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| Indiagames' moment of reckoning | | Infinity Ventures ploughed Rs 3.5 cr into the firm |
| Shivani Shinde / Mumbai Sep 08, 2011, 00:20 IST |
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India’s leading gaming company hasn’t achieved the promise that it once had. Can Walt Disney, its new parent, take it to another level?
In 1999, practically no one had heard of Vishal Gondal, a 22-year old national volleyball player from Chembur who started UTV Indiagames, India’s pioneering gaming company. Twelve years later, Gondal is still relatively anonymous—unlike others, like Sanjeev Bikchandani of Naukri or Deep Kalra of Makemytrip—who leveraged the internet for similarly pioneering businesses, made a packet for themselves and their investors and revolutionised their industries.
UTV Indiagames posted revenue of Rs 54.5 crore last fiscal with Rs 2 crore in profit. While this is nothing to sneeze at, some would call this an underwhelming figure that speaks of missteps and lost opportunities. Now, with Disney’s acquisition of Indiagames’ parent, UTV, the company is once again poised to achieve greatness or continue with middling successes.(Click here for graph)
To understand the future that could await Indiagames, it is instructive to look at the experiences of tiny Finnish mobile gaming company Rovio Mobile, which launched a seemingly inoccuous game, Angry Birds, in 2009. In this game players direct multi-coloured birds which are trying to retrieve eggs that have been stolen by a group of evil green pigs. The game, developed for a cost of around ¤100,000, became a monster worldwide hit, generating more than 300 million downloads and selling more than 3 million plush toys and a million t-shirts.
Can Indiagames become the Rovio of India?
That’s not easy to answer. Rovio’s glittering success hinged on one game, a one hit wonder that came out of the blue—not quite a dependable way to assess what lies in store for a company like Indiagames. The industry that Indiagames practically founded, however, is more easily quantifiable and by all accounts, it has a robust future. According to the Ficci-KPMG 2010 report, the mobile gaming market is expected to be Rs 240 crore (Rs 2.4 billion) in 2010 and will be a Rs 1,430 crore (Rs 14.3 billion) market by 2014. Meanwhile, the PC and online game market is expected to have a growth rate of 37.8 per cent from 2009 to 2014, with revenues of Rs 610 crore (Rs 6.1 billion) by 2014.
“It is still early days for the Indian gaming sector. Whatever demand we have seen so far is being driven by the mobile segment followed by social games, then media or advertisement led models and then subscription,” says Rahul Khanna, Managing Director, Canaan Partners. This means that Indiagames, with a 19% slice of the gaming market and 68% of its revenues from mobile gaming still has a shot at achieving its potential. Now it depends on whether its new master—Disney—can unleash its potential.
Therein lies the rub. “In theory it sounds great that Walt Disney will be the parent firm. But in practice, it needs the focus of top management of Walt Disney to do so. UTV couldn't do anything with Indiagames because, the Screwvalas knew little and cared even less about games - they simply wanted to make movies, run TV channels, sell and get out. If Walt Disney stacks its top deck with TV people, then there will be no synergy,” says Mahesh Murthy, Founder Pinstorm and Managing Partner SeedFund.
UTV’s 2006 purchase of Indiagames for Rs 46.4 crore is a good example of the potential for tensions that could arise when an entrepreneur is suddenly bought out by a corporate—that too, one that had no experience in gaming. This marriage was further strained when UTV funnelled little money into Indiagames but instead started focusing on other gaming properties—spending 250 crore on UK-based console gaming unit Ignition Studios (although this included an equity stake and intellectual property purchases) and 51 crore on online gaming firm True Games. Since then True Games has not been generating any revenues. Rather the firm has been making loss since inception. Ignition Entertainment had revenue of Rs 42.5 crore (GBP 6,073,496) and profit of Rs 10.8 crore (GBP 1,554,220) for FY2011. (UTV’s gaming segment is 13 per cent of the firms revenue as of March 31, 2011.)
A senior UTV executive who prefers not to be named says that if they didn’t invest in console gaming, they wouldn’t have been able to compete as a boutique operator for the global $40 billion gaming industry pie. “if I do not invest and look at a much more longer time horizon I will not be anywhere,” he says. However, an analyst who has stopped tracking the firm says “UTV neither had a clear strategy nor the right timing. The Indian gaming scene is not as big as the global market. Console games are very competitive and need a lot of investment. They did come out with ‘El Sheddai’. But it did well in Japan and not in markets like the US and UK. Besides, since the acquisition of Ignition how many good games did they come out with?”
UTV says that its hands were tied, that even if they had money and wanted to invest it, they couldn’t because telecom providers have a stranglehold over Indian mobile Value-added-services (VAS). “In India, the mobile gaming industry is still B2B, not B2C. I have to work through an intermediary that is the telecom provider. Besides telcos admit that they have not been focused on VAS. Now that the bandwidth issue is solved they are realising the play of VAS,” says the UTV executive. Earlier this year, there were rumours floating about that Gondal was trying to buy his firm back from UTV with the help of minority investors Cisco and Adode ,which Gondal denies.
Gondal is tighlipped about his experience with UTV, but nostalgic about his beginnings. “A lot of things in my life happened because we did not know what to do, and we did not think too much about it. Receiving funding in 1999 was big. We did not think much about stake or value,” he says. It wasn’t a completely smooth ride either. “We have had our ups and downs. But what has made us survive two recessions has been our focus and the ability to take early bets,” he says. After the glory of getting Infinity to invest in the business plan that Gondal floated them, things went rapidly south. In 2002, the company was almost bankrupt—partly because of the spillover effects of the dotcom bust and partly because of Gondal’s decision not to get into outsourcing work.
Backed into a corner, Indiagames nevertheless had the gumption to approach their investors and said that they wanted to buy the worldwide IP right of Spiderman for the mobile platform. “We had around Rs 30 to 40 lakh in our banks. I think they fell off their chair when they heard this. But luckily we had investors like Pravin Gandhi who went with their gut feel and supported us,” says Gondal. Despite the financial crunch the firm decided that they will not get into back-office kind of work. In 2003-04 the company came out with the Spiderman which changed the fortunes of the company by getting them the elusive milestone of 1 million downloads.
Alok Kejriwal, also a gaming entrepreneur who sold his venture, Mobile2win, a few years ago says: “The investment fundas of VCs and corporates are very different. VCs invest in entrepreneurs, and corporates invest in business. A VC will always be flexible when it comes to sudden business model changes or to new plans. A corporate is driven by his balance sheet. That pressure then percolates to other businesses as well.”
Today, Indiagames works with original equipment manufacturers (OEM) as well as telcos like Tata Docomo, Uninor, and Idea. Large accounts like Airtel and Vodafone have grown 24 per cent year-on-year in FY2011. App stores have also fuelled the firm’s growth. T20 fever developed by Indiagames was among the top 10 games in Apple’s App Store.
Indiagames is perhaps the only company that has been successful in creating a business model for games via subscription. A Games on Demand (GoD) model was initiated for PC-gamersand has 80,000 users in 2011 from 30,000 in 2010 and is a solid contributor, generating Rs 8.2 crore of revenue in FY201, up from Rs 2.3 crore in FY2010. A user can download and play unlimited times, up to 300 PC games which are digitally delivered for a monthly subscription of Rs 200 and Rs 100 . It has also entered into the interactive TV games through DTH platforms and is working with Reliance Big TV and Airtel Digital.
As for the future? Clearly, the company can no longer rely on traditional gaming distribution (carriers or ISPs) to sell its products. “It now needs to get its retail B2C marketing act together to create games that will work against global competition and shine on app stores around the world; Indiagames also needs to adopt the ad-supported free game download model on Android instead of waiting for paid games on tiny or shrinking platforms like iOS and Symbian to pay off if they want to win in the Indian market,” says Murthy.
Gondal and his team are already stepping up to these formats. The company will launch its first social game around Shahrukh Khan’s sci-fi movie Ra.One. With this they are also testing the ‘freemium’ model of payment. Here, the primary game is for free but for special features and advance games, users will have to pay up. These accessories like special powers etc will be prices between Rs 5 to 50. Also, the company in its FY11 filing said it will target rural markets.
And what to make of it’s new parent Disney? Says Gondal, “We will have access to global IPs, have stronger creative process. It can’t get better than this.” He may be right. Disney has also bent its back to fortify its gaming presence. Last year the firm had acquired Playdon for $763.2 million as well as Tapulous, a start-up company that makes games for mobile segment. Earlier this year, it picked up a Finnish start-up, Rocket Pack. The bad news? The company’s interactive media segment which includes the gaming business, Disney Web properties and Playdon has bled cash for a few years and last year posted losses of $234 million on revenues of $761 million.
That could change if Indiagames delivers the world the next ‘Angry Birds’.
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