Since the Goods and Services Tax (GST) Council imposed a 28 percent tax on online gaming in July, the industry has been in turmoil. While some have downsized or closed, industry stakeholders are determined to weather the storm. However, this resilience comes at a cost, as many companies are rewriting their marketing strategies and restructuring their business plans for survival.
To adapt, companies are cutting marketing expenses and shifting towards organic user base growth. Several mid-sized gaming firms, which used to rely on high-impact events like sports tournaments, are even skipping the upcoming ICC Men’s Cricket World Cup to save costs.
However, experts said that the hike in GST on games of skill is about to have a big impact that goes beyond just marketing.
“The impact of this GST change isn’t just about how games are advertised but also about how they’re made and what they offer to players,” said Krishan Deegalla, chief executive officer (CEO) and founder, Meta11.
Strategising to win
“Businesses are making moves to deal with the financial challenges they’re facing. One of their main strategies is carefully revamping their pricing models. In many cases, they’re doing this to ease the impact of higher taxes,” he added.
“Some gaming enterprises may choose to embrace subscription-based models and in-game micro-transactions. However, one of the more promising strategies in the industry is for studios to embrace the free-to-play and win model. This initiative holds the potential to increase revenue streams, alleviating the financial implications of the heightened tax on the players,” Deegalla added.
Ashneer Grover’s cricket-centred fantasy sports app, CrickPe, is one example. The platform has introduced a no-platform-fee subscription model. CrickPe Pro has a Rs 200 per month or Rs 1,000 per year model.
According to Deegalla, a comprehensive localisation approach has been adopted by many. “Firms are tailoring their gaming content to resonate with regional preferences, encompassing themes, languages, and cultural elements that resonate with Indian gamers. This endeavour is to expand their player base and build a more inclusive environment,” he said.
Back to the drawing board
Some said the imposition of additional GST on games has forced platforms to deconstruct and rebuild their platforms.
“Games that were designed for users spending small amounts are now facing a threefold increase in costs. Platforms must either absorb the added cost or pass it on to users, affecting user retention and business viability. Small game studios, reliant on these platforms for revenue, face the brunt of these challenges. For VC-funded companies, restructuring is possible, but smaller start-ups may struggle to survive,” said the founder of a gaming platform.
This is a common concern among many.
Ketan Godkhindi, chief strategy officer, Witzeal Technologies, agreed.
“On the one hand, there’s the tough decision of passing on GST to our users, which goes against our usual practice. This move might lead to reduced user interest and, consequently, a loss in platform fees. On the other hand, many companies simply don’t have enough cash reserves to continue absorbing the GST, potentially forcing them to close down or lay off employees just to stay afloat,” he said.
Some are still looking for answers and clarity.
Rohit Bansal, Founder of Super4, said one of the key measures that they are implementing is a thorough analysis of the classification debate between fantasy gaming and gambling.
“This is crucial because the classification of fantasy gaming as a game of skill rather than gambling has a significant impact on the applicability of GST rates. By closely monitoring this debate, we aim to gain clarity on the potential tax implications and adapt its strategies accordingly,” he said.
Like most companies in the space, Super4 is also focusing on optimising cash flows and business expansion plans by carefully managing finances and exploring opportunities for growth.
Not just gaming
The move is a blow to the overall start-up space in the country and not just gaming, said another gaming entrepreneur.
“As a founder in the gaming industry, it’s disheartening to witness the impact of the 28 percent GST on our ecosystem. For a country that aspired to rival Silicon Valley, we’re now facing the reality of stifled innovation and investment. Access to capital is the lifeblood of entrepreneurship and start-ups, and the high GST rate is causing distress,” they said.
Talented young individuals who’ve taken the leap into the ecosystem, leaving stable jobs behind, may find their efforts unrewarding if this taxation trend continues. Investors are growing wary, fearing an unstable policy environment reminiscent of previous cases like Vodafone. This uncertainty is detrimental not only to gaming but to the entire start-up ecosystem in India.
“Foreign direct investment (FDI) and access to capital are pivotal for fostering entrepreneurship. Unfortunately, the current situation threatens India’s standing as an attractive FDI destination. The consequences of this extend beyond gaming, impacting the overall perception of India’s policy stability. The increased GST is casting a shadow over the start-up ecosystem, potentially deterring marquee investors and hindering the growth and success of businesses within the industry,” they added.