A lot has changed for the gaming industry in 2023. The biggest change was seen on the taxation front. In a significant move, announced on August 2, Union Finance Minister Nirmala Sitharaman declared a 28 percent tax on the full face value of bets placed on online games.
This decision had an immediate effect, and businesses grappled with the weight of this hefty tax structure.
Smaller companies faced downsizing and closures while larger players combated losses with substantial reductions in marketing expenditures. The taxation move also set the stage for a wave of layoffs, restructurings, and shutdowns. One of the early casualties in the space was the RMG platform Quizy. The tax burden led to a decline in user engagement and loyalty, forcing it to shut shop. This was followed by Mobile Premier League laying off 350 employees. Then Spartan Poker laid off 125 people.
However, the gaming sector also saw growth from increased demand.
As per Lumikai’s (India’s first gaming and interactive media-focused venture capital fund) 2023 gaming report, India’s gaming market showed resilience during the year with promising engagement and monetisation trends.
The gaming market hit $3.1 billion in FY23 and is projected to reach $7.5 billion by FY28, according to Lumikai estimates. Future growth is expected to be driven by in- app purchases and ad revenues in casual (games like Candy Crush, Ludo King and Candy Crush) and mid-core (like Clash of Clans, Brawl Stars) games.
Why outlook is positive in the coming year
“The growth in the number of gamers, rising number of paying users, a growing appetite to experiment with new IPs, and increased time spent on games paint a positive outlook for the sector in the coming years. While new tax policies are expected to adversely impact the RMG (real money gaming) segment, like rummy, new government initiatives for the overall industry are favourable,” the report said.
The number of gamers in India grew by 12 percent compared to
last year, while the number of paying users grew by 17 percent, the report said.
With 15.4 billion game downloads, India retained its spot as a key leader in global game downloads. The average time spent on gaming increased by 20 percent to 10-12 hours per gamer per week in 2023 from 2022.
As per the report, ARPPU (average revenue per paying user) reached $19.2 in FY23, growing nearly 10X since FY19. Estimated IAP (in-app purchases), and revenues from games other than BGMI and FF(Free Fire) grew 37 percent year-on-year.
In-app purchases and ad revenues are expected to drive growth on account of the structural shifts towards higher propensity to pay in- game, and growing prominence of casual and mid-core games by FY28.
Growth expectation slows down
RMG revenue grew by 33 percent in FY23. However, growth expectation will slow down on account of heavy tax liabilities and consolidation in the industry.
“As the gaming industry continues to evolve, we have witnessed the emergence of new monetisation models, with traditional methods being complemented by blockchain-based gaming, metaverse experiences, and play-to-earn models. Simultaneously, the demand for vernacular language games is also on the rise, reflecting the need for inclusivity within the Indian gaming landscape. This shift is expected to prompt gaming companies to develop more games in vernacular languages, catering to a wider audience,” said Roland Landers, CEO, All India Gaming Federation.
According to Landers, responsible gaming practices are set to take center stage, with gaming platforms placing a greater emphasis on age verification, responsible advertising, and enhanced player support.
“Looking ahead to 2024, the industry expects the establishment of self-regulatory bodies for game verification. Additionally, a six-month review by the GST Council will assess the impact of the 28 percent GST rule, while hopes are high for the resolution of ongoing concerns surrounding retrospective taxation. Furthermore, the industry is eagerly anticipating the release and implementation of AVGC (animation, visual effects, gaming and comics ) policies by multiple states, aligning with the recommendations of the AVGC Task Force’s report from the Ministry of Information and Broadcasting,” he added.