Strategist| June'22 | Online Gaming - An Offbeat Industry

ConQuest CONSULTING AND STRATEGY CLUB IIM SHILLONG

presents

STRATEGIST ONLINE GAMING AN OFFBEAT INDUSTRY

ISSUE 5 | VOLUME 10 | JUNE EDITION

ABOUT ABOUT THE THE CLUB CLUB ConQuest, the Consulting & Strategy Club of IIM Shillong, was founded in 2008 with a vision of delivering sustainable solutions to society by acting as a forum between the industry and students passionate about strategy and consulting. It strives to equip the students with domain knowledge and skills by facilitating consulting assignments, expert talks, online newsletters, and competitions.

The team publishes a quarterly magazine to bring to light a trending sector of the economy. Through this magazine, we aim at giving a platform to candidates of B-Schools across the country to share their thoughts along with bringing forth enticing discussions from the industry stalwarts.

TEAM CONQUEST

AANCHAL CHOWDHURY

ADITI PATHAK

DEEPALI SINGH BAGHEL

NAVAL MITTAL

PARIDHI JAIN

PRATIK RATHI

SHRUTI GUPTA

VIVEK BANSAL

YUGADHYA MATHURIA

CONTENTS CONTENTS Editor's Desk

4

Different business models in industry

5

Online gaming v/s traditional gaming

10

Effect of COVID on gaming industry

14

Challenges faced by gaming industry

18

Revenue Model of the sector

20

M&A of various gaming companies

21

Ask the team - Q&A

24

References

30

CONTENTS| 3

EDITOR'S EDITOR'S DESK DESK In this edition of Strategist, we take a look at the Gaming Industry, which is one of the most trending industry in India. PC, console and mobile gaming companies are using the latest in tech to bring their games to the screens of more than two billion people all over the globe The edition begins by covering how different business models are present in the industry and how do they differ in developing and developed countries.

Due to the advent of Covid-19, this sector has garnered special attention.

The online gaming vs traditional gaming section talks about the how the online gaming has emerged as a threat to the traditional forms of gaming. The accessibility and affordability is becoming a boon for the success of online gaming.

Another major thing that made this industry stand out was Covid-19, which has created opportunities for this sector. We are also discussing the key Challenges that are being faced by the online gaming legal regulations being the most important one.

This edition also talks about the revenue models currently being used by the companies and some of key major Merger and Acquisitions activities that have taken place.

We are also presenting our views on how online gaming has evolved over the years, the government support and how technologies are helping bridge the gap.

EDITORS'S DESK | 4

Which different business models are present in the industry? Discuss the comparison of the business models between developing and developed countries and the career prospects in the field.

-Dheeraj Velaga, IIM B

WINNER'S ARTICLE | 5

Introduction Though referred to as recession-proof, the video games industry never ceases to amaze curious observers in the business arena. Video games must be engaging. Gamers get bored and stop playing if a game slips down on the engagement quotient, even by a notch. This fundamental aspect has kept the industry on its heels. Given the industry's evolution over the past three decades, we feel an urge to associate the adjective "transformative" with the gaming industry.

Evolution Traditionally, games were sold offline through retailers, either as CDs or games attached to a gaming console. The console would mostly be sold at cost or even at a loss to make money later by selling games tied to the console, with higher margins.

With the rise in internet usage and availability of reliable infrastructure, gaming companies found new ways to communicate with their target audience and distributed their games through the Internet, bypassing the intermediaries. But this was dominant in developed economies. Massive Multiplayer Online (MMO) games such as EverQuest and World of Warcraft, accessible on a monthly subscription basis, became a cash cow for the game developers.

Companies also started selling virtual items inside the gaming environment, which became another source of steady, recurring income. Figure 1 shows the percentage of people using the Internet among Asian countries in June 2012. This timeframe was selected because it was an inflection point where the next significant shift happened in the gaming industry: the rise of the social network.

Figure 1: % of people using Internet (left), % of people subscribed to Facebook (right), Asia, June 2012

Rise of social network Thanks to rapid internet penetration, social networks such as Facebook started becoming extremely popular worldwide. Figure 1 shows the percentage of people subscribed to Facebook among Asian countries as of June 2012. Game developers realized the massive potential of Facebook and started developing games for the platform.

People flaunted the games on Facebook to their social network, thereby freely promoting the product. Also, instead of waiting for months to release a fully polished game, developers started releasing games with a minimal number of playable features (Minimum Viable Product - MVP). They then improved the product based on real-time user feedback.

This MVP approach to game development required a reset to their existing business model and monetization strategy. Since this could not be sold upfront like a fully developed unboxed game, they came up with the " Free-to-play " concept. People could play these games for free, but they had to spend money (In-App-Purchases) within the game to speed up the game or unlock special features.

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Games like FarmVille had 60 million monthly active users [5] at one point in 2009. This business model became a massive hit among gamers and brought a behavioral change. Accessing playable content for free became a basic expectation, disrupting earlier monthly subscription-based business models. Super successful MMO games such as World of Warcraft started losing users at an alarming rate due to this disruption.

The gaming industry was no more confined to a specific set of people. Thanks to the rapid emergence of these platforms and the Internet, many "casual" gamers got involved, thereby increasing the potential market size. Augmenting this fact was the next disruption: The rise in the usage of smartphones.

Smartphones: The next big thing Apple AppStore and Google Play store became efficient online marketplaces for games. Games represent more than 50% of the paid apps on Apple AppStore, contributing to about 70%.

With top-notch games readily available through their mobile phones, they exploded in popularity. In 2009, Angry Birds became the most downloaded freemium game, and even a media franchise was launched after the colossal success.

More game developers started publishing their games through these app stores (~130 games/day) through the "Free-to-play" route. Fierce competition ensured that even a minimum price of $0.99 could not attract a sizeable chunk of gamers. The developers make money either by ads or by facilitating in-app purchases. Candy Crush Saga for mobile, released in 2012, popularized the idea of limited plays and in-app monetization.

With mobile platforms not going anywhere and gaining increasing relevance, game developers sought innovation within the ecosystem. In 2016, Pokémon Go introduced Augmented reality in its mobile game and reached 500 million downloads in one year. And popular PC and console-based games such as Fortnite were ported to mobile platforms in the subsequent years.

Gaming in Metaverse As Metaverse is gaining popularity, companies have started spending hundreds of millions of dollars to build games in the metaverse. Epic Games, a $ 29-billion video game company is planning to invest $1 billion to enhance its Metaverse presence. Niantic, developers of Pokemon Go, are also investing millions of dollars to develop experiences similar to Metaverse.

Developed versus the developing economies Based on the maturity of the gaming development environment and market size, one can bundle China, the USA, Japan, the UK, and South Korea as one cluster of developed economies. The propensity to pay for online games is also high in this cluster. We found out that this cluster has high levels of development and consumption.

China is the largest gaming market with total revenue of $ 24.3 billion, followed by the USA with revenues of $ 23.5 billion in 2016. Though local volumes are less for a country like South Korea, they drive the development of online games for the developing world. China is self-sustainable in gaming and has strong local development and high consumption volumes.

But in developing economies such as Brazil, India, Thailand, and Malaysia, the market is characterized by significant volume and high consumption. Still, the local development is minimal owing to a lack of a highly skilled workforce and expertise in relevant technologies.

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Figure 2: Business model canvas for a game development company

Business Model Canvas The evolution of the gaming industry and its business models have been discussed so far. Now we zoom out and focus on the commonalities in this industry from a strategic perspective. To do this, we use the business model canvas, which is like a shared language for describing and visualizing changing business models.

Figure 2 shows the business model canvas that covers all the crucial aspects from a game developer’s perspective and focuses on essential things in terms of desirability, feasibility, and viability of the game.

How is India faring specifically?

A report by KPMG states that the Indian gaming industry would grow at a CAGR of ~ 28%, driven by ~ 310 million gamers by the end of 2022. Puzzles, action, and adventure games are preferred across age and gender groups in India. Friends, family, and peer groups are the three primary sources through which an average Indian is introduced to online games.

The fantasy sports market in India is booming with a CAGR of ~ 32%. Dream 11, India's largest fantasy sports platform, registered more than 100 million users in 2020. With more in-house talent and an increase in funding and investments in the gaming sector, analysts are optimistic about the contribution of Indian game developers in fulfilling the local demand.

Career prospects With growing investments and increasing gaming ecosystems, this gaming sector has created new streams of revenue generation. According to All India Gaming Federation India has currently an user base of 360 million and it is expected to grow at a faster rate than that of the global online gaming segment. Affordable technologies, demand for immersive, interactive and localized themes, coupled with growth have increased the career prospects. With India’s tech savvy youth and perennial supply of engineers, India has the right environment for gaming industry to prosper.

Paul Greenberg, a veteran in the gaming industry, has studied successful businesses in the gaming industry over the years and has identified 7 elements that are recurring. His article was very relevant to the current context.

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Traditional career prospects, in this industry are game programmers, designers, testers, Pro-gamers, and publishers but with the advent of social media platforms, new career opportunities or people of interest grew.

Few examples of these are game reviews, focused investments, story writing, animations, content creation, and audio engineering.

With the birth of ecosystems such as Metaverse and advancements in AR, traditional jobs such as coaching, trading, marketing, and consulting are moving to digital platforms. Apparently, gamification is not only helping people have fun but also in various other fields such as recruitment (fitment assessment), competitive testing (as part of entrance evaluation), cognitive and mental health analysis, and customer profiling (during online purchases). Covid and quarantine norms have only increased the demand for diversified games and screen time.

With the amount of forecasted growth and increasing awareness, India is not only a market but a career factory.

Figure 3: An infographic highlighting 7 elements in successful gaming business models.

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Online gaming beats the traditional form of entertainment! What’s the strategy?

-Divya. T, Anna University

RUNNER UP | 10

At first, games were designed to test mainframe computers and networks in the mid-20th century.

The Arcade games were invented in the early 1970s, and by 1982, they were already generating more money than the traditional form of entertainment like movies & music. After 1982, personal computers and home consoles became popular among people for playing games of high quality.

Yet, not everyone could afford or had the access to pc or console. In the early 2000s, the surge of the internet and mobile phones caused the expansion of online games. The games with Massively Multiplayer Online (MMO) subscriptions got more attention among people. With the advent of smartphones and social media platforms, online games were made easier to access. Presently, the global online gaming market generated revenue of $18 billion. The industry is expected to reach $19 billion by 2023.

Pc and console access for complex games was an entry barrier in the online gaming industry. PUBG by pubg corporation broke this barrier by introducing pubg mobile. This move was welcomed by gamers as a huge number of gamers were smartphone users. PUBG has 40 million active users and a downloads count of 1 billion. These are the result of the product design strategy. The strategy involves “The Hook model” from the book Hooked

by Nir Eyal. This model explains how to build an addictive product using four human behavioral elements. The four behavioral elements are the trigger, action, variable reward, investment. A trigger consists of internal and external triggers. The internal trigger of pubg game is boredom and external triggers are game notification, social media ads, friends calling to play. The game gives daily rewards as a motivation to play every day. The action element of the pubg game includes people initiating actions to get the reward and adrenaline rush. The third element is the variable reward. A person who has a winning streak will end up playing with highly skilled people and vice versa. This process makes the winning reward variable and tempts gamers to play again. The last element is the investment which increases the perceived value of the game. The coins gained, weapons purchased and other in-app purchases increased the perceived value of the pubg game. All these strategies were then adopted by many other games and kept the gamers hooked to the games. This way online gaming companies understand human behavior and design strategies to counter the competition from the traditional form of entertainment.

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Gaming as a service is another strategy of the online gaming market. Improvised game versions are not to be treated as a separate product but as an upgradation. Some complex games cannot be made mobile compatible. They can only be played using consoles or PCs. Here is where cloud gaming comes into play, allowing the server to act as a processor. Using this cloud gaming system, people can play complex games of high quality even on mobile. Unlike older days, gamers don’t have to buy a separate unit of games, all games will be available in a cloud gaming service with an affordable subscription charge.

Ludo king by Gametion technologies is a classic example of how an online game counters the competition from the traditional form of entertainment. Selling emotions is a strategy used by every industry and the online gaming industry is not an exception. Nostalgia has always worked for any product. Ludo is a traditional board game that has roots in South-Asian countries. Ludo king allowed players to play the game online through mobile and people made a social connection to play despite the distance. About 75% of online gamers report making good friends within their gaming community. Another strategy is pricing. Ludo King introduced small packs starting from Rs 10 for in-app purchases. This cost is far less than any traditional form of entertainment.

Content customization according to the local market is one of the strategies used by online gaming companies. For instance, Indian gaming companies and foreign gaming companies are trying to understand their Indian customers and adopt Indian customs into gaming. Providing customerspecific content attracts more audience than general content.

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Engaging with the right influencers is an important strategy in the online gaming industry. Currently, online game streaming has a huge audience. Engaging with gaming influencer who is pertinent to the particular game or brand is a great move. The influencer will promote the game and influence their huge audience base to try playing the game. For instance, the game Brawl stars by Supercell was promoted by gaming influencers before launch. This resulted in 5 million registrations for the game.

This way people spend their time playing online games than spending time in traditional form of entertainment.

Brand integrity is also an important strategy for all brands. Online gaming companies do campaigns considering societal issues. For instance, to promote the game Monster Legends by Social Point Games, they chose Mark Fischbach as an influencer. When he did a campaign for a social cause his huge audience was also keen to check out his review of the Monster Legend game. People are likely to switch brands if the brand is not engaged with any charitable cause or social campaigns.

In this era, inclusivity is a strategy chosen by any brand. Nowadays, online games have not just male characters, but also characters of multiple racial, sexual, and cultural backgrounds. This representation and diversity add value to online games. This effort makes users more engaged in the game. Women influencers prefer games with women representative characters. Also, games with diversified characters influence the diversified audience. Thus, online games make the world a better place than the traditional form of entertainment does.

The strategies adopted by market players to counter the competition from the traditional form of entertainment are hard to confine in an article. From the above-mentioned strategies, I can conclude that online games are becoming more accessible, affordable, and relatable to their users. These strategies are helping the online gaming industry to make progress and it is obvious that the industry is beating the competition from the traditional form of entertainment.

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How has the industry been affected by Covid19? Discuss its impact and the opportunities created for the industry in the context of the Indian market.

-Apoorva Verma, GLIM Gurgaon

RUNNER UP | 14

COVIDeo Game Industry Since the dawn of time, games have been a part of our lives. From KhoKho to Call of Duty, the progress is evident.

The definition of games that comes to mind throughout time and with the aid of technology is video games. Video games have developed over a variety of mediums. Over the years, evolution has resulted in consoles getting more advanced, PC games becoming multi-player and more complicated, and the emergence of a whole new ecosystem of mobile games. India is the world's second-largest internet consumer, with over 560 million subscribers. The online gaming market in India has grown from $870 million in 2019 to over $1 billion now, according to KPMG, and by the end of 2024, investors can expect a 10-year growth outlook and a 3.8 billion dollar valuation.

Why is there a rise in gaming noticed in India?

Video games are gradually displacing traditional games, which has a direct impact on how internet users use their leisure time. The accessibility of platform and game distribution mechanisms is a major contributor to the surge in online gaming enthusiasm. This, as well as several other elements, such as the availability of games on mobile phones, COVID's ability to draw us away from our televisions, revolutionized advertising, its impact on mental health, and its usage as a coping strategy, are all contributing to its growth. Mr. Mukesh Ambani gave this business another significant boost when he brought cheap internet connections to India through Jio, which accelerated the entire smartphone adoption, resulting in a spike in gaming consumption.

Because of the widespread use of the internet, greater awareness has been generated. While some people play games for the sake of amusement, a small number of people have turned gaming into a full-time job. Gamers have seized this profitable opportunity by utilizing popular free streaming sites such as YouTube and Twitch to broadcast live to a waiting audience. We have now been exposed to a broad array of popular video games thanks to large Indian streamers.

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Covid-19 and Gaming in India “The pandemic played a huge part in the growth,” – Soham Thacker, the founder of Gujarat-based e-sports start-up Gamerji.

India had been keeping up with other gaming markets in the region in terms of game creation before the COVID-19 pandemic. In India, the COVID-19 pandemic, which has resulted in lockdowns, has encouraged the growth of online gaming. Virtual zones became channels for socializing, connecting, and competing, and time spent on games increased considerably. Furthermore, approximately 75% of Indians use the internet daily, with persons aged 16 to 29 being the most frequent users, making online gaming accessible to the majority of the population. Gaming's image in the country is also shifting from a generally negative to a more positive one. In conclusion, India's gaming business is expanding, and society is becoming more accepting of the activity.

Impact of the pandemic #1: Offline tournament cancellations While offline esports tournaments were halted owing to the lockdowns, the popularity of esports, in general, skyrocketed during the shutdown. Companies were forced to switch to an online-only tournament gaming format as a result of the lockout. The PUBG Mobile Pro League South Asia, which was set to begin in New Delhi in March, was postponed a week and replaced with an online event.

While some physical esports events were cancelled as a result of the pandemic's social distancing tactics and the focus swiftly switched to online-only mode, the prize pools and awards for most esports events and championships continued to rise to new heights, with some even paying up to several lakhs in prize money to the winners/top performers for acing a tournament! #2: Increased internet gaming accessibility The increase in traffic on gaming applications and websites is the most logical effect of the COVID19 ban in India. According to Publicis Groupe India, gaming time spent increased by 41% from March 1 to March 21. People who only played for 2 hours earlier, started playing for 4-6 hours.

Popular games like Ludo King, PUBG Mobile, Clash of Clans, and Teen Patti - Online Poker see increased playtime. More people registered to join gaming sites as a result of the lockdown.

Adda52Rummy, an online game platform, noticed an increase in traffic as more people joined from different parts of the country. Previously, the site was only popular in South India. Since the lockdown, however, the network has experienced an increase in users from other areas of the country, including Delhi, Kolkata, and Gujarat cities. In April, mobile game downloads surged substantially, peaking at 197 million in a single week, 75 percent higher than the previous quarter's weekly average. #3: Increasing Number of Games available for Playing The esports sector in India has exploded in recent years, especially after the success and popularity of PUBG Mobile competitions and/or esports titles in the 2018-19 period. Even when PUBG was banned in India by the Indian government last year (because to privacy concerns), the Indian esports community rapidly switched gears and shifted to other action games like FreeFire, Call of Duty, DOTA, and many others!

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#4: Recognition of beneficial aspects of gaming by the government Local governments have also jumped on the gaming bandwagon, as seen by Kerala's creation of a coronavirus-themed mobile game. Kerala's health department, in collaboration with Thrilok Games, launched the Covid Run mobile game on April 28 to raise public awareness about the epidemic. It's worth noting that in India, there is no single dedicated piece of legislation or specialized statute governing the content of video games. As a result of the pandemic, more favourable publicity and economic benefits of gaming are likely to emerge. #5: Increased investors and private brands/companies’ attention With India emerging as a global powerhouse of talent with massive growth potential in esports, many small to large brands (both gaming and non-gaming companies) are looking to get a piece of India's thriving esports pie by jumping on board through various innovative avenues such as title sponsorships, player or squad sponsorships or collaborations, in-game brand promotions, and so on.

Way forward for gaming in India The ongoing pandemic has had terrible implications for numerous industries in our country, but it has also proven to be a boon or a force-and-growth-multiplier for many others. While the COVID-19 pandemic caused a large number of socio-economic problems in India, it also opened up new chances for the country's gaming sector. The rising popularity of Indian gaming is due to the fact that many people are now housebound and have few leisure activities to choose from. To date, online gaming has aided public health efforts to enforce effective spatial distancing during the pandemic, as evidenced by the World Health Organization's collaborative campaign (#PlayApartTogether) with the online gaming industry, which encourages people to stay at home and limit the virus's spread.

Furthermore, as gaming becomes more popular in the country, the industry's chances of being recognised and supported by the government may improve. The pandemic has already shifted Indians' attitudes toward gaming, encouraging more individuals to try it out for the first time. While the amount of time spent gaming will decrease as more people return to work when the pandemic ends or when hybrid mode becomes prominent, the number of Indian gamers will continue to rise because people are already habituated to online gaming as a type of leisure activity.

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Challenges faced by the Gaming Industry!!

-Team ConQuest Legal regulations It is challenging to talk from a legal standpoint about the gaming industry’s rules and regulations. Just like there are different types of games that are played throughout the world, specific rules and regulations follow each category of them. For example, it’s essential to understand the difference between gaming and gambling, as the line between these two is often blurred, especially when competitive games are in question. Texas Holdem Poker has different regulations than other browser games that are played, for instance. On the other hand, it’s essential to address the popularity of esports, which is basically a combination of sports and gaming. World tournaments in different games (such as the already mentioned League of Legends or Dota) are so popular that they are even broadcasted on national television. For these games and esports in general, the regulations are somewhat more complicated. These laws include gambling laws, sports laws, and even laws on prize promotions. However, all of this depends on how the games are structured. Companies that deal with these games also have to pay attention to the rules, regulations, and limitations on sponsorships.

Market saturation Suffice it to say that gaming and online gambling have become quite popular industries and a massive appetite for them. What is even more important, the appetite is going to increase even more in the future. Why is this so? Because it’s relatively easy to build and launch an online casino website where you will sell your services – the most challenging part is the development level during which the games are created and then picked up by different operators. Moreover, new games are being created on a daily basis, which makes it rather challenging to pick up new users, while old games sometimes have more operators. One of the best ways to ensure that your users stay with you is to find a website with payment options that cater to everyone’s needs. Depending on the user’s country, there are people who do not like to link their bank account directly to the game website or casinos gaming application, so alternative payment methods come quite handy here. This is a great way to stay one step ahead of the competition by giving all users worldwide an equal chance to use your website and be a part of the experience.

Loot Boxes All gamers know what loot boxes are, but you might need some clarification if you’re familiarizing themselves with this industry. Loot boxes are digital files that come in the form of rewards in a game. This is something that’s rather popular in practically all games, regardless of the genre, developer, or way it’s played. Users very often pay high prices for loot boxes and only then get the opportunity to open them and see what they got for their games. Even though in many cases users get something convenient for their character or game per se, there are times when the value of the loot box is smaller than the amount the user paid for the actual loot box. This could be

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classified as gambling, which means that different regulations come in place. Another problem here is the fact that plenty of minors buy loot boxes, without realizing what they actually are. The general opinion is that loot boxes will not disappear, but they might be redesigned in the future in order to eliminate this gambling aspect of them.

The End-User Experience The pressure to retain players is very strong nowadays, and nothing should be left to chance. This is one of the reasons why gaming companies should always look to create rich, connected, and personalized experiences that users will love. This is also something that will increase the gamer’s lifetime value.

What many fail to understand is that even the smallest bug or inconvenience can affect the player and their desire to continue playing that game or visiting the website in question. So, gaming companies must make sure that the graphic user interface is always running smoothly, that all interactions are prompt and that all data is correctly analyzed. Apart from that, gaming companies should also worry about churn rates. Since the competition is incredibly high, the acquisition and the retention of users will significantly vary. The most important churn happens in the first couple of minutes of a game. This can sometimes be an hour – depending on the genre of the game. For example, in NBA gaming the churn happens at least after one played match. So, thinking about what to do to make users stay on the game, application, or website is one of the most burning questions. In order to do this, but also enhance the end-user experience, specialists at gaming companies must determine what is it that keeps their users engaged and what pushes players to churn.

Development, production, and marketing The gaming industry market is growing rapidly, which means that the pie is getting more extensive, and everyone wants a piece of it. But because of that, all companies must invest a lot in development, production, and marketing costs. These are often very high, and it’s definitely a challenge this industry has to face. But in order to create a budget for each of them, especially the first two, you have to succeed at the latter and make people come to your website or your gaming application. Targeted marketing is crucial here. It’s very important to make the gaming products reach precisely the people interested in what that gaming company in question has to offer. In-game advertising is one way to do this. Thanks to data proliferation, marketers worldwide find it easier to target the right audience based on their interest levels and demographic profiles. We all have to understand that the more we target an ad, the more valuable the impression will be.

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Revenue Model in the Indian Online Gaming Sector -Team ConQuest

Gaming companies in the Indian market employ several strategies to increase engagement and generate revenue. Here’s an overview of the different revenue models of Indian gaming companies:

Free-to-play In this model, games are provided to users free of cost. Here, users get full access to the game as soon as they download it, but advertisements are shown from time to time. So, ads are the major source of revenue for free-to-play games. Also, revenue is generated when users want to access premium features in the game. An apt example of a game that employs this model is Free Fire, where full access is provided to the game from the very start but users need to pay if they want to customize their character or buy items.

Demo and full version Several gaming studios have been employing this model lately. Here, a demo version of the game is initially released to give the user the taste of the actual game. Users then have the option to pay to get full access of the game.

Freemium The freemium model is another popular monetization strategy in the gaming industry. This model provides free services but users need to pay to get access to more advanced features. These games sometimes also include advertisements as a source of revenue for the developers.

Play-to-win In the play-to-win model, users who pay for premium items have an advantage over free gamers. Unlike premium users, free gamers may need to spend a considerable amount of time to unlock the premium items or the features might not be available for them.

Pay to play In this model, gamers can use real money to buy-in game coins, which allows them to play a certain game. For instance, on rummycircle.com, an online gaming portal for card games, users have the option to use real money to buy chips, which would allow them to try their hands at different games and take part in various tournaments. Other ways to generate revenue include selling game merchandise, cobranding with the game, and more.

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How are the merger and acquisitions of various gaming companies shaping the funding provided to the industry?

-Team ConQuest

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The gaming industry, a multimillion-dollar industry which has been associated with hardcore gamers and space invaders, has experienced a steep expansion with a rise in mobile phone usage and the entry of millions of new players due to lockdowns during COVID-19. The increased potential for revenue in the gaming business has pushed digital publishers to engage in the industry, in an attempt to (better word) increase their revenue and drive such an engaging and interactive audience towards their organizational goals. 2020 effectively leveled the playing field for investors, leading to a number of mergers & acquisitions (M&As) in the gaming business.

Key Market Drivers ► Growth of local game developers ► Emerging gaming genres ► Large gaming audience ► Higher disposable income ► Ease of transactions Indian gaming market grew by 22% YoY to reach US$2.2 billion in 2021 and is expected to reach USD4.01 billion by 2026. With one of the world's largest youth populations, India is expected to become one of the world's leading market destinations in the gaming industry. The growth in the country is driven by the growing younger population, higher disposable incomes, the introduction of new gaming genres, and the rapidly increasing number of smartphone and tablet users.

Real money gaming accounted for 54% market share by revenue stream, followed by in-app purchases at 26% and ad revenue at 15%.26 This rapid growth is enabled by ~450 million gamers (2021) and a paying user conversion rate of 20%. India’s percentage of first new time paying users in gaming is the fastest growing in the world at 50% (2021), up from 40% in 2020. Novel forms of monetization such as virtual gifting, tipping, and subscriptions are also seeing traction. Newforms of gaming such as hyper casual, social games, esports, real money games, increased local production and Indianization of content to include vernacular language options has further expanded the user base.

Future Outlook Real money games and e-sports to drive future growth while the gaming companies plan international expansion, validating their business models in India. More than 200 game production companies have started up in the previous two to three years, producing their own intellectual properties (IPs) for games.

Additionally, technological advancements like artificial intelligence, machine learning, and cloud services are democratizing game creation and enhancing the gameplay. Introduction of vernacular languages and Indian themes are expanding the addressable user base. Indian gaming market is expected to grow at ~30% CAGR over FY21-FY26. This growth will be driven by in-app purchases (CAGR 40%) and real money gaming (CAGR 30%) segments. While Indian gaming population is expected to increase by 1.75x over CY20-CY25E, paid gamers are expected to reach ~240 million by 2026, from 96 million in 2021.

This rapid growth will be enabled by successful upscaling in gaming firms and their ability to popularize and mainstream mobile gaming among Indians.

The Indian gaming industry is set to be on a high growth trajectory, with rapid digitalization and transformation, increasing internet usage and rising smartphone penetration. The domestic gaming industry is expected to create 10,000–12,000 direct and indirect jobs by 2023. In the following two years, it is expected to attract US$ 100 million in foreign direct investment (FDI). These factors indicate bright prospects for the industry. With big conglomerates such as Reliance planning to enter the industry to India’s first homegrown triple-A title, its gaming industry is set to reach US$ 5 billion by 2025.

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M&A in Gaming About 744 million U.S. dollars were secured through 13 merger and acquisition deals for the Indian digital gaming sector in 2021. This was an increase from the previous year's investment volume and value. The highest deal value of about 10.6 billion dollars was made by Modern Times Group on PlaySimple Games that year.

Gaming is now at an inflexion point with greater investment and consumer traction. With growth-oriented private equities now participating, gaming is poised to attract greater capital across stages, and increased cross-border M&A. It is expected that improved regulatory coverage or judicial clarity, especially in the real money gaming space will further boost the growth. Early-stage investments have spanned actively on e-sports and casual gaming and are witnessing good growth. Some of the big investments include USD 225 million investment in Dream11 (September 2020), USD 90 million investment in Mobile Premier League (November 2020) and USD 68 million in Nazara Technologies (January 2021). The sector is likely to see multiple unicorns as investment accelerates in the space. E-sports gaming ecosystems are likely to see greater traction, while some games may see dip in traction as COVID ends and people head back to work.

Key Deal Rationale ► Strategic Value Creation: A portfolio that is diversified in terms of genres, audiences and revenues ► Expanding/Entering Indian Market: Due to huge potential of growth in Indian market ► Expand Product Portfolio: Expand offering in real money gaming segment

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Q: What factors are contributing to the popularity of real money gaming and its growth as an industry?

A: For our country, a couple of factors provided the crucial petri dish for the growth of gaming industry to explode. Today India is one of the world’s fastest-growing online gaming markets. The induction of affordable smartphones in the market set the ball rolling, but the fuel to the fire was data packs available at throwaway prices. Jio proved to be a game changer, online gaming stopped being a luxurious pursuit. Mobile gaming in India accounts for 90% of the market share with over 3 billion downloads and the penetration of the smartphones has seen a sharp increase. India’s gaming market which is currently generating $1.5B revenue is expected to triple to over $5 billion by 2025 on the back of the ‘mobile first’ phenomenon. The potential of real money is exponential, out of the approximate 450 million online gamers in India only about 12-15 percent are real-money gamers – i.e. gamers who pay to play.

As the skillsets of the gamers proliferate, developers too are upto the task, using new and emerging technologies, pushing the gaming experience boundaries, making it more immersive. Online games are now equipped with video chat feature that allows an Indian gamers siting in a remote village to interact through live video and real time chat with someone playing in South Korea. This is adding to the overall gaming experience bringing in more players each day. Fantasy sports revenue increased nine times in the pre-pandemic years between 2017-18 and 2019-20, reaching 16,500 crore while e-sports revenue is expected to rise at a CAGR of 36% over the next three years.

COVID-19 induced social distancing turned out to be an inadvertent assistance for the industry, as it provided the online gamers an opportunity to build friendships online and stay connected for years as they turned to online games for relief, an escape if you will.

Another piece to this puzzle is the rising streaming content and commercialization of gaming. As we transition to this new world order, dominated by Instagram influencers and YouTube content creators, online content, specially games will continue to capture the imagination of the masses.

Prime example is FaZe clan, and their journey resonates with the youth, as they became the first ever esports team to be featured on the cover of a famous magazine called Sports Illustrated. This shows how the boundaries of traditional and online gaming are getting blurred as more money pour into the online space.

Q: We are all aware that Covid has been a major thrust provider for the gaming industry. However, has the boom continued in the post-covid era?

A: The growth of the gaming industry in the Covid years, that is, 2020 and 2021, has been immense and reflects human behaviour during difficult times. When everyone was locked inside their homes due to government restrictions, everybody took to gaming to connect with friends, pass the time and spend some discretionary income which was no longer reserved for night-outs and vacations. Covid19 marked a definitive turning point for the gaming industry, but now the game makers are certain that the industry will never see such high unprecedented financial growth as it did in 2020.

The gaming industry is not being in a continuum with growth because the consumers have become reacquainted with leaving their homes, returning to the office, and traveling more often. Now, the industry has to chart a path toward a post-pandemic future that recognizes what worked during the pandemic, what won't keep working, and what's a more realistic expectation of gaming's new CONQUEST | 25

standard going forward. Although the industry is still experiencing some growth and has a bright future, people have started playing real money games more often than not, which opens the scope for newer ideas in the industry, accelerating growth.

This reality check hasn't stopped investors, for now. The game industry has emerged as one of the hottest investment markets in the world over the past nine months, with a record $71 billion in deals across nearly 1,000 transactions, according to a report released this week from investment firm Drake Star Partners. Now even the investors who know nothing about the industry want a piece of the pie of the fast-growing industry showing the confidence that everyone has in this industry that the best years are yet to come. But in many of the areas that count most for the short term, the industry's growth is starting to lag, and it's going to take careful maneuvering for game developers to weather the slowdown after last year's high.

With people taking up their hobbies and working on them during COVID-19 is not something which the consumers will retain as their work will not allow them the time. Although the number of people playing games decreased in 2022 from 2020 and 2021, it is still much higher than in the prepandemic era of 2019. It clearly shows the interests of people in the gaming industry.

"Despite the decline in the number of people playing video games, the industry continues to see growth in the number of hours spent gaming," NPD wrote in its report. "There was a dramatic increase in time spent playing games from 2019 to 2020, with average hours played per week jumping from 12.7 to 14.8, respectively. And the growth continues, increasing to 16.5 hours per week this year."

The game industry is already among the largest and most potent entertainment sectors in the world, and it's only going to keep growing as more people play games, buy gaming hardware, try mobile gaming for the first time, and spend more money often on free-to-play games. 2020 marked a watershed moment for the industry, and it's not easily or likely ever replicable again without another world-changing shift in behavior like the pandemic. But it's clear now more than ever the industry has only its brightest days ahead.

Hence, we can say that Covid-19 was a significant thrust provider for the gaming industry, but this industry's post-pandemic era stands bright. However, this industry's growing numbers will always be higher than it was during Covid-19.

Q: Where does the gaming industry stands in comparison to other nascent industries? And does India have the potential to be a leader in this field?

A. The online gaming industry in India has been one of the fastest growing sector, with a growth of approximately 40% in the previous year. The user base has expanded to surpass the total number of gamers in the US. Out of all modes of online gaming, smartphone gaming is the most common one.

This can be attributed to easy availability of affordable smartphones catering to the need of the Indian customer and also surge in mobile internet connections, primarily due to revolutionary introduction of Reliance JIO. Demographics have also played a critical role in expansion of the industry. In India, there are already more than 430 million mobile gamers, and by 2025, there are expected to be 650 million. India is the second-largest internet consumer with more than 560 million subscribers. Mobile phone users make up an overwhelming 85% of the industry in India, followed by PC users at 11% and tablet users at 4%. The Indian gaming industry is now dominated by mobile CONQUEST | 26

gaming, which accounts for more than 90% of the $1.6 billion market and is projected to increase to $3.9 billion in value by 2025. The country might gain thousands of jobs from this emerging sector.

To support expansion over the next few years, several gaming start-up companies are anticipated to finalize their hiring plans.

The availability of reasonably priced smartphones has grown at a rate of 15% annually over the previous five years, according to the World Economic Forum (WEF), making mobile the main platform for the Indian gaming sector. The possibility for a streaming gaming experience is tempting for these phone manufacturers when combined with the ability to operate on a 5G network (in development) and high-speed Wi-Fi with the lowest data tariffs in the world. Additionally, the smartphones have grown more reasonably priced and come with powerful technology that can run games that may need medium to high requirements. Because of this, more people now have access to more immersive gaming, and smartphone manufacturers are increasingly focusing on adding specific gaming capabilities to their newest models and releasing phones made just for gaming.

Even while casual games are still the most popular genre in India, the rise of hardcore gamers has been fuelled by the country's increased gaming time. Hardcore games, however, are profitable. An average of Rs. 230 is spent on games by almost 40% of hardcore players each month.

Huge investments are also being drawn to the gaming industry. In the last six months alone, there has been about $1 billion spent in the gaming industry. For instance, the biggest multiplex operator in the nation, PVR Limited, established a collaboration with gaming company Nodwin Gaming to stream e-sports competitions in its theatres. "Consider this the country's IPL for e-sports. Consider theatres as the locations for the games, like stadiums.

Q: How has been Government support? Finance Minister Nirmala Sitharaman recently announced that the government will set up an Animation, Visual Effects, Gaming and Comics (AVGC) promotion task force for boosting talent in the animation and gaming sector.

A: The Animation, Visual Effects, Gaming and Comics (AVGC) promotion task force will help in framing national policy and promote further education and skilling initiatives in these fields in collaboration with academic institutions and vocational training centres. This is essentially needed for the employment push in these sectors. As the Information and Broadcasting ministry has said that India has the potential to capture 5% i.e., about $40 billion of the global market share by 2025 with the CAGR of 25-30%, leading to creation of atleast 1,60,000 jobs annually. The sector indeed has the potential to a be the face of ‘Brand India’ or ‘Create in India’. As we have seen with various sectors in the recent times, a structured support by the government for any sector is not only needed but also give a guideline for future development of the sector.

Traditionally, the youth of our country are presented with very few career options and further on even fewer jobs. With the government formally discussing about the sector on bigger platforms, it will also aid in reforming the sector and making it more formalized from the current unorganized state. I believe that this will also help in enhancing exports and attracting FDIs in this sector. In addition, this will make the industry competitive with better qualified talent pool entering the sector year after year. Market development activities to boost the global reach of the Indian AVGC industry can also now be carried out with renewed enthusiasm. This support creates an environment of winwin for all the stakeholders involved in the process and will definitely help in bringing these areas in the mainstream.

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Q: How has technology played a role, given the prevalence of artificial intelligence and data science these days?

A: The gaming industry is rapidly evolving, aided by the proliferation of smartphones and the enormous traction gained during the recent lockdowns. At the moment, there is still untapped potential for innovation in this space as new gaming technologies enter the fray. AI and data science are two of the most significant disruptions propelling the industry forward. That being said, here are some ways in which AI and data science have been improving the gaming experience:

1.

Gathering user insights

Gaming platforms or apps that have a significant user base win. Attracting many players necessitates a consistent flow of user experience and feedback to improve gameplay and overall user experience.

Manually collecting and analyzing such massive amounts of data is impossible, highlighting the importance of data science in this sector. Industry players are using AI and data science tools to record real-time unstructured data and then streamline it to gain insights and improve. Actively improving user experience through data science is significantly increasing customer acquisition and retention, and thus platform revenue.

2. Enabling Monetization Aside from subscriptions, gaming platforms stand to profit from in-app purchases that aim to improve end-user gaming experiences. Gaming companies are deploying personalized offers using AI-led behavior analysis. AI is also being used to predict user behaviour that leads to in-app purchases and prompt users with offers when the time is right. Personalized marketing is helping apps attract new users by simplifying user acquisition to the specific game or even directing them to the company's other games.

3. Reducing drop-offs The first step in reducing drop-offs is anticipating potential customer churn, which is where AI comes into play. AI-powered predictive analysis and data science are assisting gamers in identifying user trends that occur just before they exit the game. This helps them forecast churn and prevent it by increasing engagement at these critical points. Game developers are using machine learning to gain insights into the causes of churn and improve the user experience to reduce the rate of drop-offs.

At the end of the day, gaming is all about keeping players engaged. The adaptive, responsive, and interactive gaming environment created by AI and data science is unquestionably a step forward for industry participants. They can use this to create a game with unrivalled longevity - one that users simply cannot put down!

Q: What are the possible career prospects if someone who wants to work in the gaming industry?

A: With the gaming industry show casing a double-digit percentage growth each year, it has become one of the most sought-after career opportunities. The industry becoming so widespread generally has some attached connotations to it with one being the necessity of learning coding. Though, the knowledge of different coding languages does provide an add-on advantage in the industry but however, it significantly does not mean the people with lack of knowledge of coding could not get CONQUEST | 28

into this industry. Today, the industry is not just about creating games but also building a community where the job of creative minds come into play. Apart from game development there are different areas of interest like game design, game art, marketing, data analytics, etc.

With the gaming industry still being in the growing phase there are ample learning opportunities and the possibility of practicing your creative thoughts where you can actually observe the impacts that it might create. So, if you are interested in the gaming sector and have a high passion for gaming and the zeal to learn something new each day then this would be the industry you should try and pursue a career in.

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References http://www.gamasutra.com/view/feature/132013/analyze_this_is_the_video_game_.php https://doi.org/10.1007/978-981-4560-61-0_12 http://everquest.station.sony.com/ http://us.battle.net/wow/en/ http://allfacebook.com/farmville-surges-past-60-million-monthly-users_b8168 https://www.visualcapitalist.com/50-years-gaming-history-revenue-stream/ https://assets.kpmg/content/dam/kpmg/in/pdf/2017/05/online-gaming.pdf https://www.zdnet.com/article/the-most-advanced-business-model-in-the-universe-thepcvideo-games-industry/ https://www.aigf.in/game/career-in-indian-gaming-sector/ https://cult.honeypot.io/reads/10-metaverse-jobs-that-will-exist-by-2030/ https://aws.amazon.com/solutions/casestudies/dream11/#:~:text=About%20Dream11,more%20than%20100%20million%20users.\

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