India Gaming Update: CY21
End of the year look at deals and other key happenings
Twice a year, we will publish an update on Indian gaming which captures all (or at least the key) fundraising, deal making, regulatory and other exciting and not-so-exciting happenings in the sector. You can read our mid-year update here.
Indian gaming has undoubtedly had a stellar run and has been one of the most prominent beneficiaries of the Covid-19 pandemic. 2020 and 2021 have seen multiple firsts for the sector from the birth of a few unicorns (Dream11 & now MPL) to the listing of India’s first pure gaming company (Nazara Technologies). 2021 also saw the start of a long awaited exit cycle with Stillfront acquiring Moonfrog Labs.
The second half of the year showed equal promise and equal levels of excitement for India. Even on the global front, gaming has picked up enough steam that Netflix is jumping on the bandwagon and the Asian Games have announced the inclusion of esports in the 2022 edition! As we look forward to 2022, we wish the best for Indian gaming and hope the new year brings more cheer to this sector. Gamers, our time is now!
Top Games in India (Grossing)
The below table shows the official Google Play mobile games chart for India. Interesting to note that only a disappointing 7% of the top grossing games in India are actually by Indian game publishers. Unsurprisingly, the usual suspects of Free Fire, COD:Mobile and Coin Master show up along with the re-entry of PUBG (now rebranded as Battlegrounds Mobile India after its relaunch).
Gaming Creators Dominate YouTube
YouTube India released their list of top 10 Indian YouTubers in 2021. Surprisingly, five of the top 10 creators were from gaming channels, including Total Gaming, Techno Gamerz, A_S Gaming, Lokesh Raj Singh and Gyan Gaming. Gaming also made up four of the ten “breakout” creators (ranked on in-country subscribers gained in 2021 and those who have 3x’d their subscriber base in a given year) in India this year, including Aditech, Star Gamers, Flight Gamer and Rai Live aka Raistar. Even amongst women creators, gamer Payal Dhare ranked #2. Not only is this heartening news but indicates a rising interest in game streaming in India.
Fundings & Acquisitions
A total of 26 deals happened in the second half of 2021. With over 2 weeks still to go before the year closes, we may see more. As per an article in VCCircle, gaming startups in India attracted deals worth $1.6 bn in the first 9 months of 2021, exceeding the total value of investments in the sector in the last five years. Almost 90% of the investments however were funnelled into Dream Sports and Mobile Premier League (MPL). The report was also published before Dream Sports announced an additional $840 mn funding round which is captured in the table below.
Some interesting insights emerge from the deals given above.
- The entry of foreign players into India continues with Embracer Group-owned Israeli developer CrazyLabs and Swedish company MTG both taking the inorganic route to enter the country
- Gaming companies seem to be moving into adjacent spaces as evidenced by Dream Capital’s investment in Fittr, Nodwin’s acquisition of OML Entertainment IP and Krafton’s (surprising) investment in Pratilipi
- Krafton appears to be doubling down on India making more investments after Nodwin Gaming earlier this year. Additionally, media reports indicate it has invested as a Limited Partner (LP) to 3one4 Capital’s third fund. Interestingly, Loco, which raised $9mn from Krafton also had 3one4 as one of its backers.
Evolution of the Indian Gaming Ecosystem
All this frantic activity is feeding back into the gaming ecosystem with funds and projects being formed to support the same. Here are a few interesting ones that caught our eye this year:
- Dream11’s parent Dream Sports launched a VC fund to invest in sports, gaming, and fitness startups in India. The fund size is $250 mn and it will be under the VC and M&A arm Dream Capital (“DreamCap”).
- WinZO announced a $20 mn “gaming developer fund” that plans to invest in interactive games. It had previously invested in 70 games from 500 applicants as part of its first and second gaming developer fund.
- WinZO also teamed up with Kalaari Capital to launch a joint investment initiative called ‘The Gaming Lab’ to invest up to $1 mn in startups across interactive entertainment apps in India, independent from WinZO’s Game Developer Fund mentioned above.
- Qlan (pronounced “clan”) is an AI-based networking app that connects gamers and esports enthusiasts. Users can create custom profiles, sync their in-game statistics and share content amongst each other.
- The Gaming Project is a cloud-based solution that lets gamers play graphics-intensive games on low hardware PCs and devices by streaming the games on to the users device instead of installing them locally. This could potentially lead to the proliferation of mid-to-hardcore games amongst Indians who may have hitherto been left out due to the high cost associated with the hardware requirements.
Favourable Court Rulings vs Tougher State Governments: Real Money Gaming (RMG) in flux
India’s RMG segment, which includes fantasy sports and card-based games such as rummy and poker, has always been under a regulatory overhang. What with gambling being in the State list, the individual state governments can exercise full control over defining what construes as betting and gambling practices in their state. This has led to confusion and lawsuits a-plenty across India when it comes to online card and fantasy games.
So what happened in some of the recent court rulings?
- On July 30, India’s Supreme Court for the second time threw out an appeal against a high court judgement in favour of Dream 11. The Rajasthan High Court had in October 2020 ruled that Dream11 involved “substantial skills” and that its business model was protected under the fundamental right to practice trade or any profession under Article 19(1)(g) of the Constitution. The Supreme Court in its judgement cited an earlier ruling from the Punjab and Haryana High Court in 2017 and the Bombay High Court in 2019 as well.
- On August 03, the Madras High Court struck down the Tamil Nadu government’s ban on online rummy and other card-based games, also citing Article 19(1)(g) of the Constitution.
“The court observed that allowing the legislation can be seen as erratic, unreasonable and also excessive and disproportionate. Pointing all these, the court struck down the amendment as ultra vires of the Constitution.” — The News Minute, August 3, 2021
What is the impact of these victories? The Madras High Court ruling now offers a precedent to appeal against bans on online card-based games in the neighbouring states of Telangana, Andhra Pradesh and Kerala as well. The Madras High Court already recognizes poker as a game of skill which can provide additional legal ammo. While these legal victories are welcome, governments aren’t giving up without a fight. The Tamil Nadu government has already vowed to enact another legislation banning online real-money games.
Just a few months after the above, the Karnataka government effected a new law on October 05, which banned online games it believes are “games of chance” rather than skill. The law makes the operation of any online games involving the exchange/betting/wagering of money a non-bailable offence. The Bengaluru Police went a step further and filed a first information report (FIR) against Dream11 founders Harsh Jain and Bhavit Sheth after a complaint alleged the company was still running operations in Karnataka a week after this law came into effect.
Alone in the Dark: The GST Nightmare
If legal hurdles and fighting state governments wasn’t enough, RMG companies also have to face uncertainty due to lack of clear guidelines on levying GST.
The core revenue source for RMG companies is the rake fee charged by them. Should GST then be charged on the entire stake value or just this rake fee is a question to which no one seems to have an answer currently. (Note: ‘Stake value’ is amount pooled by a player for participating in one round of a game. ‘Rake fee’ is the amount earned by the gaming company for facilitating plays on its platform. The amount is usually a fraction of the stake value.).
The online gaming industry is currently looking to the GST (Goods & Services Tax) Council for a potential alternative GST framework for it but so far has received only silence in return. All is not lost however, as media reports recently indicate a decision might be reached soon both on what to apply a tax on and also how much tax to apply.
All industries need a clear and transparent regulatory and legal environment, without uncertainties, if they are to grow and companies within them are to scale. Venture Monk hopes the relevant policymakers are able to work on this soon and enable Indian Gaming to unlock its full potential.
So there you have it. A round up of all the major developments in gaming in 2021. If you liked what you read, please follow us on Twitter and Substack for more VC related news, views and analysis. We wish you the best for 2022. See you after the jump!
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