Anil Ambani's Reliance Big Entertainment created Zapak.com for PC gaming and BigFlix as an Indian version of US-based online DVD rental giant Netflix. These businesses were housed under Reliance Entertainment Digital, an arm of Reliance Big Entertainment (now Reliance Entertainment). Despite being an early mover in some of these business lines, many of them piled up losses. The firm slowly went through a restructuring by shifting focus from domestic PC gaming to a global mobile gaming strategy, pivoted BigFlix to an online movie streaming venture and more. Techcircle.in caught up with Manish Agarwal, who took over the reins of the digital entertainment business a little over a year ago, to talk about the new strategy.
Was there something wrong with the basic business premise that Reliance Entertainment Digital started with that necessitated the restructuring?
In my honest opinion, in 2005 the Indian market was quite different when most of these businesses were envisioned. We were all expecting this market to take off in a very different way and so I do not blame any team. Even I was at rediff.com and we were so taken up with the government's initiatives on broadband Internet that we had expected an explosion of Internet users in India hopefully touching 300 million in two to three years. But even eight years after that we are still at only 120-130 million Internet users. Now if you look at the evolution of the Internet in countries you will see that first news, then mail and chat and then social and later on games and videos, etc takes off in that order. This evolution was never going to change. The problem was Internet in India never took off like everyone expected. Now the core virtue at Reliance is operating on scale. And the teams operating here hope that with scale coming through an Internet gaming culture would flourish. Unfortunately Indian Internet never really took off and so scale was never achieved.
I would say that India has lost out on the PC Internet opportunity. Today the future is on the mobile Internet. I believe India will leapfrog from being a PC Internet economy to a mobile Internet economy.
What are the turnaround milestones that you are chasing now and what would be the drivers?
FY14 is the breakeven year for this company. Over the last 18 months we have clearly identified mobile gaming as our focus area. We have spent a lot of time trying to figure out the market from the clutter in terms of developers and publishers. We have developed games like Real Steel which has just crossed the 5 million download mark across platforms. I will not be arrogant to say that we have mastered the gaming space after our recent big ticket successes, but I can definitely say that we have now been able to create a steady and attractive gaming services cycle. This year we have targeted to release six-seven AAA big ticket games. Now mobile gaming is a hit and miss industry; so from the seven games that we release, we hope a few will bring in the big bucks.
Are you leveraging Reliance's JV with DreamWorks? How about capitalising on the group's access to Hollywood to acquire global mobile gaming rights from big production houses?
We have nothing to do with the Big Entertainment-DreamWorks JV. The company's mobile gaming strategy is based on acquiring big brand IP rights for a global market. Our Real Steel game, which was a DreamWorks production, gave us a break; after that there was no looking back. After that we did Total Recall with Sony, acquired rights from Warner Bros, Lionsgate and so on. So we need to move from one success to another if we are to get more big studios on board. The second aspect is that Reliance as a company has a strong marketing brand and hence our marketing teams are very closely working with its teams.
How does revenue share or royalty work in conjunction with these production houses?
We do not pay a minimum guarantee; we have passed that stage. Initially we had to pay that because we were relatively lesser known. We had our doors open thanks to Reliance, but after that we have built a pipeline which is now the envy of many big gaming houses. So we don't have to pay a minimum guarantee. However, we do have a revenue share. What has happened now is that the costs to make a game have gone up four times. Two years ago, we had to lay down $250,000 for the development of Real Steel. Today it's at least three times this amount to develop a global big brand game.
You have built studios in Singapore and hired foreign talent. Since the parent has clearly said there will be no more investments for gaming, where is the gaming company going to get funds?
Yes, predominantly most of our investments abroad are coming from internal accruals. Touch wood we have been slowly starting to make some money. The mobile gaming business turned profitable last year. We are generating enough cash flows and there are no working capital issues at the moment. However, as far as acquisitions into new markets are concerned, we did go back to our parent and they have been very supportive to fund our acquisitions.
What was the idea behind the two recent acquisitions of mobile gaming units of Funnel and Bluesom? One is a Japanese company and the other is a Korean firm. Why would you want to enter non-English speaking markets at this stage of the company's operations?
We are already present in the largest gaming market in the world which is the US. We have all our operations over there firmly established, from creation to distribution. After the US, which is a $5 billion market, the two largest markets in the world are Japan at $4.5 billion and South Korea which is $1.5 billion. India is only a $100 million market. We must know the business and understand the culture over there. Bluesom is a production studio and Funnel is a distribution arm in Japan; collectively these two companies can help each other and work together. At present I have four games to launch over there and that's all I know. I don't know how the market will receive them or how much revenues we can earn. All I know is that we need to start learning and be present in these two large markets. Now South Korea is a 90 per cent smartphone country and Japan is 54 per cent smartphone dominated. So we have to learn, wait and watch what happens there in the next six months.
What happens to the Zapak PC platform now, because we are seeing consistent decline in users and numbers. Will you shut it down and shift focus entirely to mobile?
PC gaming is a declining industry and so we will not be investing more on that front. Gaming on PC has been moving to either the social or mobile space but we are clear that Zapak has to be the largest free gaming destination. We are working on a new plan for Zapak and we will be able to share more details soon.
Moving on to BigFlix, you have said that an investment of around $4-5 million will be made to ramp up operations. What is your growth strategy with BigFlix?
There are two parts to our strategy with BigFlix. The first one is our global approach. There are clear elements like Internet speed, etc that will help us win over the Indian diaspora in countries like the US and the UK. However, there is Netflix out there with enough to cater to everyone's needs. So we are tying up with Dish TV; while they are providing cable services, we have tied up with them to provide movies on the go. India remains the primary market for BigFlix. This market, however, is still not making money for us. It won't make money for us tomorrow. It's a function of increase in Internet users and speed. So if 4G comes up successfully then at those speeds we will see a pick-up. But until that happens it's hard to predict much.
Are you looking at any more acquisitions at this point in time and will you be looking to raise more funds for the same?
Yes we are in the market for more acquisitions; it could be in a new geography for us. We will need to raise more funds for these acquisitions. There are areas within the value chain for mobile gaming. I have to grow inorganically and that is very clear. We have to think global because that's where the opportunity. We are not looking too much on the domestic market.
Given that Reliance Entertainment Digital is a small part of a large group, is there a scope of bringing in external investors?
Zapak and BigFlix are individually legal entities. Hence, they are in a position to unlock value. I would love to see funding coming in either from a strategic party or PE/VC. There will be a time to unlock value from these companies and this is the only route. An IPO for companies like these doesn't make sense. However, with our parent showing interest and giving us small amounts of funding we have not seen the need to go and look out for funding.