Emerging Markets: India
India has one of the world's fastest-growing economies, but what role does gaming play in the lives of its vast emerging middle-class?
The rapid spread of 3G wireless technology across India was one of the most quietly significant stories of last year. India is one of the world's fastest growing economies, supported by 1.2 billion people who had no consistent access to affordable broadband internet until a little over 12 months ago. In 2010, wired broadband connections reached less than 1 per cent of that vast population - 3G connections surpassed that within the first few months.
These are the very early days of India's connected culture and business. Operator charges and Android handsets are still beyond the reach of a great swathe of the population, but those costs are only coming down, and the GDP is only going up.
For Robin Alter, co-founder of the Mumbai-based developer Kreeda Games, it's an important moment in the country's economic development. Kreeda is now a game developer, but Alter and two colleagues started the company with an ambition to become India's first MMO publisher. He had travelled widely in Asia working in IPTV and contracting for companies like IBM. He had seen the rapid growth of online gaming in China and South Korea, but India was lagging behind. The internet was too expensive and too scarce for that kind of online gaming to be a viable business, but it was 2005 and every analyst foresaw an imminent explosion in broadband connectivity.
"I'm absolutely sure that India is the next frontier for many gaming companies. India is still untapped"
Robin Alter, Kreeda Games
"But that didn't happen," he says, "It was a good bet. The problem was that PCs and broadband just weren't hefty enough... It's basically happening now with 3G. Combined with the proliferation of cheap smartphones, it is an unprecedented degree of connectivity."
Alter puts the number of smartphones in the country at 30 million, but the number of people with active mobile phones is on the far side of 800 million. Smartphone penetration doubled last year, but Alter expects it to go "much, much faster now." That means the rise of social networking, more refined and secure e-commerce, and, of course, the emergence of a huge market for videogames.
"I'm absolutely sure that India is the next frontier for many gaming companies. India as well as Brazil. But Brazil has had a lot of interest and done very well in the last few years. India is still untapped."
Putting The 'Free' In Free-To-Play
Kreeda Games' tale is not unusual. Jugul Thachery started his business, Chayowo Games, in 2007. There was no iOS, no Facebook, no Android, and only "a couple" of other developers. Most of the work available was outsourced from companies in Europe and North America, but the arrival of these new, relatively low-cost platforms was more significant than any of Chayowo's existing plans. There was no sensible choice other than to, "go with the flow."
Of course, social networks and smartphones have disrupted markets the world over, but it's important to remember that India didn't really have a market to begin with. For developers, these platforms are all raw potential and boundless promise, but actually making the economics work for consumers is proving to be a challenge.
"The problem with the Indian consumer is how to monetise," says Thachery. "If you offer a Freemium model that is profitable in the West, they will play for free but the monetisation is really limited. They will just continue to play for free. They wouldn't want to pay for an extra upgrade."
India's new smartphone users aren't used to entering credit card information into payment gateways, and operator billing, the most common alternative method of payment, means losing a huge chunk of revenue. "Unlike in Europe where the operator keeps only 10 or 20 per cent, here the operator keeps 70 per cent," adds Thachery. "So developers are not keen on that model."
However, both Thachery and Alter firmly believe that free-to-play is the most viable model for the direction that India is currently heading. As the spread of connectivity improves e-commerce and builds trust among the rapidly growing number of consumers, the benefits will naturally trickle down to game developers seeking new methods of monetising their products. Alter's early experience publishing MMOs taught him that there is always a sweet-spot for micro-transactions. In 2006 it was nominal amounts like 1 rupee and 5 rupees; not enough to sustain a publishing business, but that is quickly changing.
India remains a very price-sensitive country, but its population has a high tolerance for advertising. As long as there's no charge for the product, the intrusive in-game adverts that led to the rise of micro-transaction based models in European and North America are more than welcome. Given time, higher standards of living will see that market for free games turn into an even larger market for low-cost or Freemium games.
And the conventional wisdom is that Android will get there first. At the Mobile World Congress in Barcelona last week, Google CEO Eric Schmidt said that the company's mobile partners were pushing towards the "ultimate goal" of $70 Android smartphones by next year. Once packaged into deals by mobile operators, these devices could retail for less than $30.
Apple is also keen to drive the price of an entry-level iPhone down, but the open-source nature of Android will keep it one step ahead for India's prudent consumers and nascent development scene.
Creating A Culture
Even though the emerging market for mobile gaming is experiencing teething problems with regards to generating revenue, it is still serving a valuable purpose in the country. Rajat Ojha is president of Version 2 Games, the first Indian developer to receive a PlayStation 3 dev kit, and the first to release a game for the current generation of consoles - the PSN car-combat game Smash 'n' Survive.
Version 2 started out as the simulation developer Zen Technologies. As the team acquired more experience with popular technologies like Unreal Engine 3, Ojha decided to make the unprecedented leap to console development. The studio has two more downloadable console games in development. If all goes according to plan, Version 2's fourth project will be a AAA retail release aimed at an international audience.
Ojha seems entirely confident that the studio will achieve its lofty goal. However, he is keen to point out that, at this stage in the evolution of India's games industry, console development isn't exactly a "cash cow." Ojha grew up playing Carmageddon and Road Rash; the move towards console was motivated by passion rather than profit. When an American developer plays the 'passion' card it can occasionally ring hollow, but there's no doubting Ojha's sincerity.
Like Robin Alter's ambitions to be the country's first MMO publisher, Ojha is making a bet that this is the optimal moment to kickstart next-generation console development. Version 2 may not be making any mobile games, but the spike in their popularity will help seed a gaming culture in the country, stirring up national interest in all forms of gaming.
"Mobile gaming has brought gaming culture into India," he says. "The country didn't have that culture at all, and thanks to the mobile liberation it is now very much in everybody's hands and everybody's thoughts - Angry Birds, Cut The Rope, and all those other games."
"There used to be 15 studios in India, probably three or three-and-a-half years back, and today there are now more than 500 studios...for mobile, for Facebook, and all those things, because they are the places where you can actually control your destiny."
This is a key trend. Finding the right business model may be difficult, but there are now hundreds of studios making profit, however small, from game development. As consumers define their comfort zone in terms of pricing and methods of payment, those companies will start to make more money and better games, which will, in turn, stimulate even more interest in gaming. At least, that's the idea.
"The current young population, the young consumers coming up, have grown up playing games, but not before," says Chayowo Games' Jugul Thachery. "The generation getting out of college and school already have mobiles, they are already on Facebook, so there is much more exposure and internet penetration."
"It's a natural thing that they will spend money on games. Earlier [younger consumers] used to only spend money on movies, but that shift is definitely going to happen."
And the leading players in mobile and social gaming are certainly taking notice. Every developer we talked to for this article admitted that they had met with Rovio, Zynga, EA and other major companies on several occasions. However, rather than regarding the hungry eyes of these behemoths as a threat, the majority could see only opportunity. Western mobile games are already popular in India; the arrival of their creators would flood the market with high-quality, properly supported products, but it would also mean more outsourcing work and potential partnerships.
There used to be 15 studios in India, probably three or three-and-a-half years back. Today there are now more than 500 studios
Rajat Ojha, Version 2 Games
"They are already targeting India," Thachery says. "Just yesterday morning I was speaking to the Zynga guys here. Not really from a development point of view, but from a consumer point of view also they want to target here. And I was checking out the number one grossing app on iOS devices today and it is already Zynga Poker."
"So they will definitely target here. There is huge monetisation potential due to the sheer size of the population. Even if the ARPU is down [relative to other markets]...you have maybe 100 times the population."
"In the last two months there have been a lot of visits by some of the biggest in the industry," says Ojha. "Square Enix came to India, there was a group of people from Activision, EA keeps coming to India, and of course Sony."
"So they are definitely taking a lot of interest in the Indian market. Of course the primary interest is always outsourcing, but at the same time they are definitely getting serious about setting up their shops here or collaborating with Indian studios... There is a big picture kind of thing there. India is now definitely showing up on the global map of game development."
The Console Conundrum
India is huge a huge country in a number of different ways: landmass and population, obviously, but also in terms of cultural diversity. There are 30 languages spoken by more than 1 million people, and the top 10 have at least 30 million speakers each. Hindi is by far the most common language with 41 per cent of the total population, but it would be reasonable to assume that localisation is a major issue. Actually, the opposite is true.
The sheer variety of languages and cultures has resulted in English becoming a common language - particularly in the cities, where the majority of gamers and potential gamers are found. Casual titles like Angry Birds have simple enough interfaces for localisation to be only a small impediment to their success - particularly when compared to a country like China - while the sheer cost of console gaming naturally limits its audience to the country's wealthiest and most educated young people.
Among console gamers, the most popular releases are all too familiar: Call of Duty, Grand Theft Auto, God of War, Battlefield, Halo, Fifa. There have been a small handful of attempts to develop console products specifically for an Indian audience - Hanuman: Boy Warrior (PS2) and Ra.One (PS3) are prime examples from the last few years, and a Move-enabled game called Street Cricket is due for release this month - but Version 2's Ojha claims he has never met anyone who has "played and completed those games." As things currently stand, the Indian console audience doesn't require that approach.
The only real obstacle to deeper penetration for consoles in India is price. Milestone Interactive has been distributing consoles and software since 2001, when it brought the PlayStation to India for the first time. The PlayStation 2 followed in 2003, the PlayStation 3 in 2007; the gap between the hardware's worldwide release and introduction to India shrinking with every generation.
According to Milestone's founder, Jayont Sharma, the console market for all platforms is still limited to less than 2 per cent of Indian homes - generally those with annual income above $25,000 - but that number is growing every year. A driving force behind that growth is the PlayStation 2. Ever since the introduction of the PlayStation 3, the PS2 has retailed at a price-point low enough (around $100) to make the console viable in what Sharma calls "tier two and tier three cities" - generally, those with 1 million residents or less.
With the right support, Sharma believes that the console market in India could become highly lucrative. With yet another generation of consoles looming, the day when an Xbox 360 or PlayStation 3 can be sold at $100 and still make a profit are only a few years away. At that point, the PlayStation 2 could be manufactured and sold at a price that would make it accessible to an unprecedented amount of the population.
The product is right, but greater penetration - particularly after the emergence of social and mobile - will require a long-term strategy involving driving down costs through the local production of hardware and software. Right now, only Sony seems to be contemplating such a move - in April 2010, the company ended its longstanding agreement with Milestone to bring distribution back to Sony India.
"I don't think there's an issue of content suitability," says Sharma. "If one can get to India aggressively, invest in expanding the base and increase penetration levels, and make the product a lot more affordable - we do need the products to be around one-third the price of what they are in the US."
The average income per capita is rising every year - growing 16 per cent to reach Rs50,000 last year - and Sharma agrees that the demand for games will rapidly increase as the nation's youngest consumers gain access to more disposable income. However, a new DVD, CD or movie ticket retails for around 20 per cent of the equivalent item's price in Europe and the US, while a copy of Deus Ex: Human Revolution on Xbox 360 can cost the equivalent of £35.
With more than a decade of experience selling consoles in India, Sharma understands that, as long as it is still manufactured by Sony, Microsoft or Nintendo, console hardware will eventually reach an attractive price-point. Software, on the other hand, is different.
Retail And The Black Market
"Indians are typically very, very value conscious in that we don't mind paying extra for a piece of hardware, as long as we don't have to pay anything for the software," Sharma says, echoing Kreeda and Chayowo's comments regarding micro-transactions. "We pay more for a diesel car, because the cost of fuel is cheaper than for a petrol engine."
The problem is the black market. A cheap imitation of virtually any high-end consumer item can be found on the streets of India's big cities. Traditionally, if you weren't in the upper class and wanted access to Western pop culture the black market was your only option. Even for those in the vast emerging middle class - around 350 million people - it remains something of an institution.
"You can get any Xbox title for $1 in the market, and then you're good to go. The same thing is happening with PS3 also," says Version 2 Games' Rajat Ojha. "Piracy is definitely big, and especially with gaming, people take it for granted."
"Games, by Indian standards, are still very expensive. In fact, we have been suggesting to Sony India to produce the games here... That would actually cut down the whole cost to probably one third. But they are importing all the games, and that works out, for most of the people, to be one-fifth of their salary for one game - that kind of thing. They don't mind going down to the market and playing $1 for an Xbox 360 game. You can get a [retail] Xbox 360 modded for $30."
For Sharma, the solution lies with another rapidly evolving aspect of Indian society: retail. "India is at the early stages of that mall culture," he says. "In the last six to eight years we've had a lot of new malls and new shopping centres open up, where every store that retails games will have to trade in legitimate product. I can say that 1200 to 1400 stores across the country will continue to carry legal product."
And that number is increasing, not least because of Game4u, Milestone Interactive's burgeoning retail chain, created when Sony's decision to internalise distribution left Sharma with a sizeable hole in his business. Milestone enjoyed great success as India's premier distributor of gaming products, but it relied on major Western companies like Sony, Microsoft, EA and Activision keeping their distance.
Sharma, like everyone else we spoke to for this article, believes that their arrival is only a matter of time, and a move to legitimise game retail in the country would both speed up that process while establishing a reliable partner in the shopping centres.
"Retail, in time, will probably become the larger piece of our business," he says. "We've been fortunate in terms of our timing. Considering what Game and Gamestop are facing, and seeing their strategies shift, we are able - to some degree and in an educated manner - to pre-empt that situation here and build that into our model at the early stage."
"India is at the early stages of that mall culture. In the last six years we've had a lot of new malls open up, where every store that retails games will have to trade in legitimate product
Jayont Sharma, Milestone Interactive
Game4u's physical and digital presence are being developed concurrently. The stores are bright, vibrant, family-friendly spaces with numerous free console units and a staff directed to be knowledgeable and engage the consumer. When we spoke to Sharma at the end of last year he was just preparing to open Game4u's sixth outlet, with another four due by the end of this month. Indian retailers caused Sharma a great many problems when Milestone was focused on distribution and marketing; in many cases, those experiences taught Sharma what not to do.
More importantly, with broadband connectivity only now beginning to spread across the country, high-street retail in India has never been under threat from online trade. As hard as it is to imagine with GAME swaying dizzily on the ropes, it is on course to enter a boom period.
"I'm fully convinced that we've still got a minimum of 10 years before some of these other challenges start affecting us," says Sharma. "It will be another three years by the time we open our 50th store, and we will only be touching the top 25 or 30 cities. And I can still go to another 30 cities. The top 60 cities are close to a million population and above."
"The caveat here is that I think the key stakeholders need to come in and participate in growing the market a lot more. While as Milestone I may fear what will happen to my distribution business, in time retail will be the bigger piece of the pie. We can't worry about that. As long as we own the consumer the publishers will partner with us."