China investors eye online gaming startups

India’s booming online gaming market is attracting a flood of investment from mainland China as Beijing steps up efforts to regulate video games at home.

Although all forms of gambling outside of the official lotteries are banned in China, social gaming has been exempt. However, even that is now coming under increasing scrutiny with Beijing expected to approve fewer game titles and to pay closer attention to the types of product on offer to ensure they adhere to core socialist values.

As a result, many Chinese companies are looking for new markets and have found fertile ground in India, both in real money and social games. Of the top six investments in the sector over the past 18 months, four have been from Chinese companies.

According to the 2019 edition of the FICCI-EY annual report on India’s media and entertainment sector, online gaming revenue increased by 59.4 percent last year to INR49 billion ($703 million). Real money gaming soared 82 percent to INR26 billion, while casual gaming rose 40 percent to INR22 billion.

The segment as a whole is expected to grow at a compound annual rate of 35 percent to reach INR120 billion by 2021, with the number of fantasy sports gamers forecast to top 100 million by that time. Real money games, such as rummy and fantasy sports, are forecast to hit INR71 billion.

“While the Chinese market is showing signs of saturation and regulator control, India will become the next key market for gaming companies and investors,” the report says.

Recent investments into India’s gaming start ups include China’s biggest gaming and social media company, Tencent Holdings. Last September, it invested $100 million in Dream 11, India’s biggest fantasy sports platform. Dream 11 is India’s first unicorn in the gaming sector, with a valuation exceeding $1 billion and more than 50 million users.

Tencent plans more big-ticket investments in India, with a budgeted spend of US$200 million. Its goal is to own at least one-third of India’s gaming user base by 2020.

Other companies that have received funding from Chinese investors include Gamepind, which is a joint venture between Indian company Paytm and Alibaba-owned AGTech Holdings. Together they have funded Gamepind to the tune of $16 million.

Gamepind has started to offer fantasy sports and card games, although it is yet to introduce cash rewards. “We offer rewards only in kind at the moment, like two-wheelers etc,” said a company spokesperson. The company has plans to introduce real money gaming in the future.

Mobile Premier League, which also offers fantasy sports, along with real money gaming, raised over $35 million in April this year. The company claims to have garnered over 25 million active users since its launch in September last year.

A company official from Tencent-backed Go Ventures, which funded MPL, said that they had plans to invest more in other online start-ups, not excluding gaming companies.

Others to benefit from Chinese investors’ largesse include Yoozoo Interactive and Zapak, which is owned by India’s biggest conglomerate Reliance. Zapak offers real money gaming. Yoozoo Interactive is already offering card games and fantasy sports.

“It is here to stay,” Ashish Pherwani, who heads the media and entertainment sector at EY India, said, referring to Chinese investment. “With the Chinese government tightening regulations, Chinese gaming companies will invest more in Indian companies. India also has a young demographic with disposable income which is what is attracting these companies.”

According to Pherwani, the growth in the smartphone market and easy broadband connectivity is fuelling the gains. He noted that small town users of smartphones were in the forefront of growth in the sector.

Digbijoy Shukla, Head – Startup, Ecosystem, estimated recently that the country is expected to have 700 million mobile users by 2020.

However, Avanish Tiwary, managing editor of Bangalore-based portal The Passage, which exclusively tracks Chinese investments in Indian online start-ups, cautioned that India’s patchwork of regulations is holding back growth.

“In India, the regulations depend on the particular states. Some allow it whereas others do not. What these companies would like is a centralised set of regulations to be in place.”

Tiwary also noted that online gaming start-ups focusing on real money games are seeing strong revenue gains. “Earlier, they were dependent on advertisements for generating revenues along with app downloads etc. But it brought in little revenue. Real money gaming has shored up their revenues through participation fees, and cuts from the winnings of the users. This in turn has got investors interested and expanded the field with more companies joining the fray.”

Commenting in particular on Dream 11, Tiwary noted that the company had given a real boost to the fantasy sports segment.

“They tied with the Board of Control for Cricket in India and became exclusive partners for the Indian Premier League (world T-20 cricket tournament). Now they are on board for the International Cricket World Cup also.”