Is It Worth Investing In Online Gaming Industry In India?

The article discusses the gaming industry worth and whether it's good for investment or not.

2020 was a watershed year for most industries globally, in view of the extreme disruption in business activities caused by the COVID-19 pandemic. New concepts became the norm as work-from-home models emerged. The extended hours spent in the confines of one’s home also changed the face of conventional entertainment. 

The gaming industry in India, which had been poised for slow, stable growth, suddenly took off with huge investments being made all around, and the trend is only expected to continue. This seems fantastic, as is the implication for the industry. But what does it mean for your money?

Indian gaming industry attracts huge funds

Last year's investments in the established and emerging video game industry have captured investors' attention with regard to this year's gaming industry. Everyone was left wondering - is gaming sector good for investment?

The gaming industry in India garnered USD 544 million in investments between August 2020 and January 2021, and this figure is expected to triple over the next 12-18 months, indicating that the gaming industry will experience rapid expansion in the near future. Recent investments reveal investors' neoteric curiosity, including a USD 225 million investment in Dream11 (September 2020), a USD 90 million investment in the Mobile Premier League (November 2020), and a USD 68 million investment in Nazara Technologies (Jan 2021).

Additionally, Nazara's subsidiaries - Nodwin Gaming and HalaPlay - raised capital from Krafton and Milan Ganatra. Adman Sajan Raj Kurup, Chairman & Founder of Creativeland Asia, made a 40% investment in the start-up Revenant Esports. Kwalee, a UK-based game developer and publisher, is preparing to invest USD 30 million in India operations over the next five years. There has been a rise in cross-border interest in mergers and acquisitions.

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Indian gaming sector is maturing fast

With one of the world's largest and youngest populations, India is positioned to become a worldwide leader in the gaming industry. Currently valued at USD 885 million, the Indian gaming industry market is expected to grow at a 41.6 per cent CAGR between FY2021 and FY2025, owing to the expansion of digital infrastructure and a significant increase in the availability of high-quality and engaging gaming content. Also, with Digital India and other Indian government initiatives, there’s been a boom in smartphone penetration.

With over 500 million smartphone users in India (as of December 2019), the mobile games market has surpassed desktop gaming, accounting for 85 per cent of online gaming. So, it is rather obvious that various game developers will leverage the growing number of smartphone users, their simplicity of use, and their high penetration. Casual games, card games, fantasy sports, and esports are the four primary divisions of internet games. These games are either free or have a freemium model, or they require users to pay as they go. Additionally, there are gaming content platforms that foster player ecosystems.

In a recent report called ‘Indian Gaming: At an Inflexion Point’ by Maple Capital Advisors Pvt Ltd, there has been an increase in cross-border interest in mergers and acquisitions, and there are indicators that numerous companies may achieve unicorn status in the next 1-2 years. It is also anticipated that investment in gaming sector will increase over the next 12-18 months.

According to the survey, India accounts for 15% of worldwide gaming traffic, with the market likely to double in the next five years. According to Maple Capital Advisors, investments in the sector have surpassed USD 500 million in the last six months, exceeding the previous five years' investments and predictions. 

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The report notes that the gaming industry in India has reached a tipping point, with increased investment and consumer traction. With growth-oriented private equity firms now participating and Nazara Technologies launching its first substantial IPO, investment in gaming will undoubtedly attract big investors across all phases.

According to the survey, healthy consumer traction, which accounts for 15% of worldwide traffic, is the result of increased awareness and engagement, and it is expected to accelerate. Maple Capital anticipates expanded regulatory coverage and judicial certainty, particularly in the real money gaming market.

Notably, the survey notes that consumer visits to online gaming websites and apps increased by 24% last year, while user engagement tripled. Simultaneously, a 30% increase in online mobile gaming traffic was also seen in 2020. Last year, mobile game downloads reached 197 million, and the free-to-play mobile gaming app ‘Ludo King’ became a COVID-era phenomenon.

Gaming industry in India from an investment angle

While the global crisis significantly impacts the current economic environment, a few sectors in India are expanding despite the terrible circumstances. While investors engage in EdTech and healthcare without regard for optimal timing, the gaming industry in India becomes more attractive to investors after assessing the calculated risk. 

Sajan Raj Kurup, who made a recent investment in Revenant Esports, explains why he chose the video game industry over other sectors. “From a commercial standpoint, investment in gaming is not restricted to a single endeavour. The media will play a significant role. In general, I would say I’m open to investing in anything that contributes to a pleasant environment. Overall, gaming sounded like an excellent combination - it integrates entertainment, athletics, ability, media, intellectual property, and broadcast.”

Kurup believes one can’t go wrong investing in something like esports at the moment, as it does not require one to go out and interact. He says: “Esports is the least socially acceptable form of sport. With the anatomy of pandemics and the current state of the planet, we will live in a bubble for some time. It is unlikely to return to normal very soon. This might be an exciting period as the new culture takes shape. I truly believe that the game industry is thriving. Personally, I don't view it as a significant risk, but rather as a calculated one.” 

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Profitability and the Indian gaming industry

Now comes the million-dollar question: What’s the profit in gaming? Well, India's gaming business, valued at Rs 9000 crore in FY2020, is expanding at a breakneck pace, thanks to the country's rapidly growing internet population. The second significant element fuelling this increase is that over half of India's population is under 25, the primary gaming demographic. According to KPMG's Media & Entertainment study, India's mobile gaming market user base is expected to be over 365 million, a considerable percentage of the overall mobile users.

Lloyd Mathias, angel investor and business strategist, predicts: “For investors, this is an ideal setting in which to invest, with a large market, quick growth, and increased mobile and internet penetration facilitated by inexpensive data tariffs. With the growing popularity of mobile gaming, this will continue to be a sweet spot for a very long time.”

“Investors must be on the lookout for gaming businesses that are innovative, uphold intellectual property, and produce mobile-first games based on customer knowledge. Additionally, they must keep an eye on rapidly growing segments of gaming, such as esports, where subscribers are eager to pay for the experience. Another developing area is fantasy sports, though potential legal obstacles could stymie its expansion,” he adds.

By Bharat Prajapati - 
Bharat Prajapati is a Commerce Graduate from Mumbai. He is the founder of Newsilike.in wherein he heads the Brand Communication, Digital and Partnerships."