPMG¹¹ there were 25 game development studios in India in 2010, and grew to 275 studios by 2019. With developers and publishers from around the world looking at India closely, and seasoned game development talent available across AAA studios in India (Ubisoft Mumbai + Pune, Dhruva Interactive/Rockstar India, EA Hyderabad, Zynga Bangalore, etc.), we expect an influx of local developers to start building games for India/Bharat.
As gaming continues to grow at a staggering pace in India, there are plenty of opportunities to build experiences and platforms catering to the next 300M Indian gamers (consumer products around communication, discovery, and novel gameplay), and developer tools for the new rush of game devs that are building for an Indian audience(localization tools, India specific cloud services, etc.). The mobile game story is just getting started for India, and the games India will be playing in 5 years will look nothing like what they do today!
- http://cdn.garenanow.com/webmain/static/resource/seagroup/presentation/2020-05-18 Sea First Quarter 2020 Results Deck.pdf