The Power of Play: Exploring the Growing Gaming Market
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The Power of Play:
Exploring the Growing
Gaming Market
Aug 2024
Sector Research
Executive Summary
The Indian and Global Gaming Market: A Rapidly Evolving Landscape
The Indian gaming market is set to grow substantially, projected to reach $8.6 billion by 2027, while the global market is
expected to hit $340 billion.
From FY 2020 to FY 2023, the Indian gaming industry has experienced a remarkable 28% CAGR.
Regulatory Challenges and Industry Responses
However, the introduction of a 28% GST on total deposits for real-money gaming (RMG) companies, up from the
previous 18% GST on gross gaming revenue, has created significant challenges, including:
●
Geographical diversification by RMG companies seeking more favorable tax regimes
●
Shutdowns and stalled revenue growth for some firms
●
A funding winter and layoffs across the industry
Evolving Business Models and Regulatory Advocacy
In response, RMG companies are making structural changes to their business models to ensure viability.
They are also actively advocating for regulatory authorities to devise taxation standards similar to those in other
countries, which typically tax based on gross gaming revenue rather than total deposits.
Emerging Opportunities in Gaming
The segments that have the potential for significant growth in the coming years:
●
Blockchain in gaming
●
AR/VR gaming
●
Generative AI in gaming
Understanding the Gaming Landscape
To provide a broader context, the deck covers the gaming sector’s parlance, value chain, and three key metrics
relevant to every gaming company:
●
Engagement
●
Genre
●
Monetization
Bright Spots in the Gaming Ecosystem
Despite the challenges, certain segments of the gaming industry have shown promising growth in engagement, user
base, and investor interest:
●
Esports
●
Indie game studios (“estudios”)
●
Mobile-based casual games
Executive Summary
Evolution of the Gaming Industry:
Past to Present
A Basic Roots Consulting Deck
Which
Segment
of the Entertainment Industry is the
Largest?
Gaming Industry (GI)
~$200 Bn
(3)
OG* of Entertainment Industry
* OG – Original Gangster
Hollywood ~$40 Bn
(2)
Music Industry ~$25 Bn
(1)
Gaming industry is 8x of Music Industry,
5x of Hollywood
1989
Beginning of new tech
race: Nintendo
entertainment system
releases Mario, revives
console
1977
1983-85
A Journey through
Decades
7
1972
Rise of Arcade: Pong
becomes first
commercially successful
arcade
1975
1982
1985
Release of first
Home console: Atari
releases first home
version of Pong
Sales through the roof:
Atari sell million units of
home console
(4)
Raining Money: Arcade
making more money than
pop music and box office
The video game crash:
Eager to capitalise on a
growing market, companies
flood market with poor
quality devices and games
6
5
4
3
2
1
Gameboy:
Release of first
handheld
90s
2001-2020
10
Early ‘90s
1997
PC emergence:
PC games started
gaining popularity
The battle for market
dominance: Market split
between PC, Console,
Handheld and Arcade
The new beginning: Nokia
release cell phone with
“Snake”
The Mobile gaming
revolution: Mobile and
internet is set to change the
way games are played
forever
11
10
9
8
At Present
Mobile games
dominates the Industry:
capturing >50% of
Market
The Gaming Industry takes the World by Storm
A Market on the Rise
$198 Bn
(3)
$340 Bn
(3)
2022
2027
Gaming Market Set to Fly
~50%
(3)
Share
Source : EY
India has a long way to go
Beyond Gaming: Exploring the Emergence of a
Robust
Supporting Network
$ 39.3Bn
PC Gaming
Hardware
$ 39.7Bn
Mobile Devices
$ 9.3Bn
Gaming Video
$ 12.0Bn
Gaming Accessories
$ 1.3Bn
eSports
$ 100Bn+
(3)
Gaming Industry –
Value Chain
IP/Brand Owner:
Owns the brand/IP for the game | Receives licensing fee as a share of revenue
Developer/Game Studio:
Designs, develops and tests the game |Undertakes live ops (updates, fixes)
Publisher:
Takes the game to target audience through distribution and marketing | Partners with
developers for game tweaks, market needs
Distributor:
Offers games through platforms for end-gamers | Majority of casual games through
play/app stores | PC and console games also through console stores and platforms
Advertising agency/network:
Serves advertisements through their networks | Ad requests sent directly to
networks/mediation platforms |Publisher earns revenue for displaying ads
Gamers:
Individuals playing games } Categorized as casual, mid-core, hard-core, professional
Example: Candy Crush players, Fortnite players, Esports athletes.
1
2
3
4
5
6
Evolution of Indian Gaming Industry
A Basic Roots Consulting Deck
A Quick Glimpse on how the Last Few Years looked like
in India
Number of Gamers
FY 22
FY 23
FY 24E
397M
425M
443M
FY 22
FY 23
FY 24E
22%
25%
28%
% Share of Paying Gamers
Online Gaming Market Size
$ 2.6 Bn
Current
$ 8.6 Bn
By 2027
Investments in Gaming Cos
~$ 2.8 Bn
Investments since FY 20
Key Stats
~90%
gamers in India are
mobile gamers
India has captured only
~1.5%
of the global
market by revenue
10-12 Hours
Average time spent by per
active
user on gaming in a week
RMG comprises of
~82.8%
of
market share in FY 23 with more
than
400 RMG startups
Source : EY, GT, Blume & BRC Research
RMG – Real Money Gaming
India has Mix of
Homegrown & Global Players
,
Competing across Value Chain (1/2)
Players
Place in Value
Chain
Enablers
Enablers
Content
development
Role
Game Tech
Game Tech
Independent
IP owners
Content
development
Content
development
Players
Place in Value
Chain
Role
Independent
IP owners
Independent
IP owners
Content
development &
Marketing
Studios &
Publisher
Content
development &
Marketing
Studios &
Publisher
Content
development &
Marketing
Studios &
Publisher
Content
development &
Marketing
Studios &
Publisher
Content
development &
Marketing
Studios &
Publisher
Content
development &
Marketing
Studios &
Publisher
Content
development
eSports Team
Players
Place in Value
Chain
Marketing &
Distribution
Role
Gaming
platforms
Players
Place in Value
Chain
Role
Content
development
eSports Team
Marketing &
Distribution
Gaming
platforms
Marketing &
Distribution
Gaming
platforms
Marketing
Ad networks
Marketing
Ad networks
Distribution
Esports
League
Distribution
Esports
League
Other
Enablers &
Interface
App Stores
Payment Gateways
Devices
Social Media
Platforms
India has Mix of
Homegrown & Global Players
,
Competing across Value Chain (2/2)
When the Industry Showed a lot of
Promise
, What
Changed the
Trend
?
9.5 Bn
game
downloads in
2023,
capturing
16%
of the global
market share in
downloads
The number of
gamers was
projected to
grow
significantly
Changes in
Regulations:
Instead of 18%
GST on GGR,
28% GST will be
charged on
the total
deposits
Substantial
Funding
Decline
from
INR 12,740
Crs
in FY 22
to
INR 796 Crs
in FY 23
Resulted in
Layoffs
Tax Notices
Shutdowns
Hit on Margins
GGR – Gross Gaming Revenue
Source : EY
The
Impact
of the Change in Numbers
Before
After
GST @18% on Gross Gaming Revenue
GST @28% on Total Deposits
Rounds
Contribution by Player X
Contribution by Player Y
Platform Fee @
11%
GST on Platform Fee
@ 18%
Prize Pool
Winner
Round
1
100
100
22
3.96
174.04
X
Round
2
100 (from Winning Pool)
100 (Additional
Contribution)
22
3.96
174.04
Y
Round
3
74.04 (from Winning Pool)
+ 25.96 (Additional
Contribution)
100 (from Winning Pool)
22
3.96
174.04
X
Round
4
100 (from Winning Pool)
74.04 (from Winning
Pool) + 25.96 (Additional
Contribution)
22
3.96
174.04
Y
Round
5
74.04 (from Winning Pool)
+ 25.96 (Additional
Contribution)
100 (from Winning Pool)
22
3.96
174.04
X
Final Cashflow Position
Net Contribution
(A)
Net Amount Won
(B)
Difference
(B – A)
Player X – wins 3 rounds
151.92
174.04
22.12
Player Y – wins 2 rounds
225.96
74.04
-151.92
Rounds
Contribution by Player X
(Inclusive of GST)
Contribution by Player Y
(Inclusive of GST)
Platform Fee @
11%
GST on Deposits @
28%
Prize Pool
Winner
Round
1
128
128
22
56
178
X
Round
2
100 (from Winning Pool)
128 (Additional
Contribution)
22
28
178
Y
Round
3
78 (from Winning Pool) +
28.16 (Additional
Contribution)
100 (from Winning Pool)
22
6.16
178
X
Round
4
100 (from Winning Pool)
78 (from Winning Pool) +
28.16 (Additional
Contribution)
22
6.16
178
Y
Round
5
78 (from Winning Pool) +
28.16 (Additional
Contribution)
100 (from Winning Pool)
22
6.16
178
X
Final Cashflow Position
Net Contribution
(A)
Net Amount Won
(B)
Difference
(B – A)
Player X – wins 3 rounds
184.32
178
-6.32
Player Y – wins 2 rounds
284.16
78
-206.16
A
t the end of 5 games, the net outcome for both the players stands negative indicating
that both the players are losing money irrespective of whether they are winning or losing
the game.
One Way Outcomes : Winners May Lose Losers Lose More
Under the new GST regime,
winners may end up losing money in some cases
, while
losers incur losses that are 35.7% more
, as
illustrated below.
Has RMG Adjusted to 28% and this is the
New Normal
?
Strategic adjustments and business pivots by online gaming companies post the GST amendment
Evaluating the
tradeoffs:
Impending wave of
industry consolidation
Product innovation
and diversification
Whether or not to absorb the GST
impact:
–
absorb the entire GST liability
–
pass on the burden partially or
completely to the users
Smaller companies either winding
up or undergoing acquisitions
Considering innovative strategies to
reduce CAC, improve unit
economics and exploring non-RMG
gaming alternatives could provide a
means to diversify revenue streams
Geographical
diversification
Cost rationalization
measures
Advocating for the
Policy Change
The GST amendment provides further
impetus for RMG firms to diversify
operations into other geographies,
offering a viable growth lever
RMG companies are prioritizing
cost-cutting measures to combat
the challenging unit economics
and achieve sustainable growth
Industry bodies like FIFS, EGF, and
AIGF have been actively engaging
with policymakers to highlight the
adverse impact of the GST
amendment
Source : EY
International Standards
for
Regulating and Taxing Online
Games
By studying and potentially adopting best practices from these international models, India could create a more favourable
environment for its online gaming industry, aligning with global standards and attracting more international investment.
Source : EY
How does the Gaming Industry Operate?
A Basic Roots Consulting Deck
3 Dimensions
of Modern Gaming
Engagement
Genre
Monetization
Higher multiplayer
interaction seen in
action and strategy
type games
IAPs are more viable in
complicated action or
strategy type games where
users are more invested
Multiplayer gamers, on avg. spend
2-3x more than single player gamers.
Game IP also monetized through
people engaging as “spectators”
Source : BCG
IAPs- In App Purchases
Engagement:
Multiplayer sees Higher Time Spent
Source : BCG
Introduction of new gaming genres
Positive Impact of Rise in Smartphone and Tablet
Ownership
Casual /
Hyper-casual
Classic
Mid-core
Hard-core
Action
Casino
Sport
Multiplayer
Battle
Adventure
Board
Strategy
Shooting
Puzzle
Word
Racing
Massively
Multi Player
Game Genres
Smartphone
Users
Internet
Users
Gamers
Paying
Users
~1.1 Bn
~759 Mn
~120 Mn
~450 Mn
Market Expansion Fueled by
Emerging Game Genres
and
Increasing Smartphone Adoption
Casual / Hyper-Casual &
Classic
Mid-core
Hardcore
Mobile
PC
Console
Source : Blume Gaming Bluprint
Indian Games
Comprehensive Gaming Ecosystem:
User Types and
Platform Preferences
Global Gaming Devices: A Breakdown of
Mobile, PC,
and Console Popularity
3 Bn users
1.2 Bn users
Presents most
lucrative revenue
opportunities
Leading way to
cloud gaming
Mobile Gaming
PC Gaming
Acting as an enabler to
other opportunities like
e-sports, sports video,
accessories
Console Gaming
600 Mn+ users
Generally dominated by casual gamers
Dominated by hardcore and
midcore gamers
The Device Selection Depends on the Budget and Gaming Preferences of the User.
Mobile Gaming – Packed With
Casual Gamers
India’s mobile gaming industry is growing, with ~
90%,
of 450+ Mn users playing casual games
Key Characteristics
•
Played across devices
•
Simple and easy-to-learn
gameplay
•
Free-to-play or low cost
Casual / Hyper-casual
Mid-core
Hard-core
Professional
Key Statistics
•
Google Play store has ~18,000
games published by Indian
distributors.
Breaking it down based on skills
Casual Games
•
Players who enjoy video games
designed for ease of gameplay
without devoting significant time
to it.
•
Playing it spontaneously and
irregularly
•
Players with a wider
range of interest
than casual gamers
but would not
dedicate as much
time as a hard-core
•
Players who spend
considerable time
and effort, typically
in complex games.
•
A full-time
competitive player
who plays games for
a salary or prize
money
Rise of
eSports
eSports
is
competitive video gaming where teams participate in organized tournaments for games like Call of
Duty, Fortnite and a variety of game genres like real time strategy, first time shooters, battle royale etc
eSports
Game Developers & Publishers
Tournament Organizers
Games
Infra / Accessories
Teams
Streaming Platforms
eSports represents the intersection of gaming and competitive sports, combining elements of both to create a unique and rapidly growing
global industry.
India’s Gaming Paradox:
High Downloads
,
Low
Monetization
Despite leading in global game downloads, India’s
monetization
rates lag significantly, highlighting the
untapped potential
and the
long journey ahead for Indian gaming companies
Source : Blume
Monetization
majorly Led by
Real Money Games
Real Money Games (RMG) – Card and
casual based
•
Includes any type of game played
online
•
Real money is wagered on outcome
of the game
Real Money Games (RMG) – Fantasy
League
•
Players make virtual teams online
•
Monetary rewards from the overall
prize pool based on points accrued
Characteristics
Beyond Casual
Gaming
After huge success of RMGs, now traditional casual games and new categories are enabling sachet size
betting, fading the line between casual games and RMG.
RMG Contributes ~
82%
of total revenue of the Gaming Sector in India
Gaming Companies across Sub-Segments are Focusing
more on
Monetization
Subscription
Ad Revenues
In-App
Purchases
Commission
The Indian market is heavily skewed towards revenue
from the top 20 apps, with 90%
(5)
of user-generated
revenue coming from these applications.
Companies Are Typically Opting for
More Than 1
Monetization Model
Brands recognize the high engagement levels
of gaming company TG, leading to significant
ad revenue.
Despite being a small percentage, subscription
revenue is becoming a promising revenue
model for hyper-social games.
The emergence of real-money games has
significantly increased the potential revenue
from commission.
IAP are projected to grow at the highest rate at
around 35% CAGR with the rise of paying users
being across casual and core genres
How much do the Established Companies make
Players
Revenue 2023/2024 (in
USD Bn)
27.5
HQ
Year of Establishment
Japan & US
China
24.0
13.4
15.5
Japan
China
US
9.8
US
8.5
1993
2003
1974
1997
1974
2008
15+ Companies are generating
over a billion dollar in
revenues.
..And They are only
Getting Larger
Historically gaming sector has seen large consolidation, and it continues to see the same trend.
Acquired in 2020
~ $7.5 Bn All Cash Deal
(7)
Acquired in 2022
~ $68 Bn – All Cash Deal
(8)
50+ Deals in 2021
(12)
Over 20 Investments in Last 3
Years
*
* Despite being under regulatory scanner
Acquired
in 2022
~ $3.6 Bn
(9)
Acquired in
2022
(10)
Acquired in
2022
(11)
Acquired
in 2023
*
* Tracxn
Investments in Indian Gaming Startups and Companies
A Basic Roots Consulting Deck
Source : Blume & Tracxn
India’s Gaming Industry:
High on Gamers, Low on
Funding Love
Recently
Funded Indian
Gaming Companies
Blockchain
Casual Mobile Game
Streaming
Content
Community
Casual game has remained favorite pick for the Investors
eSports
Total Fundraise
Last Fundraise
Total Fundraise
Last Fundraise
$8.5 Mn
$8.5 Mn,
Seed – Apr 24
$5.25 Mn
$5.25 Mn,
Seed – Mar 24
$2 Mn
$2 Mn,
Seed – Sep 23
$1.5 Mn
$1.5 Mn,
Seed – Oct 23
$700 K
$1.5 Mn,
Seed – Oct 23
$3.91 Mn
$2.2 Mn,
Seed – Jun 23
$1.54 Mn
$1 Mn,
Seed – Apr 24
Real
Money
Gaming
$396 Mn
$2.6 Mn,
Tranche
of Series E
– Aug 23
Studios
$20 Mn
Undisclosed,
Series A – Jul 24
$50 Mn
$20.3 Mn,
Series B – May 23
$38 Mn
$22 Mn,
Series A – Sep 23
$3.91 Mn
Undisclosed,
Seed – Apr 24
$84.9 Mn
Acquired
$1 Mn
Undisclosed,
Angel – May 23
$1.1 Mn
Undisclosed,
Angel – Dec 23
Where does the
Opportunity
lies Next?
The gaming industry is about to undergo significant transformations in the next 3-4 years
AR and VR in Gaming
Integration of AR and virtual reality
solutions in mobile and wearable
devices and people’s craving for
immersive gaming experiences
propel this growth
Generative AI in Gaming
Generative AI revolutionizes gaming,
enabling dynamic, responsive
experiences with AI-generated
content and characters that adapt
to player actions in real-time
Competitive Multiplayer
Mobile Gaming
Multiplayer mobile games, fueled by
the esports phenomenon and titles
like PUBG Mobile, are set to dominate
the gaming landscape in 2024 and
beyond
Blockchain-Based Gaming
Gaming could gain benefits from this
technology in making in-game
purchases safer
Studios
Studios innovate gaming
experiences, driving advancements
in graphics, gameplay, and
storytelling, making them pivotal for
the industry’s growth through
immersive content.
1
2
3
4
5
Who is
Investing
?
Some of the Top Tier Funds Are Investing Across the Value Chain Collectively
Thank You
A Basic Roots Consulting Deck
Basic Roots Consulting | teambrc@basicroots.in
1.
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2.
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3.
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4.
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5.
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6.
https://en.wikipedia.org/wiki/Video_game_publisher
7.
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8.
https://news.microsoft.com/2022/01/18/microsoft-to-acquire-activision-blizzard-to-bring-the-joy-and-community-of-gaming-to-everyone-across-every-device
/
9.
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10.
Sony acquires Savage Game Studios, announces new PlayStation Studios Mobile Division
11.
https://www.theverge.com/2022/7/18/23268693/sony-investing-esports-repeat-gg-tournaments
12.
https://gamedaily.biz/article/2043/tencent-has-already-closed-51-games-related-deals-in-2021
13.
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14.
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15.
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16.
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18.
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19.
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20.
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21.
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Source
& citation
