The Lumikai Latest: Mapping India's Cambrian Explosion In Gaming

We’re often asked about the similarities between the growth curve of China’s and India’s gaming markets. In this blog, we’ll take a look at some of the drivers behind key inflection points in both markets, and while there are broader differences between the socio-economic contexts of both, there are also some key markers that overlap.

In 2004, foreign games accounted for more than 80% of China’s available game titles and 70% of its domestic revenue. The Legend of Mir II from South Korea was the country’s top revenue generator that year. But by 2007, domestic online games accounted for 64.8% of the China market, amounting to ~$1.7Bn.

By 2017, China accounted for 1/4th of global gaming revenues generating $27.5Bn, overtaking the US. This remarkable progression is evidence of a market that hit an inflection point.

In 2020, India gaming hit a similar inflection point.

While the pace of transformation in markets can be dissimilar, often shaped by cultural and historical perspective, economic history tells us that market growth very often can and do mimic each other.

In this blog, we identify some key gaming growth markers between China and India:

Macro-market internet usage and adoption:

China: Between 2002 and 2006, the percentage of Chinese internet users with broadband access increased from 6.6% to 50%+. By May 2008, there were 600M mobile phone users in China and Chinese gamers were spending 7.3 hours per week on average playing games.

India: Currently has 600M+ internet subscribers, 360M mobile gamers who consumed ~$10B gaming apps in 2020, playing games for ~7 hours/week. 67% of India’s millennials are now gamers. An average Indian now consumes nearly 12GB of data/month, with gaming and video content being the largest beneficiaries.

Improving payment infrastructure:

China: Until the early 2000s in China, the majority of consumer transactions were handled in cash, but by 2007 bank card usage accounted for 21% of total retail sales. In April 2007, PBOC released its 2006 China Payment System Development Report, one of China's first comprehensive analyses of payment system development, and domestic payment infrastructure was maturing rapidly. By 2008, China’s online payment market recorded $27.8Bn in transaction volume.

India: India has been on an accelerated path towards digital payments since demonetisation in 2016. By 2020, digital and electronic payments accounted for 38.8% of the national transaction volume. India now leads the world with 25.5Bn annual real-time payment transactions (followed by China with 15.7Bn transactions during the same period). Unified Payments Interface (UPI), the instant real-time payment system developed by the National Payments Corporation of India (NPCI) facilitating inter-bank transactions has reported a threefold increase during the last fiscal year 2020–2021, in both the number of transactions and the value. As of March 2021, the total volume has jumped to 2,732M transactions, from 999.6M in April 2020, with a value of ₹5,04,886 crore (USD 67.8Bn) from ₹1,51,141 crore (USD 20.3Bn) in April 2020.

Evolution of monetisation models in gaming

China: Before 2005, given the low credit card penetration, Chinese gaming companies like Shanda experimented with new business models such as selling online gaming time on pre-paid cards, or taking transactions off-line by enabling gamers to purchase pre-paid scratch cards from local merchants to access games. ‘06-’07 saw the early introduction of free-to-play monetisation by incumbents e.g. Shanda and Giant Interactive’s Zhengtu Online started selling weapons and outfits in the earliest evolution of in-app purchases. By mid-2007, Zhengtu Online was earning $5.5M per month.

India: India’s low ARPU’s versus scale have historically (and rightly) been questioned, but we believe it to be the symptom of a market in transition. Some of the early monetisation models in China have also been implemented in India due to erstwhile payment constraints. As digital payment infrastructure evolves, we already see an increase in paying capacity of Indian users, as in-app monetisation of mid-core titles like PUBG, Free Fire, and more recently Genshin Impact (recently entering the top three grossing games in India and holding strong) reveals a previously untapped demand for more sophisticated content at scale. In 2020, India registered the fastest growth in new in-app paying users out of any country in the world. As per research estimates, India has already crossed ~$1.8- 2Bn in annual gaming market size with 40% of casual gaming revenues coming from IAP.

While the current crop of success stories in RMG may feel outside the remit of traditional gaming, these platforms are also training millions of Indians to transact real money in games and on digital platforms for the first time.

Rise of ‘techno-nationalism’:

China: 2006–2008 was symbolically accompanied by the China Communist Youth League (CCYL) employing games as platforms to generate “national spirit” among young players accompanied by a high level of advocacy for national self-reliance and domestic development of technology. China also launched a training program for online games developers and designers, which were considered to be in short supply.

India: In 2020, there was a rallying cry for “AtmaNirbhar Bharat” i.e. a “Self-Reliant India” with a clear directive from the Indian government to build apps and games for India and the world by Indians. In 2021, the Information & Broadcasting Ministry announced a Centre of Excellence, in collaboration with IIT Bombay, India’s premier engineering institute for video game development courses. We also see, what we at Lumikai call “digital decolonization” where Indians are reclaiming digital identities and decoupling from the West. This is evidenced by the emergence of India-first creators and influencers embracing their regional identities and languages.

The first of its kind, Digital India AatmaNirbhar Bharat Innovate Challenge sought entries for 8 different categories namely Games, Office Productivity & Work from Home, Social Networking, E-Learning, Entertainment, Health & Wellness, Business, and News.

Infusion of capital & global strategic interest:

China: By 2007, three years after domestic gaming companies started taking the lead, Giant, Perfect World, and NetDragon went public, successfully infusing much-need capital into the domestic games landscape. The same year, Glu Mobile acquired Mig, a leading developer, and publisher of mobile games to establish a mobile foothold in China, along with Vivendi’s acquisition of a game development studio in Shangai. The previous year, Walt Disney announced a partnership with Shanda Games to develop web-based games.

India: Over the last 18 months over $1Bn of capital has been infused in the local games ecosystem-more than the last five years combined. In the first half of 2021, Nazara Games went public (oversubscribed by 175x), accompanied by multiple strategic M&A including Stillfront’s acquisition of Moonfrog and ~$500M acquisition by MTG of Playsimple Games. Global strategics like Krafton have recently committed $100M of investment towards developing the Indian gaming ecosystem, alongside equivalent interest from global financial investors and VC’s. This free flow of capital, which is attracting more talent, and bringing best practices from global developers will be key drivers in catalysing the ecosystem.

Role of original IP to propel gaming experiences:

China: Between 2005–2007, original IPs created by local developers for domestic audiences rapidly gained traction with China’s increasingly sophisticated gamers. Fantasy Westward Journey (based on the 16th-century Chinese classic-Journey to the West) hit 120M registered users in 2007, followed by domestic breakouts World of Legend, Wulin II, Zhuxian Online and Tian Long Ba Bu — these games were among other trailblazers at the time that leveraged local culture and history, and paid off handsomely for their creators.

India: In the past, few Indian game studios have experimented with mythology and historical games with limited success, often constrained by resources and budget. This is now changing. Last quarter at Lumikai, 40% of our deal flow was India-focused content. Attracted by the infusion of capital, market timing, and heightened investor interest in gaming, we already see a massive surge in ambitious young game studios founded by experienced teams from global game companies, and Gen-Z founders emboldened by the growth and increasing viability of the market. They are aspiring to build India-first titles based on original IP and Indian storytelling, with a focus on much higher quality gaming experiences.

Trace back India’s mass media evolution and you see the same inflection points - a market transitioning from global imports to a healthy balance of global (Tier 1) and locally resonant (Tier 2–5) entertainment, with local content representing the true mass market. It’s only a matter of time before Indian titles achieve break-out success both locally and globally.

It is profound to zoom out and connect the dots. Combine the above inflection points with the potent cocktail of depth of talent, thriving start-up ecosystem and visibility to investor liquidity, and we have all the markers for India’s “Cambrian Explosion Moment”.

There’s no denying the fact that gaming usage, adoption, monetisation, and infrastructure are converging in a never-been-seen-before manner in India. Today there are 2.5B gamers in the world. The next billion are in India. And if you’re a founder, there’s never been a better time in the history of the industry to start a gaming company.

Get in touch: hello@lumikai.com

Read More:

1. The evolution of the Chinese online gaming industry, Emerald Insights 2. The development of payment and settlement systems in China, Asia Focus 3. The video games market in China: Moving online, KPMG 4. The adoption and usage of credit cards by urban‐affluent consumers in China, Emerald Insights 5. Payment methods in China: How China became a mobile-first nation, Daxue Consulting