VC fund Lumikai slashes revenue forecast for India's gaming industry

The Indian gaming industry clocked $3.1 billion revenue in FY23, registering a 19 percent growth from $2.6 billion in FY22, as per the report.

Lumikai, India's first gaming and interactive media-focused venture fund, has slashed the revenue forecast of the country's gaming industry in its latest report on the sector that was unveiled on November 2.

This comes at a time when India's real-money gaming segment, which accounts for the majority of the overall industry's revenue, is navigating a turbulent period due to recent taxation policy changes.

The 28 percent GST tax regime, which took effect on October 1, and the potential retrospective taxation dues could spell the death knell for the nascent sector, industry stakeholders told Moneycontrol in September 2023

According to the report, the Indian gaming market is projected to hit the $7.5 billion revenue mark by FY28, a drop from $8.6 billion projected revenue for FY27 that were disclosed in a report unveiled in November 2022.

The Indian gaming industry clocked $3.1 billion revenue in FY23, registering a 19 percent growth from $2.6 billion in FY22, as per the report that was released in collaboration with Google at the India Game Developers Conference in Hyderabad.

Real-money gaming revenue grew by $500 million in FY23 but is expected to face headwinds and industry consolidation in the coming years, the report said.

Rising maturity among Indian gamers

That said, the industry continues to show signs of rising maturity in the world's second-largest internet market.

About 140 million gamers in FY23 were paying users, a 17 percent year-on-year (YoY) increase from 120 million paying users in FY22. Overall, India had about 568 million gamers in FY23, up 12 percent YoY from 507 million in FY22. This accounts for over 50 percent of all Indian internet users.

The average time spent on gaming increased by 20 percent YoY to 10-12 hours per gamer per week.

“Indian gaming has been on the rise because of rapid digitisation, growth in new gamers and new paid gamers, and increasing diversity of gaming content consumed. Even though funding has slowed down this year, the outlook towards the gaming industry is extremely positive," said Salone Sehgal, founding general partner at Lumikai.

Moneycontrol had earlier reported that the gaming habits of consumers in India are maturing and they are moving beyond casual games to those that offer deeper experiences or provide them a way to socialise with their friends and family.

India is one of the world's biggest markets in terms of game downloads, clocking over 15.4 billion downloads in FY23.

Metro vs Non-metro cities

About 66 percent of the gamers were from non-metro cities in FY23, as compared to 57 percent in FY22, the report said. In terms of demographics, about 50 percent fall within the age bracket of 18-30 years, with a male-to-female ratio of roughly 60:40.

"We're particularly excited to see the increasing engagement of gamers from non-metro cities, which demonstrates the massive growth potential and the opportunity in the Indian gaming industry," Sehgal said.

The future growth in the sector is expected to be driven by the growing in-app purchases in casual and mid-core games and the increasing in-game advertising revenues, the report said. This is fueled by the return of Krafton's Battlegrounds Mobile India (BGMI) and the anticipated return of Garena's Free Fire, both of which were among the top revenue grossing apps in India.

Krafton resumed India-only app BGMI on a three month trial basis in May this year after a nearly 10 month suspension and is learnt to have subsequently received full approval from the Indian government, Moneycontrol reported in September 2023.

Free Fire also announced its comeback to the country in August after being suspended for about one and a half years. However, it has postponed the launch by a few weeks. Garena, which is the gaming arm of Singapore tech giant Sea, continues to offer a more premium variant called 'Free Fire Max' that was not suspended by the Indian authorities.

That said, people are also paying for games outside of both these titles. The in-app revenue outside of BGMI and Free Fire saw a 37 percent year-on-year surge, due to the steadily increasing monetisation across casual and mid-core games, the report noted.

Founded in 2020 by Sehgal and Justin Keeling, Lumikai typically invests in pre-seed to series A stage startups with cheque sizes ranging from $700,000 to $1.5 million. Some of its portfolio startups include Loco, Bombay Play, Studio Sirah, Eloelo, and Giga Fun Studios.

The firm launched its second fund with an aim to raise $50 million in June 2023. It has also set up a dedicated $10M AIF (Alternate Investment Fund) for Indian LPs (limited partners) to attract domestic Rupee Capital. This will bring Lumikai's total asset under management (AUM) to $100 million.

Among the investors in the fund are publicly listed Japanese gaming giants Mixi and Colopl, South Korean multi-billion-dollar conglomerates Krafton and Smilegate, Finland-based decacorn Supercell, and BSE-listed Nazara Technologies.

Several Indian family offices, including the Jeejeebhoys, KCT Group, DSP Kothari, and Sattva Group, as well as high-net-worth individuals such as Take-Two Interactive CEO Ben Feder, Napster CEO Jon Vlassopulos, Gulf Islamic Investments founder Pankaj Gupta, and Nodwin Gaming founder Akshat Rathee, also participated in the fundraise.

India’s rising potential as a global video gaming hub is also drawing interest from international gaming giants and game-focused funds.

In August, Krafton had pledged to invest $150 million in Indian gaming and interactive entertainment startups over the next two to three years, bringing the company's total investment corpus in the country to about $290 million.

The South Korean gaming giant also announced plans to incubate game development startups in India through an India-specific incubator last month, in a bid to boost local game development in the country.

Japanese mobile entertainment company Mixi also launched a $50 million corporate venture capital fund dedicated to the Indian market in August 2023.