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December - 2008 - issue > VC Perspective
Casual gaming a big draw for VCs
Rahul Khanna
Thursday, December 4, 2008
What are the prospects for the Animation industry in India?

Roadside Romeo, an animated film released recently by Yash Raj and Disney is massive leap forward for the Indian animation industry. It shows that studios in India, with support from majors in Hollywood are willing to take creative risks and comit large budgets to an emerging category of entertainment.

Despite this success, I do not think many early stage VCs will move into financing animation companies, especially those that take on the risk of a content and hits led model. However, given the scale that some of these studios have achieved, they are now able to attract financing from strategics, film funds or even private equity investors who continue to be active in the entertainment vertical.

How can companies de-risk their investments into large animation and gaming projects?

In recent times, Virgin Animation (now Liquid Comics) have taken a rather interesting route towards trying to create unique IP and original characters. They try out characters in their comics, which is much cheaper than in animation, and once some of these characters succeed in striking a chord, they monetise them through progressively larger projects like casual games, short form animated content and eventually feature films.

What does the Indian gaming landscape look like?

Essentially, the gaming space in India is crowded with developers who have been creating console and mobile games for other companies, but now want to move up the value chain and get into publishing themselves. For most of them, marketing and distribution, especially outside of India remains an issue. Over the last few years, players like Indiagames have tried to take on the role of a publisher and have had some success, especially in the mobile space. More recently, a few companies like Kreeda and Zapak have tried to attack the online multiplayer space with licensed and localized games, but given the challenges of broadband connectivity in India, progress has been limited. The growth of traffic in the casual gaming space to sites like Games2Win is very exciting, however questions around effective monetisation of traffic still remain.

What are the distribution models in the casual gaming space?

Basically, there are three kinds of casual gaming distribution models:

The first model is to develop games that run on the iPhone or Android. Here, anybody who can produce a game is able to showcase it in the virtual store. So, whether it is a product from Los Angeles or Mumbai, it has equal chances of success.

The second model is to develop games that run within social apps like orkut and facebook. This is a better place to start if you want to showcase customer adoption as these games tend to typically be free and can be spread virally by the community.

The third model is to operate a destination site for casual games similar to games2win.com. While this allows for direct monetization of traffic to the site through ads, subscriptions or microtransactions, it is challenging to grow traffic without investing in unique and globally attractive content.

What can gaming companies do about piracy?

As with any business, piracy of content remains a big issue in the gaming space. Here too, I’ll take the example of Games2win. They have in a sense monetized piracy by developing an advertising wrapper around their games that gets activated when the game is lifted from the games2win site. So, every time the game is played away from the games2win site, the company is able to serve up advertising and monetise this “scraping” of games through ads that appear at the beginning and end of the game. On last count, the company was serving almost 150 million ads a month through this global ad network.

What are the future opportunities for the casual gaming space?

Casual games are played by nearly 400 million people per month, and increasingly advertisers are embracing flash gaming as a compelling medium for both in-game and context controlled advertising. Given the long tail of casual games, sites like Kongregate allow independent developers to showcase new games to the publisher community. On the consumer facing side, sites like Gamecurry.com allow users to discover games by indexing a vast number of games and then surfacing them in clusters. Some examples include results presented by geography “games played in your country”, by peer group “games played by girls”, and by genre “shooting games” girls”. Finally, social networking sites are looking at casual games to create a controlled environment to advertise, while keeping people engaged. This is a link that could reap rich dividends if explored properly. Owing to all these factors, many among the VC community are quite bullish on the casual gaming space.

The author is Director, Clearstone Venture Advisors
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