The intention of this report is to build on the information contained in both previous reports with a focus on understanding gaming economies, business models and the consumers of games.
The Producers/Studios
• The local gaming sector is in its infancy with most companies under ten years old.
• There are about 49 studios in number, but only a fraction of them are bona fide businesses that are active and generating an income in producing games.
• There are currently no studios in South Africa producing their own AAA games. This means no large-budget ‘blockbuster’ type games are being created.
• The focus is on smaller premium indie games for a niche audience beyond SA’s borders.
• 7 ‘big’ studios have been identified that are growing and have successfully penetrated the global gaming market.
• The largest companies in terms of staff are those involved in third-party service work – co-producing games for other studios, publishers or corporate entities.
• A skills deficit at the mid-career level was cited by third-party service gaming companies and those pursuing their own IP as one of the restraining factors to their companies' growth and that of the industry at large.
• The industry’s growth and job creation is more closely tied to service work than IP creation.
• Most third-party service studios indicated that they wanted to or are pursuing generating their own IP. They wish to establish an income and reputation in the global market and better understand it through doing service work before embarking on a high-risk high-capital investment by producing their own IP games.
• Successful studios driving their own IP are mostly aligned to a publisher based in the US or Europe.
• Only one service-based company contracts for local businesses. All service-based studios are dependent on revenue and clients in the US or Europe.
Are Conditions in South Africa Fertile for growth of the Gaming Industry?
• Given that the growth of local gaming companies relies on premium PC games, there is an insufficient local audience to drive any expansion.
• This has forced gaming companies to cater for audiences at a geographic remove from them.
• A lower cost of living in South Africa, which is believed to translate into cheaper (compared to first world countries) salaries for gaming professionals, has allowed local studios to remain competitive in the global market. However, South African labour is not as cheap in India or other countries in the Global South.
• A lack of government support and other unfriendly business trading practices were cited by a number of stakeholders as a barrier to SA establishing itself as a gaming development hub.
• An unstable electricity supply that loadshedding by Eskom has created has been challenging for gaming companies.
An absence of ‘African Games’
• Demand for African content in the west has become more pronounced, particularly since the release of Black Panther. This has manifested in one of South Africa’s biggest gaming deals with one of the largest publishers based in the US.
• The need for ‘African’ content can also be detected in various programmes run by
console makers who are running workshops on the continent to identify new games and talented creators.
• However, local studios are not creating content targeting South African consumers as consumers can only afford (and have access to) mobile devices and Free-to-Play (F2P) games. The niche audience for ‘indie’ PC games in this country is too small to be viable.
• Several stakeholders raised the point that an African “themed” game, or the fact that it was “made in Africa” are not unique selling points that have value – players simply do not care. If one wants to find commercial success (internationally and in the local market) you have to first ensure you are making a world-class game (Tshimologong, 2021: 28).
Global Consumers
• The Asia-Pacific region claims the biggest market share of the global gaming market in terms of audience and turnover numbers.
• The Africa and Middle East Region boast a larger number of users than North America or Europe, however, the two latter continents boast a larger income. The larger income generated from games in the US and Europe is also most likely due to players spending more money online than those in Africa and the Middle East.
• One of the most significant game consumption determinants (in Western countries) appears to be age or generation. As the secondary data demonstrates, while Baby Boomers and Gen Xs are gamers, it is Millennials and Gen Zs that account for the most gamers.
• There appears to be little correlation between income and education as factors encouraging gaming in the US and UK. This needs to be taken into consideration for potential and current South African audiences, though with an awareness that there are considerable income and education gaps between the US/UK and South Africa.
• Primary data collected on Steam shows that in the online PC gaming sphere, America claims the majority market share in terms of audience. This fact also bears out when considering that South Africa’s top-selling game on this platform, Broforce, is primarily played by an audience in North America.
• American domination in terms of studios and publishers also aligns with the fact that South African studios, whether advancing their own IP or servicing other studios and publishers, mostly rely on companies in the US.
• Despite the large number of African American gamers, there is a lack of diversity and diverse stories within the games themselves and within gaming developers in the industry (Nielsen Company, 2018). South African studios are well-placed to cater for this demand.
South African Consumers
• Given that South African audiences do not carry much influence on Steam at a global level, it follows that local studios that are interested in developing IP are not designing games that target them.
• South African gamers have a preference for playing games on mobile devices. This is not only shaped by the fact that the penetration of smartphones has been high, but because there is more and better connectivity to the internet through smartphones and cellphones.
• Only 10% of the population have access to a fixed internet connection, which is generally a prerequisite for PC and console online games.
• Given the statistics around South Africa’s shrinking middle class and the income brackets that define this group, the market for online gaming is small.
• Those that are playing games on mobile devices are playing games that are primarily being produced by developers in the US and Europe.
• As such, the predicted growth and revenue expected on mobile devices with regard to gaming is not feeding into the local gaming ecosystem in any way.
Gaming Economies
• Game publishers account for the bulk of revenues in the value chain.
• US publishers are benefitting from South African IP. If they invest in the development of a game, the studio will not be able to claim full royalties on sales of the game until the publisher has recouped this investment and other costs. The standard royalty split between a publisher and a studio is 30/70 in favour of the studio.
• Steam has democratised the dissemination of online games in that anyone can load a game for US$100 (R1 700). There were 11.7k games released on Steam in 2021 (Video Games Insights, 2022), which translates into 30 games being released on the platform a day. As such, those South African studios that have managed to earn a living selling their games on this platform have done so against great odds.
• All the studios in South Africa barring those involved in third-party service work sell their games on Steam, which is how they generate an income. Only 20% of games are F2P on the platform and that figure is said to be declining.
• There is also a cost to the studios to sell their games on Steam, with the platform taking 30% of sales revenue from the developer.
• PlayStation and Xbox have come to operate very much like Steam in that they operate as digital storefronts. Revenue is also split along the 30/70 percentage in favour of developers.
• Most of the stakeholders suggested that the F2P model for mobile games automatically shapes the design of a game in such a way that it exploits the psychology of the player. This results in a game structured around extracting money from players and has been compared by many as being not too dissimilar to gambling.
• F2P games can also monetise via advertising that is played throughout the game. The owner of the game generates income for each advert that is screened. However, your game needs to be incredibly popular to attract advertising. South African gaming companies would not be able to compete at this level, nor do they have the budgets to do so. As such, the mobile gaming landscape is not one that local studios are primarily interested in pursuing.
• At different junctures in game production, US-based companies are profiting from South African studios – in terms of the tech tools (Unity and others) and platforms for dissemination (Steam). Those studios using a third-party publisher are losing up to 60% of their game royalties – 30% to the publisher and an additional 30% to Steam (or other platforms).
