Games were a primary condition for generations of human cultures,” said Dutch cultural historian Johan Huizinga. Around 500 BC, games represented sacrifice, religion, glamour, and the glory of personal conquest. The Olympics, probably the grandest historical gaming spectacle, embodied this in spirit and symbol through the temple of Zeus, the ever-extending ash tower and winners “touched by the gods”. Through the 1900s, games anchored on the expression of liberation and patriotism in a post-colonial world. India’s cricket world cup victory of 1983 and Brazil’s football world cup wins (in 1958, 1962 and 1970) were events of national celebration.
As we peek into the future through the apertures of gen Z’s screens, gaming will likely reflect a completely new reality—it will be interactive, immersive and intense.
Era of immersive experience
Multi-gamer, interactive environments will rule the roost. This is already evident in the success of popular games like Fortnite and PlayerUnknown’s Battlegrounds (PUBG). This will give a larger target audience a chance to participate in increasing the scope of complexity. Boston Consulting Group conducted research on gaming behavior and it indicates that gamers indulged in multiplayer environments are more engaged and willing to spend more!
Gaming environments have moved from interactive to virtual and augmented reality. But the future will hinge on creating an immersive context. Games will work with the users’ environment to morph seamlessly and create a new reality. Significant investment is going into companies like MagicLeap ($250 mn of funding to date) that are creating the enabling platforms for these mixed reality environments (the firm’s technology superimposes 3D computer-generated imagery over real-world objects). Playalongs (video + gaming), karaoke (music + gaming), and mixed reality will become the new norm. Our research shows that there is a 25% increase in engagement if the gamer is involved in the action.
Gaming will become even more ubiquitous and intense. Over 75% of China’s internet population are already gaming online. That is about 600 mn people in China alone. These gamers are playing for an average of 3-3.5 hours per week on their mobile phones. About one-third of these gamers spend approximately $200 plus per annum on gaming. The extreme hover at 2 hours+ per day and spend five to seven times compared to an average gamer.
The new reality of online worlds is already within smelling distance. Gaming is already a $138 billion market, growing at 12-15% globally. Over 80% of the revenue of Google and Apple App Store comes from games. Gaming is becoming a consumption expenditure—China recently has taken over from the US as the largest game market on the back of wide availability of games that are integrated with the country’s all-pervasive chat messengers.
Closer home, India’s “mobile-first economy” is at an inflection point on gaming. Nearly 30% of India’s connected users are gamers, spending roughly 2-2.5 hours per week on gaming. Our gaming revenues though are still 1/40th of China’s ($1bn vs. $ 40 billion).
Both demand and supply are drivers of this. From the demand perspective, investment in a good console-based gaming platform was never an immediate priority for Indians. Video games were traditionally viewed as an alternative to entertainment, an expenditure bucket that most Indians watch carefully. From a supply perspective, there was a lack of local ecosystem and availability of games was restricted to whatever international game developers published.
The coming change
But this is changing fast. India has directly shifted from a non-gaming environment to a mobile-gaming environment bypassing consoles. India is finally playing and the growth is being driven by “AAM” levers i.e. availability, adoption, and monetization.
•Availability – 85% of games in India are mobile games and, therefore, the availability of games will be aided by a sharp rise in the smartphone penetration which right now stands at nearly 325 million. Smartphones are becoming cheaper and more accessible. The internet is another contributor to the gaming market. With the advent of disruption caused by Jio, internet penetration has risen significantly and is expected to reach 625 million Indians by the end of 2019.
•Adoption – Traditionally, the gaming environments have been considered to penetrate only triple Ms (Metro, Male and Millennials) but these dynamics are constantly changing. The gamer penetration is rising and is expanding to all areas – rural, urban or metro; all genders and all social and economic classes. While the current penetration rate is below 30%, the number of gamers will rise as evident from the craze about interactive games like PUBG.
•Monetization – Upcoming gaming players like Dream11 (crossing a $1 billion valuation) and Nazara (going for an IPO) can be taken as representative of the changing investment environment for the gaming industry. Gaming has become an interesting area of investment because of the growing market size and penetration. A reliable digital payment ecosystem is a pre-requisite for this and the anvil of digital wallets and increasing comfort with using credit and debit cards is a tailwind for this trend.
As gaming comes of age new commercial models will need to evolve. AAA titles will become far and between, similar to the trend we see in video where the amount of available content goes up drastically but the hits will be expansive and limited. This will make the hero games costly and these types of games will largely lie either in a niche category, targeting very less number of people, or mass-appealing categories like IPL games and fantasy leagues. Hence, the industry will need to innovate to monetize. Recently, Apple came up with a subscription model wherein an initially paid fee makes the user eligible to play as many games he/she wants and as many times he/she wants. As the industry evolves, these models will also evolve simultaneously. We are increasingly seeing handset manufacturers tying up with gaming companies to optimize games for their phones and also offer a differentiated experience (e.g. special skins).
Gen Z gaming is coming. It is young, vibrant, and nothing short of a revolution. It is meant for the “me generation” that refuses to grow old. As a famous gaming lingo refrain goes: “I don’t grow older, I just level up”.
Mandeep Kohli is Principal and Karishma Bhalla is Partner at BCG