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16th March, 2011

Gaming Zone
The Indian gaming industry was expected to grow at 45 percent with factorssuchasayoungpopulation,risingdisposableincomes,increasingwireless usersandproliferationofdevelopersandpublishers,however,theindustrywas notabletocapitalizeonitstruepotential.ThesizeoftheIndiangamingindustry was estimated at around INR 7.9 billion in 2009, compared to INR 6.5 billion in 2008,implyingagrowthof22percentduringtheperiod. SizeoftheIndianGamingIndustry

CAGR CAGR GamingIndustry 2010P 2011P 2012P 2013P 2014P 2006 2007 2008 2009 (INRbillion) 200609 200914 Mobile 0.6 0.9 1.4 1.8 42.90% 2.4 4.8 8.5 11.9 14.3 50.70% Console 1.8 2.7 4.1 4.9 39.50% 5.9 7.1 8.3 9.8 11.6 18.80% PC&Online 0.6 0.8 1 1.2 28.60% 1.6 2.2 3.1 4.6 6.1 37.80% TotalIndustrySize 3 4.4 6.5 7.9 38.30% 9.8 14 19.9 26.3 32 32.10% SizeoftheIndianGamingIndustry
35 30 25 INRbillion 20 15 10 5 0 0.6 1.8 0.6 2006 0.8 2.7 0.9 2007 1 4.1 1.4 2008 1.2 4.9 1.8 2009 1.6 5.9 2.4 4.8 2.2 7.1 8.5 11.9 3.1 8.3 14.3 4.6 11.6 9.8 6.1

2010P 2011P 2012P 2013P 2014P PC&Online

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16th March, 2011 ConsoleGaming Consolegaming(includinghardware)isthelargestcontributortogaming revenues in India accounting for over 62 percent of the total gaming revenues. ThegrowthofconsolegaminginIndiacanbetracedbacktotheyear2002when SonyPlayStationPortableandPS2wereintroducedinthecountry.Thelaunch ofMicrosoftsXboxinAugust2006,justmonthsafterithitstoreshelvesacrossthe world,madeevidentthefactthatglobalgamedeveloperswereseriouslylooking atIndiaasapotentialmarket. In2009,thegrowthoftheconsole gaming market to INR 4.9 billion is largely attributable to the launch of newer products such as the Nintendo Wii, creation of localised content for the market,introductionofconsolegamesas a teaching aid in schools and awareness of console games through organised retail chains and stores. Going forward, the console gaming industry in India is expected to grow at a CAGR of 19 percent from INR 5.8 billion in 2009 to INR 11.6 billion by 2014 on the back of increasing disposable income and favourabledemographics. LocalisedContent As is the case with other gaming segments, console gaming is viewed as the preserve of the teenage or young urban single male. Microsoft, Sony and Nintendo, the major players in console gaming business, however, are clearly targetingawiderconsumerbaseratherthanfocusingonlyonthetargetgroupof 625years.TheincreasingpopularityofconsolegaminginIndiacanbeattributed to consumer awareness campaigns and localised content offerings by console companies. Creation of localised content has also worked for console businesses thus engaging the audience through identified icons. For instance, Yuvraj Singh International Cricket 2007, a game that was designed especially for the Indian marketinvolvesvirtualcricketandusesabrandambassador.Gameswithalocal flavoursuchasHanumanandKabaddionPS2havealsobecomepopularamong Indians.

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16th March, 2011 RegulatoryHurdles However,thehighcustomsdutiesandindirecttaxeshavemadelegitimate console hardware and software approximately 40 percent more expensive than grey market imports. Further, the time lag in the release window for popular gaming software in India due to the mandatory Indian customs examination as comparedtothewesternworldhasalsoledtotheincreasinggrowthofthegrey marketinIndia. PC/OnlineGaming Withover85million5PCliterateusersin 2009 as compared to 65 million PC users in 2008, the PC gaming market too has been growing at a steady pace. Several internet gaming companies have experimented with gaming in the past, but with little success probably because games were launched withoutunderstandingthepsycheoftheIndian gamerandwithoutasizeableaudience. In2009,increasedusageofsocialnetworksinIndiaandawarenesscreated byonlinegamingcompaniesthroughthedistributionoflargenumberofgames offered across different genres enabled an increased level of user conversions leadingtoa30percentgrowthforthissegmentin2009. MobileGaming TheIndianmobilegamingindustry at an estimated size of INR 1.8 billion constitutes little over 5 percent2 of the total mobile value added services revenues. The rising number of wireless subscribers coupled with increasing penetration and affordability of data enabled handsets provides a large addressable market for the gaming industry. In order to monetise the potential of the Indian gaming industry, global gaming companies opened India offices or entered into distribution agreements with leading Indian mobile gaming companies to distribute their productsinIndia. www.ghallabhansali.com 3

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16th March, 2011 Driversofgrowth MobileGaming o Increasingtelecombasesandarrivalof3G:Therolloutof3Gservices is likely to provide efficient high speed data networks to mobile gamers.Thetelecomsubscriberbaseexpectedtoincreaseto725million by2013withamobilepenetrationof60percent o Low voice ARPUs: Low voice ARPUs is likely to force telecom operators to push mobile value added services such as games thus increasing the significance of mobile games as an additional source of revenue. ConsoleGaming o Demographicsandrisingincomes:Indiaisayoungcountrywithtwo thirds of its people aged under 35 (the primary target segment). This coupled with the rising disposable incomes in urban India and the increased consumerism makes a good case for growth in the medium term o Product to services model: Console gaming companies are moving awayfromaproducttoaservicesorientedmodelenablinguserstonot onlyplaygamesofftheconsolebutalsowatchmovies,uploadphotos andsoon. OnlineGaming o Increasing broadband penetration: The number of broadband subscribers in India has increased from 0.7 million in 2004 to 8.2 million13 in September 2009 and continues to grow rapidly thus drivingthegrowthforgaminginIndia o Strong marketing and distribution: Mainstream advertising through socialnetworksandtelecomcompaniesaswellasastrongdistribution network of organised gaming chains such as Reliance WebWorld is likelytoenablethegrowthofthePCgamingsegmentgoingforward. Challenges MobileGaming o Delay in proposed technology advancements: The 3G auctions are delayed, the mobile gaming segment is likely to remain static since limited spectrum availability has resulted in data and voice being carriedoverthesamepipe. www.ghallabhansali.com 4

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16th March, 2011 o Skewedrevenuesharingagreementswithtelecomoperators:Telecom operators,owningthebillingrelationshipwiththeenduser,enjoy60 70percent oftheVASrevenueswhilecontentcreatorsreceiveonly15 to20percent14. ConsoleGaming o Highcustomsdutiesandindirecttaxes:Legitimateconsolehardware andsoftwarearerendered30percentmoreexpensivethangreymarket importsduetohighcustomsdutiesandindirecttaxes15 o Release windows for popular games delayed in India: As a result of mandatory customs check in India for software, release windows for popular games do not coincide with global launches, hence active gamersturntogreymarketimports. PCGaming o Pricesensitive:HighendPCsareneededtoplaygraphicladengames cost upwards of INR 40,000. Hence, gaming is viewed as a luxurious formofentertainmentwithareducedwillingnessfromgamerstopay forexpensivegamingsoftware. o Piracy: Piracy of games is rampant in India, with titles selling for as littleasINR100to125barelyaweekaftertheirinternationalrelease.It isestimatedthatforeveryoneunitoflegitimatesoftwarethereareover 10unitsofpiratedproductssold. Conclusion: The gaming industry has shown resilience in the face of the current economicdownturn,growingbyover22percentduring2009.Indiaisnowseen as a leading destination for high end, skill based activities. Over the years, the Gamingindustryhasseentheentryofmanyglobalmajorswhohavetappedinto Indiastalentpoolforoffshoredeliveryofservices.Companieshavealsostarted to focus on improving quality and the creation of original IP. New business modelshaveevolvedinthemarketplace,tosuccessfullytacklecurrentchallenges suchaspiracy,lackofeffectivedistributionetc,whichhasledtoincreasedmarket penetration,andheightenedawarenessaboutgamingindustry. Theindustryisasignificantuseroftechnology,andcanfurthershowcase Indias well established credentials in the technology and services offshoring space. Besides, Animation, Visual Effects, Gaming and Comics constitute the visualmediathatpromisesahugegrowthopportunityforyoungentrepreneurs andtalentedyoungpeopleinIndia. www.ghallabhansali.com 5

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16th March, 2011 CompanyProspects: o UTVSoftwareCommunicationLtd UTVGamesLtd UTV Games Limited is a 100% subsidiary of your Company and was incorporatedonSeptember5,2008.Duringtheyear200910Companysubscribed to 4,000,000equity shares and 3,650,000 preference shares of US$ 1 each of UTV Games. True Games Interactive, (True Games) an online gaming Company basedinCalifornia,USA,continuestobe80%subsidiaryofUTVGames. Games Content includes video game content development, publishing and global distribution across mobile, online and console platforms. UTV has acquired a majority stake in three Games Content companies Ignition, which createscuttingedgehighendconsoleGameContent,Indiagames,Indiaslargest publisher of games for mobile phones, and True Games, a U.S.based startup companywhichisdevelopinggamesfortheonlinePCplatform. o DhruvaInteractiveLtd Established in 1997, Dhruva Interactive is Indias oldest and most experienced games company. Since its inception, Dhruva has created several award winninggames, and has matured to become oneoftheleading game art serviceprovidersintheworld. BasedinBangalore,DhruvahaspioneeredgamedevelopmentinIndiaand is the benchmark for quality, experience and innovation. Dhruva currently has twoindependentstudios:DhruvasGameArtStudio&DhruvasGamesStudio. Over the years, Dhruvas Game Art Studio, has earned the company a reputationofbeingareliable,highqualityoutsourcingpartnerforclientssuchas Bizarre Creations, Capcom, Codemasters, Disney Interactive Studios, Electronic Arts and Microsoft Game Studios. This Studio has created content for over 35 AAA titles and more, with genres spanning Racing, Action/FPS, Sports and moviebasedgames. DhruvasGamesStudioisaninhousegamedevelopmentstudiowithover 13yearsofexperience,consistingofaccomplishedindividualswhoareexpertsin creating Casual and Online games on PC and Console. This studio has a full spectrum of capabilities, its games winning 4 FICCI BAF awards (Federation of IndianChambersofCommerceandIndustry)andhasadistinctionofthreeyears inarow(since2005)inrecognitionofDhruvasproficiency.

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16th March, 2011 o IndiagamesLtd Indiagames Ltd is Indias benchmark mobile and online games company and a leading global mobile game publisher. The Company is engaged in publishinganddevelopinggamesacrossvariousplatformsincludingOnlineand Mobile. Indiagames products are developed and published across all major technology platforms and are distributed through partnerships with mobile operatorsinover75countries. In India, the Company also distributes games via its consumer focused website and operates a broadband Games on Demand service located at http://www.indiagames.com.KeyinvestorsincludeUTVIndiasforemostMedia &EntertainmentCompany,AdobeInc.andCiscoSystemsInc. Atastrategicleveltherewereseveralinterestingdevelopmentsacrossthe differentbusinesslines.First,Indiagameslauncheditsthirdscreeninitiativewith thelaunchofRelianceBigTVsDTHgameservicewhichisexclusivelymanaged by Indiagames. This followed the long term partnership that the company has struckwiththegloballeaderinInteractiveTelevisionGames,OberonMediaThe Games on Demand business also showed good growth with various bundled plansmainlywithBSNL. o ZapakDigitalEntertainmentLtd Zapak Digital Entertainment Ltd. is Indias largest gaming company that addresses the complete value chain of Digital Gaming. With currently 8 million registered gamers, Zapak.com is not only the largest casual gaming sites in the countrybutamongstthetopgamingsitesintheworld. Zapak owns the largest chain of dedicated gaming cafes in the country Zapak GamePlex. These are first of its kind, high speed gaming cafes that offer worldclassgamingcontenttotheIndianuser.Presentlythereareover100cafes inmorethan40citiesinIndia.ZapakGames,theLicensing&merchandisingarm of Zapak has created one of Indias largest retail distribution network with presenceinover5000retailoutletsacross135citiesallacrossIndia. ZapakisalsothebiggestpublisherofMassivelyMultiplayerOnlineGames (MMOG) in India. It has launched some of the worlds most popular MMOG titlessuchasCrazyKart(inpartnershipwithShanda,ChinaslargestGaming companyworth$3Billion)andRunescape(worldssecondlargestMMOwith over8millionsubscribers,inpartnershipwithJagexGamesStudio). Zapak works closely with most of the leading global gaming and entertainment players such as EA, Microsoft, Valve, Popcap, Boonty, Payfirst, Disney,UniversalStudios,Shanda,Jagex,CartoonNetwork,THQ,iPlay,Hands Onetc. www.ghallabhansali.com 7

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16th March, 2011 MittalChheda mittald@ghallabhansali.com Disclaimer:
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Information Sources: Business Standard The Hindu businesse line KPMG Mics. www.ghallabhansali.com 8