The pursuit of personalised entertainment along with demographic tailwinds, smartphone penetration and low data prices will continue to drive the online gaming industry onwards and upwards.

It was an unprecedented time when Prime Minister Narendra Modi addressed the entire nation, with everyone glued in front of their television sets, as he enforced a nationwide lockdown from March 23, 2020.

Chaos is an understatement for what followed. People lost jobs, homes, walked thousands of miles just to be with their loved ones, while thousands died every single day.

And after eighteen months of living in fear, anxiety and insecurity, people have gradually become numb to this pandemic. However, according to authorities, online gaming has gained momentum since the first wave of COVID-19.

People began to rely on the internet as a means of entertainment because of the lockdown measures that forced them to stay indoors and isolate at home. During this lockdown, the gaming sector in India grew at a Compound Annual Growth Rate (CAGR) of 21 percent.

 

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How the COVID pandemic accelerated the growth of the gaming sector in India

The gaming sector’s turnover has increased roughly by 50 percent since the pandemic-enforced lockdown, with the national average gaming time spent by players increasing to 4.1 hours post-COVID from 2.5 hours pre-COVID.

 According to figures released by various gaming organisations, the number of real money games has increased dramatically since the lockdown. In May 2020 alone there were close to 150 million games downloaded. And a contributing factor to the increase in both the gaming sector’s revenue and the number of downloads of real money games could be the significant increase in the number of real money players aged 35 or above.

According to a study conducted during that time, mobile gaming applications exhibited extraordinary traffic and usage during the initial weeks of the nationwide lockdown, with gaming applications like PUBG, Rummy 13 Cards, Ludo King and Bubble Shooter among the most popular applications at the time.

“The gaming industry is booming, outpacing the box office and music sectors by a wide amount. With US$131 million invested for Indian online gaming platforms in 2020, the market is extremely appealing to investors right now. This figure might be greater if not for the current regulatory and policy framework uncertainty,” Roland Landers, CEO, All India Gaming Federation.

Indeed, according to many industry professionals, skill-based games have become increasingly popular in recent years. India houses more than 300 million users, and that number is increasing every single day. Moreover, in India, mobile devices are commonly used to play online skill games as the country accounts for 13 percent of the global gaming market.

As per Deloitte India’s analysis, the online gaming sector is projected to grow at a 40 percent CAGR to US$2.8 billion by 2022, up from US$1.1 billion in 2019. This fast rise is anticipated to boost the sector’s share of the entire media and entertainment business by 45 percent.

 

The emergence of traditional skill-based games

The COVID-19 pandemic shot up the demand for online gaming as many teenagers and working professionals looked to try out various indoor entertainment options to fight boredom amid work and study from home. Apart from popular skill-based online games like Online Rummy and Teen Patti, fantasy sports and chess have appeared as some of the preferred forms of entertainment.

While the lockdown increased usage and engagement, its long-term implications are yet to be seen. The devastating economic impact is bound to affect all consumption, including transaction-based skill games. But the slowdown is just a blip that will disappear.

Among the few traditional games that grabbed the spotlight, Ludo King, in particular, got a facelift, with people across the country playing it with their friends, families and partners. Ludo King exploded in popularity as it generated five-fold increased traffic during lockdown. With over 330 million downloads and 50 million daily active users, the rapid increase in traffic took the creators, Gametion Technologies, by surprise.

Vikash Jaiswal, the founder of the game, said in an interview, “Like everyone else, we were worried about how this lockdown would affect us, both Ludo King and the company. These are unprecedented times, something no one has seen before, and hence it was quite difficult to anticipate how it would affect the industry or our game. However, we were pleasantly surprised when we started to see increased traffic on Ludo King.”

Ludo King soon become the #1 Free Game on the Google Play Store, beating the likes of Temple Run and Candy Crush Saga. The demand has increased manifold during the lockdown and Jaiswal believes things would remain that way even after lockdowns are fully lifted and people get busier.

“The major shift that the gaming industry is going to see is an increase in the number of players,” said Jaiswal.

“The numbers are going to be down as compared to the lockdown but are probably going to be more than before the lockdown began. The main reason for this is people who always claimed that video games are not for them or that they are bad, are now sitting at home and playing games to kill time. As every gamer knows, games are great and somewhat addictive.

“All these new audiences are not going to just stop playing as soon as the lockdown is over. Sure, some will, but now that the others have now got a taste, they are going to keep on playing, which is great news for online games and Ludo King as well.” Jaiswal added.

 

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The bigger picture

The global market size for online gaming is expected to grow from US$37.65 billion in 2019 to US$122.05 billion in 2025. In India, the online gaming industry was worth US$543 million in 2016 and has grown to US$1.027 billion in 2020 at a CAGR of 18.6 percent. Moreover, the COVID-19 pandemic seems to have accelerated this growth rate as Deloitte India anticipates in its report that the online gaming market is anticipated to grow at a CAGR of 40 percent to US$2.8 billion in 2022.

While India currently holds the fourth largest online gaming market globally, the industry requires a robust regulatory and legal environment to help the business scale quickly and achieve its true potential, as explained beautifully in the AIGFs “Online Gaming in India — The GST Conundrum.”

The number of online gamers in India is growing day by day; it is estimated to grow from 360 million to more than half a billion by the end of 2022. Moreover, there are more than 400 gaming start-ups at present that are accelerating the growth of online gaming in India.

However, like most disciplines, in order to realise the full potential of the online gaming industry, a levy of standard Goods and Services Tax (GST) and Value Added Tax (VAT) rates is recommended. This is because, in India, the classification of whether a game comprises a “game of skill” or a “game of chance” has wider legal implications for the business as a whole.

A game of chance attracts a higher GST rate of tax than a game of skill. Online games operate either on a “rake fee” model wherein the gaming platform charges a rake fee for facilitating games or “freemium” models wherein the gameplay is free but additional features may require users to purchase specific items for a price. Thus, a rational imposition of GST is vital for the sustainability of this industry.

“The valuation disputes under GST law have been a dampener to the industry. Considering the market size and future growth projections, the online gaming industry is expected to be a significant contributor to the government’s vision and provide future economic avenues considering the ubiquitous digital trends impacting our lifestyle,” said Roland Landers, CEO, All India Gaming Federation.

“It is important to highlight that regressive taxation of these emerging sectors may only make the business unsustainable in India. Our recommendation is that the Tax authorities should align its policies with internationally accepted principles of taxing the online gaming sector and provide certainty to the industry. We hope that this report would provide meaningful insights and help accord focus to this sunrise industry,” he added.

Overall, the online gaming sector has made tremendous gains since the start of 2019 with the COVID-19 pandemic playing the role of a catalyst in accelerating this process. A sound administrative setup and regulatory body can ensure the sustainability of this industry.

Moreover, according to KPMG and Cisco estimates, India had over 500 million smartphone users in 2019 and that figure is expected to balloon up to 842 million by 2025. Thus, the pursuit of personalised entertainment along with demographic tailwinds, smartphone penetration and low data prices will continue to drive the online gaming industry onwards and upwards.