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Exclusive | For gaming startups, COVID-19 may be a zero-sum game

The number of users goes up but coronavirus-hit companies cut down on ads.

April 16, 2020 / 07:13 PM IST

With more than 1.3 billion Indians staying home to break the chain of coronavirus infections, this should be a boom time for gaming start-ups, as people spend more time on their phones.

The industry has seen a spike in users and the time they spend playing games. But, does that mean more money for the industry? The lockdown may have given them more users but it has hit businesses, which have slashed advertising budgets.

That is the reason gaming start-ups are not sure of the impact the viral outbreak will have on them.

Games people play

According to a report by consulting firm McKinsey, India is expected to have 800 million internet users and 700 million smartphones by 2023, from about 560 million internet users in 2018. The rapid adoption of smartphones and low internet prices has driven this boom.

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Games across categories--from Tencent-owned PUBG to online poker, cricket, and gamified learning-- have reported a big rise in the user base and engagement over the last few weeks, which coincides with the increased use of technology for work, daily needs, entertainment and staying in touch with family and friends. 

The nationwide lockdown began on March 25 and will continue till May 3.

EWar Games, which provides ad-free real-money games such as PUBG, Ludo and Cricket, raised $200,000 from angel investors earlier this week. 

“In the last three weeks, our user base has grown three times to 500,000 people and our engagement has gone up 40% to 40 minutes,” said Parth Chadha, co-founder and CEO of EWar Games. “We want to provide the highest experience to our users so we don’t run ads.” 

No-ad gaming platforms are an exception. Most large gaming firms, especially those focused on casual gaming such as a Candy Crush, Real Cricket, etc rely heavily on ads for revenue. 

And, that’s where the catch lies. 

The increase in the number of users reported by most online gaming firms is undone by a lack of advertisements on the platform. 

The coronavirus outbreak, which has shut businesses and led to large scale layoffs, had forced companies to slash ad budgets and advertising on gaming platforms is their last priority, sources told Moneycontrol, requesting they not be identified.

“For ad-based gaming companies, the growth in user base has been negated by reduced advertiser spends,” said Nitish Mittersain, founder and CEO of Nazara Technologies.

The Mumbai-based company acquires, distributes and operates multiple gaming platforms. Its portfolio includes WCC Rivals Cricket, sports content firm Sportskeeda and fantasy-gaming firm Halaplay.

“We have seen World Cricket Championship’s daily average users (DAUs) go up by 50% in the last two weeks and engagement go up 25%. If games are able to have more in-app purchases during this period, it would be a solid revenue-generator,” he added.

Nazara’s only worry is the Halaplay business. 

Fantasy-gaming platforms such as Dream11, Halaplay, My11Circle and others have seen business grind to a halt after the annual Indian Premier League (IPL) Twenty20 tournament, which brings billions of dollars in ad money and is closely watched in dozens of countries, was postponed indefinitely.

“Fantasy gaming is a seasonal business. All these companies generate 90% of their revenue during sporting events like the World Cup or the IPL. With these cancellations, they will just have to write off FY21’s business and try for a recovery next year,” said an investment banker who advises a gaming firm on fundraising. The banker didn’t wish to be identified.

Dream11, the largest player in the fantasy-gaming segment in India, is valued at a billion dollars and is backed by investors such as Tencent and Steadview Capital. 

It declined to comment on Moneycontrol’s queries on how its operations, fundraise and profits would be hit by the coronavirus pandemic and postponing of IPL.

Mittersain of Nazara was optimistic. He said fantasy-gaming platforms would grow again once live sports resume in the latter part of the year.

The economics of it

Online gaming revenues are expected to hit $118 billion by FY23, growing annually at 22.1%, a March 2019 report by consultancy firm KPMG India said. 

In the digital economy, gaming is also one of the sectors with the lowest costs and highest margins—an important fact to consider when most consumer internet startups in the country are nowhere near profitability.

Beyond the virus and its impact, the legality of real-money gaming, considered by some as gambling, is also under question.  

While the Bombay and Punjab and Haryana high courts have deemed Dream11 and other pay-to-play games as a “game of skill” and not chance, but several states don’t share this view. The Supreme Court, too, hasn’t clarified its position. 

 “We feel policy-makers will realise that e-sports should be treated in the same manner as real sports--as a game of skill. Thus, prize money or competitions should be allowed for these games as well, as it can become a career opportunity for players who earn from this sector,” said Chadha of EWar Games.

Real-money gaming is banned in Assam, Odisha, Telangana, Nagaland and Sikkim.

“Until the Supreme Court’s verdict, it (online fantasy gaming) is a bit of a grey area. Investors are very interested in this space, and the Supreme Court’s decision will determine how investors will view this space,” said Rishabh Bharadwaj, who is a partner at law firm Khaitan & Co and looks at the gaming sector.

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M. Sriram
first published: Apr 16, 2020 07:12 pm

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