The game industry is finally making its way into emerging markets

The recent Game Developers Conference had a diverse collection of attendees and speakers from all over the world. Some of them had trouble making it into San Francisco, thanks to heavier border screening. But a map of where people came from (above) showed that game development has spread all over the world.

At GDC, GamesBeat held a breakfast panel about the growth of emerging markets for games and how much progress the $116 billion industry has made. Once upon a time, all you needed for this growth to happen was stores and electricity. But now games are connected, and it takes broadband connectivity and a number of other factors for games and game studios to thrive.

Our speakers included Nelson Rodriguez, global director of media industry strategy at Akamai, Mario Valle Reyes, managing director of Altered VC, a new venture investment fund for emerging markets; Sridhar Muppidi, CEO of YesGnome in India; and Javier Entelman, CEO of Inca Games in Buenos Aires. Valle Reyes will speak about emerging markets at our GamesBeat Summit 2018 event next week. Akamai sponsored the breakfast.

We addressed the question of where the next billion players will come from and how the game development industry can grow in the regions of the world where those players are. Rodriguez said that, based on growth rates, this is a $58 billion question.

Here’s an edited transcript of our session.

GamesBeat: We’re here because everyone here is waking up to the opportunity in emerging markets and what games can do in those markets. The big question is, how do you get started, and where, and why?

Taiwan is an interesting market. You would have to customize your game, at least in the language, to work there. But according to Niko Partners it’s a $1.26 billion market on its way to $2.8 billion by 2021. It’s 55th in the world in population, but 15th in the size of the gaming market. If you’re going to get started, maybe you get started in a country like that? Going to a market that over-indexes for games. But you can also go lots of other places in the world.

Mario Valle: After working in this industry for 20 years, and starting in Mexico — I was born near Mexico City. We started in 2001 with things that were far from the mindset of big companies like EA. But little by little, especially in Latin America — I’d like to speak about two regions, Latin America and southeast Asia, that are very similar to each other.

On the Latin America front, something that’s growing amazingly and showing the potential of the region is the developer side, the development talent. We’ve been an important consumer region since more than 10 years ago. I don’t know how many of you know, but for Xbox, month on month, it’s sometimes among the top five or six markets in online revenue. We have the numbers. Latin America is close to 600 million people with high levels of connectivity, more than 30 percent all over the place. Southeast Asia is practically the same. Kuala Lumpur, cities in Vietnam, many other cities are growing in a very similar way, with similar numbers.

One way to answer as far as where to start is a matter of first, mindset. Forget about the guy and his burro image when you think of Mexico. “Is there internet in Mexico?” Forget about that. We’re already there in many ways. But when it comes to games, the mindset is still not there. The mindset of considering that there are serious game developers in Latin America, amazing success stories happening in the last 10 years. The only thing that’s needed is to make sure that, from a mindset perspective – and I’m sure everyone here is open to that idea – we spread the word.

Now the time has come for the independent game developers in these regions. The second step after the mindset thing is investing, and that’s exactly what we’re doing. We started a venture capital fund. We’re not publishers. We can work with publishers together. We fund games. The most important problem for the industry in emerging markets all over the world, because this is the same problem that Canadian developers deal with, or German developers, is lack of cash flow. The only thing preventing these guys from self-publishing or working with publishers is lack of money. That’s it.

We’re providing 100 percent of development costs and 100 percent of marketing costs. That doesn’t mean we’re a publisher. We can work with a publisher. But it makes the difference when we approach a publisher and say, “Here’s a great game. It’s made in Peru. They don’t need your development money or marketing money. But what can we do in order to make this game a worldwide phenomenon?”

GamesBeat: You had this idea at Electronic Arts, right?

Valle: I don’t want to take a lot of mike time, but the story, in short — how many of you remember the name David De Martini? He’s unfortunately not with us anymore, but he was one of my mentors. He was responsible for a success story inside EA, EA Partners. I’m sure you guys know of it. The new golden age of EA Partners.

Almost six years ago, we had a conversation where I told him, “What about creating a venture capital fund inside EA?” I was working with him on Origin and EA Partners. Over time I tried to mature the idea and I pitched the idea for EA Ventures. At the time, as I remember, Microsoft was doing corporate investments. So were Samsung, Qualcomm, Intel. In the rest of the world, the startup ecosystem craze was on — this was 2013.

Long story short, the idea didn’t fly inside EA for many reasons. I thought I could do it on my own. That’s how I met this guy, one of the most respected venture capitalists in Latin America. And not only respected, but loved by his investors, because the performance of his initiatives and funds is great. I heard Hector’s name from three different people.

GamesBeat: In short, it’s not a surprise, but it just takes a startup VC to get into this.

Valle: Right. We created a venture capital fund that’s investing in projects, not equity. It’s funding games, not companies.

Javier Entelman: Working out of Argentina, looking at all these passionate teams — small, medium-sized, sometimes big – when we started working with the industry, we started to realize there’s a lack of good practices in Spanish-speaking areas. There has to be a mentor. We started working with several partners and they’re working with us on this whole incubation process. We realized that these teams have great projects and very talented people, and they need help with their production practices.

We help these teams talk to mentors and publishers, who transfer the knowledge they need to get those games out the door. They’re becoming factories for new games. We’ve seen some amazing games get dissolved because they didn’t know how to deal with publishers. We’re realizing we can provide the knowledge to get them into a safe space where they can become truly professional development teams.

A big part of that is opening up our market to the rest of the world. Not only is that about getting our games outside of Latin America, but it’s also about making Latin America a valuable market for everybody else. We need to ask ourselves how the big publishers can do business more easily here.

A lot of it is a cultural thing. There’s a lot of payment traditions that have not been updated. We’ve had a big surge in credit cards, in the internet, in places like Argentina, but you still have a lot of people who aren’t used to paying with credit cards. If they are, they’re used to paying in installments, which is something we’re trying to provide on our platform. Or they’re used to paying straight up through their bank accounts, sometimes, which is something we’re trying to provide as well.

But we’re realizing that there are key cultural differences that make the Latin American gamer very different from everywhere else. You need to address that if you want to include them in the general state of things. You need to ease the way into them becoming typical video game users. That’s part of the program we’re doing with publishers. We’re trying to get the go-to-market more in the Latin American mindset, and we’re trying to help the studios we work with to get the right co-publishing partners for everywhere else in the world – for the United States, for Europe. These are markets we don’t want to handle ourselves, because it’s hard enough to make the Latin American market a stable place.

We’re in everything towards that. We’re making these studios into factories of games. We’re already incubating three studios. As far as funds go, Mario is absolutely right. Getting funding into Latin America has this enormous suspicion around it from everywhere else in the world. What we’ve realized is, we have to get the government involved in this. In Argentina, for instance, up until recently venture capital laws didn’t exist. We were governed by regulations from 1926. A new law just came in that allowed us to do a $1-to-$1 match with the Argentinian state. They’re helping us fund games.

We have this whole interest in the video game industry from almost out of nowhere. They realize it’s a technology field. It’s growing exponentially. Latin America is growing year over year and they need to get on top of this. They’re funding projects and helping us with our incubator, getting these teams to do projects. They’re also funding marketing systems, go-to-market systems.

We’re realizing it’s going to be country by country, step by step. You can’t address Brazil immediately. You can’t yet open some markets that need to be developed. But it’s an amazing place. There are lots of teams, a lot of cool projects. We just need to bring them good operations principles, good techniques, good production schedules, so they can work with publishers without being scared, without feeling overwhelmed. They’ll know how to talk to publishers, how to get money for their projects. That’s the work we’re doing.

Sridhar Muppidi: Something very interesting is happening in India. Most of you probably know, but we’re the second-largest mobile market in terms of number of users, more than 330 million people. Since mid-2016, a new carrier came in that basically made it incredibly cheap. For about $5 a month you get 30 gigabytes of network data. Video has taken off. Gaming has taken off. For a lot of companies – I was talking to Scopely the other day – India is number two in terms of downloads, even though it’s only something like number 88 in terms of revenues.

One of the biggest things most people don’t understand about India, and some other emerging markets, is that everyone looks at it and says, “An in-app purchase costs about as much as a Starbuck’s, right?” Unfortunately, in India, a cup of coffee costs 15 or 20 cents. So no, $5 is a lot of money. That mindset, that people can afford something that’s only $5, that has to change, and it’s started changing.

Recently, Miniclip did an experiment with 8 Ball Pool. They have one of the top 100 games in India. They spent time to reorganize their IAPs, and once they did that – it took a couple of weeks to figure it out – they became the number one grossing game in India. They always had the downloads. They just needed to tweak that pricing.

What India lacks right now is obviously how much people pay. But we didn’t grow up paying for games. That’s going to change eventually. Until that happens, getting Indians to pay smaller amounts is the way to monetize through IAP. A number of companies are starting to figure that out. You get 10 times more downloads in India, so even if you get 10 times less revenue per person, if you can manage that, it can be a lucrative market. People are waking up to that slowly.

GamesBeat: The base of game companies in India is changing as well. Mark Skaggs, the creator of FarmVille went over to join Moonfrog. That was interesting.

Muppidi: It was. He looked at the market and said, “Well, I’ve done everything else. What can I do here?” China had already happened. He looked at India and came in to spend a couple of years with one of our emerging companies called Moonfrog. He still believes in it, even though he had to move back home to Texas. There’s a lot of energy around the space.

In my state, where I come from, Hyderabad, we’re going to do an event called India Joy this year. We already have India-based NASCOM and GDC events. Unite has an event. Pocket Gamer has an event. We’re trying to deliver a gaming and digital entertainment event together under the India Joy umbrella, which is happening this December. We need to create awareness about the space and get more people to build it. It’s an incredibly fun space to be in. I’ve been building games for a very long time. I don’t make enough money, but I love it. We’re trying to create more game developers, and we’re getting there.

Nelson Rodriguez: The way I think about this whole question is, to me there are three topics that we keep touching on. One, is the region connected, the market we’re trying to reach? Two, is it an open or closed market? Three, will people pay for it? How do we get paid?

I started my career at Xbox. We struggled in Japan, as everyone knows. It was a hard market for us. That gets to the topic of open or closed markets. One of the things I think everyone is learning about China is that in many ways, beyond just the government, China is a closed market. China consumes content from its own region much more so than other parts of the world.

What’s interesting about this question of emerging markets, if you look at the list of countries that can access games, and you scrape out the countries that are less willing to consume content from other regions, you’re left with some interesting markets where the question is just how you’re going to get money for people.

Does anybody have a sense of how many connected users are in Kenya? It’s 90 percent of the population, about 45 million people. They’re connected at more than 6 megabits per second. In Nigeria it’s 90 million connected people. There are economic challenges in how you’re going to extract payment. Is it going to be subscription, or microtransactions, or ad-based? That’s the puzzle we can’t solve. But we can solve the connection part of it and make sure they can access. I’m interested in how the rest of the world solves the money problem.

What’s also interesting is that content overlaps. When we were in Prague, someone gave a presentation on this. The Russian market behaves a lot like the African market and the Middle Eastern market in terms of the demographics and the kinds of content they consume. The sun is shining on these markets, and we’re all starting to realize they exist. The markets where the domestic development market isn’t strong enough to lock out other countries—in many of these cases, South Africa being another one, they speak English, so localization isn’t even an issue. There’s something there.

Latin America has a similar profile in terms of the potential reach. There’s a challenge around economics. To me I think that’s the question.

Valle: This question of connectedness is interesting, not just technologically speaking but culturally speaking. It’s natural to believe that Latin America, especially at this point, would be very similar to other Spanish-speaking regions. The thing that’s interesting is that the Spanish speaker in Latin America is really similar to the MENA countries, in many things, and to southeast Asia.

Emerging markets are often very similar to each other in terms of culture, urban areas, technology consumption, and content consumption. The streets look a lot alike. If you at Kiev and then look at Mexico City, you might not be able to tell the difference. But most important, I think that what’s happening is the talent behavior, the talent development, in Kenya, in Nigeria, in Mexico City, it’s almost exactly the same. Thanks to Unity and thanks to the democratization of development, it’s like looking into a mirror.

Obviously this isn’t the case in China, for its own reasons, but it’s easier to learn from emerging markets because emerging markets look a lot like each other. Emerging markets aren’t countries. They’re cities. That makes it even easier, because the access is there.

Entelman: Another thing to consider is that the relationship between economies and governments is very different in emerging markets than it is in more established ones. We’re seeing amazing changes in philosophy in some of these governments. In Argentina, all of a sudden we have this continuing investment in game companies. But also, they’ve always spoken like, “We want to be open. We want to open the borders to technology. We want to open investment.” But they behave like they want it to be closed. That’s a preconception, that there’s a challenge waiting right away.

It shows, for example, when we were talking about doing business with venture capital and with publishers, and realizing that their reaction just when we were talking about these markets—there was a mistrust at the beginning that’s been established by experience, with governments suddenly cutting their funds or taking property or literally closing the borders to some of these products. But right now, because of technology, they’re opening up and realizing that they have to be a part of the world. They have to be a part of this entrepreneurial movement, the venture-backed movement.

People are asking themselves what has prevented them from bringing this talent, this capacity to produce, outside of their countries, outside of their region. In the worst case scenario it’s almost always the government.

Audience: About four years ago, I wanted to start focusing on emerging markets. We started to work with Brainz in Colombia. Four years ago it was an uphill battle in those conversations. There were all sorts of preconceptions. But over the course of that four years, we’ve steered a whole bunch of projects for them, and people know they had a wonderful success story recently when they were bought. I’ve seen very significant change in the western publisher’s view of development studios in places where they weren’t expecting to find them before.

Entelman: A lot of publishers, especially from eastern Europe, have had amazing successes coming to Latin America. They’ve realized this because they’ve had the experience themselves in their own regions starting out. But yeah, this is the moment. It always happens to us like this in Latin America. Technology comes to us five years later. We adapt it five years later than that. It’s the way the markets have always behaved. But there are some amazing stories that are spearheading this change.

We’re getting publishers that have seen the scenario happen to them before, and they’re more open-minded to us than others–they have had really bad experiences before. We’re talking about more than 80 percent of projects never reaching the final stage, during the last 20 years. That’s something we’re changing the last four or five years.

Audience: For people involved in investment in emerging markets, how much are you seeing domestic development for a domestic audience, versus development in an emerging market for other global markets? And how much of your focus is on trying to get external, global games to reach the local market?

Valle: Our fund specifically, we’re not only investing in emerging markets. Right now the first announced game we’ve invested in is Norway. But Hector might have an interesting view on that, because his other fund is investing actively in emerging markets.

Audience: That’s tougher. It’s mainly cross-border. When you focus your investment strategy in a single geography, in Latin America, or even Mexico if you want to be specific, you’re endangering a lot of things. The quality of the investment you can do gets a bit broken down. You cannot assure quality. You have to get more quality out of other regions. That’s my experience in venture capital. There are only maybe two countries that could support a single-geography kind of venture capital, which are the U.S. and China. Everything else, I would be thinking about cross-border, about global.

Valle: Especially when you’re talking about games. This happens in technology, for sure, but for games, what we’re interested in, at least in Latin America and in southeast Asia, is to make sure these developers know that they now have the tools and the dynamic learning to make sure that their games can be successful worldwide. We’re not promoting a domestic market.

But at the same time, one example is a game we worked closely with from Mexico called Mulaka. It’s now available on all platforms. It’s the first time in history that a Mexican game has simultaneously shipped on all platforms. We had a special focus on Switch. Nintendo loved these guys. Mulaka has been very successful. It’s based on the Tarahumara culture. It’s very Mexican. But it’s selling everywhere.

Muppidi: What I’d add to that is you have access to the best market in the world because of the app stores, except for China. It doesn’t matter where a user comes from. In my case, in India, why would they bother downloading something that was made only for India? If you made it only for India, you probably don’t have enough money, so the quality isn’t there. As a user, why do I bother with that when I have access to Hollywood content? In India, one thing developers are tending to focus on, if they’re going to put in the effort to build a high-quality title, they might as well go after all the markets.

Rodriguez: When I look at India, I see, in the next three years, 320 million new mobile subscribers, all on sub-$100 smartphones. I see a country that, over the last 10 years, has specialized in software development, and with strong ties to the English-speaking world. Is it really the monetization that’s the problem? When I look at India, I wonder when the race starts to be the next Tencent, coming out of India.

Muppidi: I’m guessing the Tencent in India is going to be Tencent in India. [laughs] It’s an open country. Unfortunately, the homegrown guys are not ahead enough. It would be Tencent. It would be the beachhead guys. It’s already happening. If you look at the top grossing charts, there are a couple of Chinese titles in there.

We don’t look at India as if it has to become the next China. We’re the second-largest English-speaking country. I can relate to people here, sometimes, more than I can to people back home. We live in this world. For us, it’s about quality content. It doesn’t matter where it comes from. It will never just be homegrown vernacular content that will take over. It’s always going to be the best content, at least in gaming. In video content and other things, maybe it’s different. But in gaming you don’t even need localization sometimes. It can be purely visual.

I heard a stat from Google—they told me unofficially, obviously, but they said 80 percent of Indian Android users download one game a month. That’s more than what you see here. That’s changing things very quickly. Indians love games. It’s just that we never had access to them before, and now we do.

Valle: Beating cultural patterns out of a market is very difficult. People entering a market and becoming a typical user, whether it’s for cell phones or PC or console, that takes some smart effort on your part. Bringing them the payment methods they know, the language they know. You bring in a product to a market and maybe it’s from a big American company originally, but you’re able to tell them, “No, we’re a Latin American publisher and we’re bringing you this game cheaper than you would get it outside.” All those small things make the market more open.

In our part of the world, 30 to 40 percent of gamers are left outside of the market. You can push them inside. You can ease the way for them to become a part of it. But it’s not the same way that people think in China or India or the U.S. These things take time. People in Latin America, for example, are very mistrustful of things that come from outside. We say we want to be open, but there’s a closed behavior. We’re trying to work on that.

Audience: What is the difference between the casual market versus the core market in other parts of the world? Do we see the same division everywhere? Does casual work or not work in a place like India versus first-person shooters and RPGs, those genres of games? Or do people not even think in those terms?

Muppidi: Traditionally, you had people only working with console, and so naturally you had only hardcore games. But since mobile gaming has become prime time entertainment for so many people in India—the people who say, “I would never play a game,” they still find something they want to play on their phone. Now there’s an opportunity to have so many different genres. I might never pick up a first-person shooter, but then I find FarmVille.

Casual is taking over. Mid-core obviously makes a bit more money, because the compulsion loops are so much stronger. But casual is taking over. That’s what’s driving so many downloads in India.

Audience: On those sub-$100 phones, are the data rates supportive of games that use a lot of online activity, or do people mainly just download and play local?

Muppidi: The data rates are—we’re talking a 4G connection and 1Gb per day usage, so about 30Gb a month for $5. India is probably the only country that has those kinds of prices. That’s bringing more and more people online. So it depends on whether people stream video or not, really. YouTube adoption has gone up by about six times in India over the last year or so.

Audience: I had another question about India, about the behavior of players. Are you tending to see more local content, things that are very specific to a given region, or is it more global IP?

Muppidi: If you look at the top 50 grossing games in India, there are a couple of local gambling games – well, more than a couple – and they dominate. It’s not because they’re local necessarily, but because they’re developed by Indian developers who understand pricing. You can’t charge $5 for an IAP. You can charge 20 or 30 cents. They make their money on volume.

Most of the western developers don’t do that. I was talking about Scopely. For their WWE game, India is the number two region in terms of downloads, and in revenue it’s 88. If they tweaked that they could be a top grossing game. People just need to understand that cost of living is different. Quality of life is different.

Apart from that, we’re looking for creative and quality content. We have Candy Crush. We have Clash Royale. They’re in the top 10 grossing games for us too. Culturally, we know what’s going on. There’s no reason for us to compromise on quality. It just needs to be somewhat localized, or in some cases there’s no need for localization at all.

Audience: The question there is, how much does being in the top 10 in India mean to a company like Scopely, which makes millions in revenue a month? Another question would be, what is the ratio between low end devices and high end devices, and how does that affect how games are made?

Muppidi: For most Indians, it’s a nice investment. People save up to get a pretty good phone. It’s not the case that everyone is using a sub-$100 phone. People are buying good phones, and they’re getting faster and faster. As far as revenues, we’re looking in the $50,000 to $100,000 per day range if you’re in the top five or the top 10. Sometimes it’s less or more. But that’s what I’ve been hearing about the stores. When you add it up, that’s still over a million.

Valle: When I was at EA and we were launching Origin, when we started the emerging markets conversation there – this is in 2012 – we did exactly that. It’s not a question of making sure that you have a footprint in these territories. It’s a question of making sure that you’re completely accurate in your pricing strategy, your discount strategy for every market. That’s the only way we started to grow almost immediately in Brazil. The price for FIFA was completely different in Vancouver compared to Sao Paulo. Now, a problem comes when someone knows about that and tries to find a way to exploit it.