Is GenAI the Game-Changer We’ve Been Waiting For?

The passion for gaming is clear among young Indians, particularly those from Generation Z; however, after a relatively uneventful 2024, gaming startups are optimistic for a shift in circumstances in 2025.

Indeed, India stands as one of the largest markets for gaming enterprises, boasting nearly 600 million active gamers in FY24, as reported by gaming investor Lumikai.

Nonetheless, this expansion was moderated by regulatory ambiguities that surfaced in 2023 along with new taxation policies for real money gaming, stirring concern among startups. While console, PC, and casual mobile gaming remained unaffected by these regulations, the general investor sentiment for Indian gaming startups—primarily fueled by fantasy sports and RMG—diminished.

According to Lumikai, the Indian gaming market generated $3.8 billion in revenue in FY24, reflecting a 23% rise from $3.1 billion in FY23. Real money gaming emerged as the principal revenue driver, contributing $2.4 billion to this total, while in-app purchases or microtransactions registered as the fastest-growing segment, increasing 41% year-over-year in FY24.

By FY29, Lumikai projects that in-app purchases, with a compound annual growth rate (CAGR) of 44%, will surpass RMG revenue. This signals a gradual yet consistent shift toward casual and hyper-casual gaming in India, which is likely one of the significant trends we anticipate in the gaming startup landscape in 2025.

What Awaits Indian Gaming Startups In 2025

“If we explore new media, its primary components encompass gaming, video, TV, social animation, VFX, and audio. Gaming currently represents 30% of this $12.5 billion market. There has long existed a belief that the market is predominantly driven by real-money or skill-based gaming. However, a more comprehensive view uncovers substantial growth propelled by in-app purchases and ad-based revenue,” stated Salone Sehgal, founding general partner at Lumikai, to Inc42.

Sehgal is of the opinion that the impending new era for gaming will elevate related industries such as animation, VFX, and content creation.

Thus, despite 2024 commencing on a dismal note for the Indian gaming sector, the ecosystem regained its strength by year-end, as funding began to flow back into certain startups beyond the RMG domain.

For example, Mayhem Studios, the mobile game development division of the gaming unicorn Mobile Premier League, secured undisclosed funding in a recent financing round from gaming-centric VC firm Lumikai.

Likewise, LightFury Games, established by former Unacademy CMO Karan Shroff, raised $8.5 million in seed funding spearheaded by Blume Ventures. Following this, in October, gaming studio Funstop Games generated $5 million in its Series A funding round.

The advent of GenAI for content and asset creation has also significantly accelerated game development, with projections indicating that this growth will exponentially rise in markets like India, where development resources and talent are limited.

As we transition into 2025, the expansion of mid-core gaming in India is expected to pick up pace, with more studios emerging. Furthermore, as more gaming PCs come into play and mobile gamers migrate to these platforms, cross-platform gaming is projected to witness substantial growth.

The question circulating among everyone is: will 2025 be the year when India finally reveals its hidden potential in the gaming sector? Below are our forecasts for the gaming industry in 2025, grounded in expert and investor insights.

Gaming Investment Set for Recovery In 2025

Following a significant decline in gaming investments during 2023, the first half of 2024 also displayed a deceleration. However, the latter half has already indicated improvement. Now, the investment environment for gaming in 2025 appears prepared for a resurgence.

According to specialists, enhanced faith in hybrid monetization techniques and the achievements of rising markets, including India, will drive this recovery.

Investors concentrating on gaming are expected to prioritize startups focusing on niche genres or innovative distribution platforms, such as cloud streaming and AI-driven game customization.

Anuj Tandon, a partner at Bitkraft Ventures, a US-based early-stage investor that has recently set up operations in India stated that this market is one of the few shining spots in the global landscape, exhibiting unstoppable momentum in mobile gaming and the overall video game industry.

“Worldwide, I predict M&As are re-emerging in gaming, which will stimulate the industry’s flywheel and lead to increased early-stage investments across the globe. In India, I anticipatemobile content, interactive media, cross-platform games, games for new platforms like Roblox and UEFN, and gaming technologies, including AI, attracting greater investment in 2025,”he remarked.

Lumikai’s Sehgal reflected this opinion. She pointed out that as worldwide markets such as North America encounter a downturn, burgeoning markets like India and Southeast Asia are set to draw increased investments. She emphasized that Lumikai invested in eight gaming startups in 2024, including QuriousBit, Bombay Play, and Studio Sirah.

“Several global investors have collaborated with us, and there is considerable enthusiasm in Indian startups and entrepreneurs. While expansion in global markets is decelerating, India continues to experience rapid growth. Notably, the interactive media and gaming industry is witnessing double-digit Compound Annual Growth Rates (CAGR), a trend not observed in other parts of the globe. This has cultivated substantial excitement from both local and foreign investors,” she stated.

GenAI Accelerates Game Design

Generative AI has captured global interest, and this includes the gaming sector. For instance, video game creators have begun to utilize generative AI tools such as Claude AI, Cursor, and DALL-E 2.

Beyond crafting design components, in the more innovative domain, AI can aid in constructing open-world games and real-time design features, streamlining the development process and minimizing reliance on large teams, Sean Hyunil Sohn, CEO of KRAFTON India, noted.

Generative AI is also revolutionizing marketing by automating advertisement creatives in addition to development tasks.

Within the realm of video game creation, developers are employing AI for level customization, adaptable game mechanics, and enhanced non-player character (NPC) behaviors. The implementation of AI-driven platforms is enabling game developers to craft richer experiences while conserving time and resources, said Nitish Mittersain, joint MD and CEO of the publicly listed giant Nazara Technologies.

India does not possess a deep-rooted culture of game development in comparison to other nations, as the sector here is still relatively emerging. Thus, locating the right talent has consistently posed challenges in the market. However, the swift progress in AI applications is narrowing this divide, according to Roby John, founder of the gaming studio Supergaming, which released the battle royale game Indus in 2024.

“We regard AI as the ideal co-developer—enhancing human potential instead of replacing it. It acts as a tool that supports and boosts our initiatives, expediting the development process and increasing efficiency,” Supergaming’s John further elaborated.

Casual and Hyper-Casual Gaming Will Maintain Dominance

Advancements in AI and cloud-oriented tools are anticipated to significantly enhance AAA game development owing to the resource-heavy nature of this process, yet casual game development is also expected to receive a substantial uplift.

By marginally lowering production expenses, these advancements could inspire studios to reinvest in high-budget endeavors. This coincides with India witnessing the release of two indigenous AAA titles—‘Indus Battle Royale’ and ‘Rage Effect: Mobile’ in 2024.

LightFury Games, which secured funding in 2024, is also aiming to develop AAA titles, which typically target the latest generation of gaming hardware and require several years for development.

“Although AAA game development is set for some resurgence thanks to next-gen hardware capabilities, the industry will remain wary due to the extensive costs and risks tied to blockbuster productions. Rather, a mixed strategy is likely to prevail, where AAA-level experiences are delivered through episodic content or elaborated DLCs. Smaller, cost-effective games with blended casual mechanics will continue to flourish due to their rapid turnaround and ability to attract wide-ranging audiences,” asserted Felicity Games’ Choudhary.

Despite the appetite for cinematic and immersive experiences, the inclination towards hyper-casual and mid-core games will persist as these genres have shown to yield higher returns on investment, making them particularly appealing to mid-sized studios and budding developers.

As investors increasingly lean towards budget-friendly titles, founders of gaming studios are also currently placing emphasis on casual gaming. Nevertheless, according to a founder of a gaming startup, there are inherent risks in pursuing AAA titles while depending on casual games for revenue, as one cannot entirely disregard the development of casual games.

Cross-Platform Gaming Will Expand

Alongside the evolution in game development, player behavior is also transforming. While India predominantly remains a mobile gaming market, the demand for gaming PCs and consoles is progressively rising.

Entities such as Asus are making substantial investments in gaming PCs, while US-based CyberPowerPC has entered India this year to provide customized gaming PCs. Moreover, Backbone, an American firm, has launched the market with the Backbone One controller, converting mobiles into handheld gaming systems.

Consequently, cross-platform gaming is gaining substantial momentum in India, propelled by the escalating demand for seamless experiences across mobile, PC, and console platforms. The emergence of cloud gaming services is also propelling this expansion, allowing players to enjoy high-quality games on diverse devices, irrespective of hardware limitations, as noted by Krafton India CEO.

As seamless gaming experiences on mobile, PC, and console platforms become more common, developers will need to concentrate on unifying gaming ecosystems, permitting players to access their progress and assets on any device, stated Nazara’s Mittersain.

Gaming Collaborations Will Serve as a Catalyst

In addition to cross-platform gaming, cross-sector collaborations are also gaining prominence within the gaming landscape. While gaming has not traditionally been regarded as part of conventional media, the distinctions are gradually fading.

Partnerships
“`with OTT services, film sectors, and entertainment industries are steering cross-media storytelling, permitting licensed gaming intellectual properties to transition into films, series, and even live performances, according to specialists.

For instance, KRAFTON has partnered with Bollywood icons such as Ranveer Singh and Deepika Padukone to reach a wider audience. Conversely, OTT services are progressively welcoming gaming. This year, for example, JioCinema launched a six-part reality TV series focused on Poker, titled Poker Masterclass in collaboration with PokerBaazi.

Apart from entertainment, collaborations are fostering advancement in education and healthcare. Gamified educational platforms, enhanced by AI-driven adaptive learning systems, are making learning more interactive and captivating. Similarly, the health sector is harnessing gaming technologies for mental health treatments, physical rehabilitation, and fitness, with wearables and AR/VR facilitating immersive, health-oriented experiences. Consequently, cross-media alliances are anticipated to become more prevalent by 2025.

New Revenue Streams, In-App Purchases Expected to Surge

“We’ve observed three major types of monetisation taking shape in the gaming sector: in-app purchases or microtransactions, ad-based monetisation, and the rising trend of virtual gifting and tipping. For example, one of our portfolio firms thrives solely on virtual gifting and tipping, a model witnessing remarkable growth,” stated Lumikai’s Sehgal.

According to her, this transformation has been significantly aided by UPI, which has removed the hassle of entering debit or credit card information. UPI has unlocked the possibilities of microtransactions, enabling first-time users to pay effortlessly. Microtransactions as low as INR 29 have emerged as the favored entry point for new players.

Interestingly, on the higher spectrum of expenditure, subscription-based systems like Xbox Game Pass and PlayStation Plus are also gaining traction as gamers seek economical access to extensive game libraries.

Moreover, reward-based advertising is becoming a norm for free-to-play games, ensuring consistent revenue without interrupting the player experience. With the advent of cloud gaming, pay-per-use and time-based models are also beginning to surface, reshaping how games are monetised in India, according to industry authorities.

Real Money Gaming Is Not Extinct

In the last year, casual and mid-core gaming have been at the forefront of conversations within the gaming industry. At the same time, real money gaming, the most significant segment in India’s gaming market, seems to be taking a step back. Although it may appear that the sector is facing difficulties, the statistics reveal an alternate narrative.

As per a Lumikai report, RMG platforms contributed roughly $400 million to their revenue in FY24, spurred by absorbing user GST expenses and a busy live sports schedule, which included two cricket World Cups and an IPL season. However, despite the revenue growth, taxation issues in the RMG domain resulted in margin compression and adversely affected profitability.

“The more encouraging aspect is that larger companies have become increasingly financially cautious, concentrating on sustainable business models and minimizing losses. Although they must absorb GST expenses and provide some discounts to keep players engaged, they are trimming costs in other areas,” stated a senior executive from an RMG startup.

India’s fantasy and overall RMG market has shown resilience in 2024. Despite a slowdown in startups within the RMG space, the established players have continued to thrive. While retrospective GST taxation challenges persist, casting a shadow over regulations, addressing these issues in 2025 could release substantial liquidity for investors, staff, and other stakeholders, according to BitKraft’s Tandon.

With solid macroeconomic conditions and growing retail interest in contemporary businesses, some RMG enterprises might contemplate going public and initiating IPOs, he noted.

[Edited by Nikhil Subramaniam]