Indian gaming studios see big action in 2022; take bolder, ambitious bets

JetSynthesys, which counts Kris Gopalakrishnan, Adar Poonawalla and Sachin Tendulkar among its backers, debuted a new gaming startup Jetapult in June this year, through which it plans to invest up to $100 million to acquire gaming studios in India and other emerging markets on an invest-and-operate model over the next couple of years.

South Korean gaming giant Krafton invested $5.4 million in JetSynthesys-owned Nautilus Mobile in February 2022 while Bengaluru-based Lila Games raised $10 million in funding led by Rainfall Ventures and participation from Bitkraft Ventures, Galaxy Interactive, Krafton and Sequoia Capital among others.

Esports and skill gaming app Mobile Premier League set up a gaming studio called Mayhem Studios in May this year to develop 'AAA mobile games' for domestic and global markets, with the first title being a battle royale game called "Underworld Gang Wars" while Pune-based SuperGaming announced a made-in-India battle royale title called Indus in January this year. AAA games are those that typically have large budgets for both development and marketing purposes.

Read: How SuperGaming plans to build India's Fortnite with Indus

Nazara Technologies founder Nitish Mittersain said that building culturally relevant games is going to have a lot of demand going forward and they are witnessing several studios starting to focus on this trend.

"Overall, studios focusing on the Indian market with a fair degree of localisation shall see better success going forward" Mittersain said. This will enable drive much better performance on in-app revenues in 2023 and beyond, he added.

"There have been more (gaming) studios funded this year than any other year I've known," Tandon said. He said an active game development studio ecosystem is crucial to building a strong gaming ecosystem in the country in the long term.

Bhat said investors are also looking to diversify their portfolios as the real-money gaming sector faces significant regulatory headwinds, be it the GST-related tax uncertainties or growing hostility with state governments who are trying to ban some or all forms of real-money gaming.

Several gaming founders and industry executives that Moneycontrol spoke to, expect more gaming-focused funds being set up in the country and global funds to make sizeable investments in the sector in the coming years.

That said, they also pointed out that there is still a supply issue in the market right now, due to which there are not many companies worth backing as yet.

Rising maturity of Indian players

These developments are being driven by the increasingly maturing gaming habits of consumers in India who are seeking games that offer deeper, complex experiences and are ready to spend more money on mobile games.

SuperGaming co-founder Roby John said they are witnessing a rising awareness of complex gaming genres, which was not something they had seen in Indian audiences in huge numbers until this year.

"As we ramp up efforts around our upcoming battle royale Indus, we’ve noticed that the audience is surprisingly aware of the genre and has a distinct preference in terms of features and options that help us build a better game," John said.

Justin Keeling, general partner at Lumikai, a gaming and interactive media venture fund, said more Indians are playing "deep Midcore game experiences", which is creating a big opportunity for founders to build "high quality, culturally resonant games for a highly monetizable audience".

Midcore games typically offer a more complex gaming experience than casual games, requiring players to use their skill and strategy to progress, due to which they are invested for a longer duration, ranging from several months to years.

Midcore games were the fastest-growing games category in India in FY22 and generated combined revenues of about $550 million, according to a report by gaming and interactive media venture fund Lumikai.

"While real-money gaming (RMG) has traditionally been the largest revenue driver in India's gaming market, we are forecasting that midcore games will be the biggest driver of revenue going forward, increasing at 32 percent year on year (yoy). That in turn is driving in-app purchases as the fastest growing revenue channel, growing at 34 percent annually," Keeling said.

Read: India's paid gamer base hits 120 million in FY22; in-app purchases to drive future growth: Report

India is the fastest-growing games market in Asia, both in terms of revenue and gamers, with its mobile and PC gaming revenue projected to reach $704.5 million in 2022, according to Niko Partners, a market research and consulting firm that covers video games, e-sports, and streaming in the continent.

This is set to grow at a five-year compound annual growth rate of 21.1 percent to touch $1.4 billion in 2026. This does not include revenue generated by real money games. About 34 percent of gamers in India spent money on non-RMG titles in 2022, the firm said.

Esports as an industry is also becoming more mature in the country, with the segment witnessing massive growth this year, be it tournament organizers or talent agencies who manage gaming influencers and esports athletes.

Earlier this week, Esports also received official recognition from the Indian government as part of "multi-sports events", giving a huge shot to the rapidly growing industry.

India a bright spot

This growth is coming at a time when the global mobile games market is under pain due to the challenging macroeconomic conditions and the recession-like environment. Apple's iOS-related privacy changes have also put a lot of strain on the ability of small and large firms to do targeted marketing, aggravating the industry's woes.

Bhat said these changes completely reset how user acquisition in the gaming space happened across the global gaming industry, resulting in marketing campaigns becoming inefficient, putting pressure on the margins of several large companies.

Revenues from the global mobile games market are set to decline for the first time in 20-25 years. Mobile games are estimated to generate revenues of $92.2 billion for the year, registering a 6.4 percent decline year-on-year, according to gaming market research firm NewZoo. The overall games market is estimated to generate revenues of $184 billion this year, down 4.3 percent yoy, it said.

Tandon however reckons there are two markets which are bucking the trend - India and the MENA (Middle East and North Africa) region - which are currently garnering the highest interest and growth with better opportunities for local developers to succeed.

"While the global industry looks gloomy, if there is one opportunity to build games, two markets that you should focus on are India and MENA. These are probably the global bright spots in the overall gaming industry. So, I am still very optimistic about the industry going forward," he said.

Key challenges

One of the biggest challenges in the sector is regulatory uncertainty. Earlier this year, Garena's Free Fire and Krafton's Battlegrounds Mobile India (BGMI), two of the biggest revenue-generating games in India, were suddenly pulled out of Google Play Store and Apple App Store following a government order under section 69A of the Information Technology Act.

Apart from severely impacting the esports industry, these suspensions are also making global gaming studios slightly wary of expanding their operations to the country, industry executives said. However, they also noted this could act as an opportunity for local gaming companies to become big in the country.

Read: BGMI ban to disrupt e-sports space, but for short term: Nazara Tech's Nitish Mittersain

Distribution and marketing of games are also becoming increasingly difficult on mobile phones, with Apple's privacy policy changes and Google exploring similar restrictions to limit the sharing of user data on Android smartphones with third parties. "How do you solve it is going to be a major trend not just in India but globally in 2023," Tandon said.

"It's just very hard now to find a new global hit than it was 3-4 years ago, and it is only going to get more complicated with issues such as IDFA (Apple's identifier for advertisers) and app store commissions," he said.

John expects gaming to become content creator-led and personality-driven to maximise visibility and distribution. "The intersection of game development expertise and content creator-powered distribution will ensure these games are perceived as genuine, earnest efforts — necessary to break through and make an honest connection with players and the community as a whole," he said.

That said, he cited the lack of framework for IP creation or expertise in the country or any hands-on training to shape the skills of professionals as hurdles to building something new or original titles in the market.

Another key issue is the distinction between RMG and non-RMG games, which founders believe could drive more attention and investments to other non-RMG gaming companies as well.

"At some stage, the government will have to decide to categorise them separately and not club both of them as online gaming," Bhat said "Unlike other countries, real money gaming has become online gaming in India in the past few years. I think it is time for the rest of the sector to get its own attention," he said.

What's in store in 2023?

With more game studios and developers building games of various types and sizes in the country, there will be a demand for bespoke tools and platforms to make certain aspects of game development easier such as managing player data, analytics and effective monetization, John of SuperGaming said.

Tandon of JetSynthesys said game developers will also depend more on game publishers to drive distribution and discovery of their game titles, which was not needed for the past 2-3 years.

2023 will also likely see monetization improving in various other gaming genres, especially sports-related games, be it football, cricket or carrom among others. "I think cricket games are going to be the one dark horse that really needs to be looked out for in terms of monetization," he said.

What happens to Web3 gaming?

With the rising adoption of blockchain and digital assets, Web3 gaming witnessed significant activity and investment early this year.

However, the downfall of Axie Infinity, which was once considered the poster child of blockchain gaming, along with the collapse of Terra Luna and FTX, and a massive correction in the crypto space, has posed severe credibility issues for the ecosystem. This has also resulted in investor interest cooling off in the space.

"Web3 gaming used to be hyperbolic earlier this year but is now becoming a bit more realistic. Everyone has realised it is not just about building a game and putting a web3 element on top of it. It has to be designed ground up with all those things in mind," Bhat from 99Games said.

Tandon believes that 2023 will likely be the year when Web3 gaming will mature with serious players exploring the space, although there will be a "lot of pain for the next one or two quarters".

"The first wave of any gaming segment is always the initial guys whom I like to call tourists. The real good stuff will now begin in 2023. People who are willing to hang in there in the market and persevere will start finding more mature business models, which will eventually lead to a stable monetization," he said.