Can you tell us a bit about Milestone? How you started and your current operations.
We started in 1997. At that point we were distributing EA, Eidos, Virgin Interactive, Interplay and Acclaim. Couple of those labels don’t exist anymore. Prior to 1997, I was CEO of a company called Head Multimedia, which actually launched PC gaming in India in 1995. From that background when I set up my company, a lot of publishers moved to us. The business was solely PC-centric because that was the only market. And it was a combination of games as well as edutainment and multimedia content. A large part used to be cliparts, fontmakers and other productivity software. Gaming was just 50 per cent of the business and the rest was edutainment and productivity software. In 2001, we pitched for the Sony business. By then, the PSOne had started making waves and there were ample grey units in India. Somewhere in the interim, Sega had launched the Saturn in the mid 90s and I think they kind of failed over a one-year period. So there was some console experience, but not much. Sony went through a large, in-depth analysis over who their partner would be and we had made detailed pitches and presentations. Finally they signed us on in August 2001. At that time, the strategy was that we would focus on software because we were a software company and Sony India would focus on hardware.
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This went on till early 2003, at which point Sony India decided that it wasn’t a business that was exciting them, so they exited the hardware business. That was the time the PS2 was to be launched, even though it was 3 years late. That’s when we were given the option of taking over the hardware business. Finally, the PS2 we launched. Between 2003 and 2006, we were doing both hardware and software. We launched the PSP in India as well. By 2006, we had started sensing that the market was gaining traction and things were going to get bigger. And the market dynamics of he country demanded that we build a team that can service the length and breadth of the country. That’s when Sony came back into the scheme of things, with the difference being that they would only operate through their channels – consumer durables, and we continue with our channels. That’s the model we’ve continued with.
We’ve had pretty much all leading publishers with us. Ubisoft came on in 2000 till 2005. We had Activision till about 2004, Take-Two till 2005, THQ from 2001 to 2004 and we had Konami for a year, but their pricing just didn’t match the market. So as a company, we’ve worked with the entire industry in one form or the other and for various reasons these relationships come and go. We also went through a bit of a bad patch between 2005 and 2006, where the market wasn’t going anywhere. PC gaming was flat; it wasn’t growing and prices were constantly dropping. On the console side, all the efforts we were putting in weren’t really working out because pricing was all wrong and at that time, our principles weren’t really inclined to doing things in the market. So we were left to ourselves to fight the market forces, to the degree where the efforts we were putting in were benefitting the grey market because we couldn’t compete with those prices. The PS2 was the dominant format but it was all piracy. So we didn’t have a software business, and we couldn’t do much on the hardware business. That put us in a bit of a negative mode at that time, but I’m fortunate that we withstood that ground, fought that phase and bounced back. And the growth we’ve had in the last year was fantastic, and hopefully there’s no looking back now.
It’s been a year now since the PS3 has been launched and the PS2 has been there a while too. So how is the support once the warranty ends?
I think that’s really a Sony policy and in 2006 when Sony India came into it, the service and warranty aspect was moved to them because they are into consumer durables. While we were handling it, we had a pure replacement strategy if it was under warranty.
It’s the same now though.
But Sony does have service centres now. So to that degree, they are obviously equipped to a level to service machines on a post-warranty scenario. But within PlayStation, there are levels of service, which I’m not very familiar with. You kind of scale up through the levels as you gain greater experience in servicing these machines. To what levels Sony India is permitted to service these machines? I would assume at the lower end and they will progressively level up to a point where they will be able to do full service.
So is there a policy right now for consoles that are past warranty?
It was a bit of a grey area because there are so many imported machines that are post warranty. From Sony’s perspective, it is a Sony product and they will service it. It’s a paid for service and I really don’t see any issue in servicing those machines, because you’re paying a cost. It’s like any other consumer durable you buy in this country. If there was a post-warranty Blu-ray player, they would service it, so why would a PS3 be any different?
Next Page: Milestone and non-PlayStation platforms
Where do you see PC gaming in India, now that consoles are becoming increasingly popular?
The PC as a format is as large as any of the consoles – that’s 30 per cent of the market. In 2007, PC gaming worldwide had a revenue of $10.3 billion. If you look at the pie, 30 per cent of this came from packaged goods, the regular boxed products; 70 per cent was a mix of MMOG, casual and online digital sales. If you regionally split it, close to 50 per cent came from the Far East – Korea, China etc. So I would say about $4 billion, which is a large chunk of the online business, is coming from the Asia region. That is one business model. How successful that will be in India I’m unsure about. I think we mirror more of North American and Western European trends. So I think we will progressively move to an online model, but that will only happen once the console side offering becomes stronger.
If you look at the Indian market, the foundation is PC games because you have a far deeper penetration of PCs in homes in India and PC games are far cheaper in India than anywhere else in the world. These factors lend favourably to the popularity of PC games. We have quite a big range of PC games available at great prices. Launch dates may not be the same as elsewhere, but this varies from publisher to publisher. If you were to compare what genres are working in India, they are the genres that are typically strong for consoles. Sports, racing and action games are really strong on consoles and by virtue of the fact that you didn’t have consoles in the country or the prices to make them attractive, people were forced onto the PC platform. We’ve clearly seen that in the last 2 years with the success we’ve had with the PS2.
If you look at it on the face of things, the PS2 is at the end of its lifecycle, so why would it work? But that’s where India is so different. We came into 2006 with 99 per cent piracy with games selling at Rs 30. There has been a lot of containment and anti-piracy measures taken by Sony in conjunction with IMI, we’ve got the local manufacturing strategy in place, and we’ve got PS2 games to Rs 999 and below. So if you look at PS2 price points, they’re very similar to PC prices. A new game like FIFA 09 will release on PS2 and PC for Rs 999. Catalogue games are at Rs 499 just like PC games, granted some PC games even sell for Rs 299. Hopefully in the coming years, PS2 will move there. If you go to retail today, what is happening is the PS2 has taken away a large chunk of shelf-space which was originally dominated by PC games. To my mind that is a trend because the retailers find console games far easier to sell because they are plug and play. There are no system issues. You don’t have customers coming back and telling you that it doesn’t work on their machines. The retailers in our games business, barring a handful, don’t have the knowledge and we don’t have the time to provide that assistance.
So to my mind, PC gaming will start seeing a shift to how Europe is panning out, where u have more RPG and strategy games, whereas, given the choice for sports and racing games, chances are they would pick a console version. Today if you were to choose between an Xbox 360 game for Rs 1,999 or a PC game for 1,299 without having to upgrade hardware, what would you buy? But I think PC gaming will still stay strong in its present form in the coming few years. I don’t think growth will be as high as in consoles, because console base was much lower. But I think in terms of favourable inclination dynamics, yes, there is some negativity around PC games, where as there is huge amount of positivity around console games, more specifically PS2 and PSP.
Are you planning to bring in any MMOGs?
We are. We will make an announcement in October. We are working with one of the leading MMO players.
Can you give us a name?
October.
How will that work? Will it be paid? Will it be through expansion packs? Which model will work for India?
Obviously, free-to-play will work. We all like free content. So while there is a successful subscription model with World of Warcraft and there are communities and a lot of support, to what degree that will grow beyond the hardcore audience is a question mark. So even though it’s a strong franchise, I don’t think the subscription model will be successful in the short run. Therefore if you go with a game that is free to play and then there are other ways to generate revenue, like microtransactions, etc, I think that stands a better chance and has mass appeal. That’s really when you make a business out it. If you’re selling to 1,000-2,000 core users, that isn’t business. But India is never a sharp hockey stick curve of growth; it’s always a slow burn. So it will require a lot of work. And people like LevelUp have done a lot of hard work, Sify has done stuff, and Zapak too I’m sure will come into the MMOG space in time. While we have cyber cafes and game cafes, its nothing like Korea and China, where people use these places to hangout and socialise. But as we go into the future, it’s only going to grow.
Next Page: Game pricing and release dates in India
Coming back to consoles, people were surprised to see Xbox 360 and Wii games from Milestone, because there’s this image of Milestone being in the PlayStation team. So how does that work? Is there any conflict of interest with Sony?
Not at all. In terms of our agreements and understandings, the hardware formats are the exclusive domains, therefore we cannot deal with Microsoft and Nintendo, because there is a clear conflict of interest there. But with third party publishers, who are all-format anyways, there is no conflict of interest. Being mainly a software distributor, it is only fair for us to be sort of platform agnostic. We will obviously have our leanings towards the PlayStation format because we also do the hardware, but I think business sense suggests that if there are other formats that have an opportunity to build a business around, then it is not something we should let go of. Especially with publishers like Atari, and now Capcom, and with some other publishers we are talking to whom we’re hoping to sign on, we will bring all formats. How we will market them and how much of a relation from a marketing point of view we can forge on non-PlayStation formats is a question mark and it’s something we will look at. In terms of offering the full bouquet as an all-format strategy, I don’t see a problem.
Which are the publishers that Milestone currently handles?
We do Sony, which is just for the PlayStation. Also EA, we only do PlayStation for now. For Atari and Capcom it’s all format. For Empire it’s all format, but they don’t have too many products. Novalogic is largely PC, but they’re not very active now. That’s about it for now. But like I said, we are talking to a leader in the MMOG space, which will be PC driven for now. Everyone’s been talking about taking MMOGs to consoles, so as and when that happens, that’ll happen. There are also other publishers we are talking to and that will also be an all-format strategy.
Do you have a tie-up with Namco? You’ve released Tekken here.
Namco has a tie-up with Sony as a distribution relationship. So we get Namco products from Sony for PlayStation. But we are not doing Namco games on other platforms because they have similar deals for other formats with other publishers.
Will PC versions of Capcom games be released as well?
So far we have Capcom products on PS3, Xbox 360, PSP and PS2. What we don’t have is PC products, where we’re still trying to resolve pricing issues. Capcom is a premium developer and they’re Japanese, so they’re relatively cautious in terms of how they approach the market. PC price points are maximum Rs 999 or Rs 1,299 so it makes no sense for us to be introducing games that are 50 per cent higher than these prices. This is why we are delaying it till we get the strategy right.
Now that you do have Xbox 360 games as well, can you tell me why a PS3 game is priced at Rs 2,799 while the same game is available for Rs 2,499 on the Xbox 360?
For us, the pricing strategy is driven by the format owner. In this case, the PS3 games that are available at Rs 2,799 are largely the PS3-exclusive games. Most of the multi-format games are at Rs 2,499. EA has games at Rs 1,999 on Xbox 360, whereas the same game retails for Rs 2,499 on PS3. Even internationally, there is a $10 difference.
Not really; it’s pretty much the same.
It depends from publisher to publisher. In some cases a game is available for $59.99 on the PS3 and $49.99 on the Xbox 360. So it is cheaper in a sense or probably the publishing model with Xbox makes it viable for some publishers to sell it cheaper. Maybe their cost of goods is cheaper because it’s on DVD, not Blu-Ray. But it varies from publisher to publisher. For instance, someone like Capcom will not differentiate.
But the prices are different; Rs 2,499 and Rs 2,799 for Devil May Cry 4.
Yes, but that is just a cost of goods and working backwards from there. So we felt that on PS3 we could find a slight extra margin, because for someone like Capcom and for many other publishers who come to India in the future, it is a challenge to keep the kind of price points we have in India. If these publishers are based in Europe, they are equating their SRPs and multiplying that by 67 to arrive at our SRP. If that were to be the case, we would sell all PS3 and Xbox 360 games at Rs 3,500 to Rs 4,000, which is what happened in the case of MGS4. I think these are some of the challenges publishers are facing at this stage, and in time, they will find a way of addressing this by reducing their margins to India as long as they can ensure that their products stay in India. The moment you start selling your products cheaper and the fact that you’re selling an English product, the chances are the product will flow out. In a market like Russia, where they are able to localise quite a bit and have it in Russian language, you can go with these pricing strategies. These are challenges that we face.
People still seem to complain about prices of games, when in fact, they are comparable or even lower than prices in the US. So despite import duties, we’re able to keep the prices at this level. Can you explain to us how the pricing works?
I think our audience needs to realise that we are actually the cheapest in the world. Now, customs duty is in excess of 32 per cent, VAT on software is 4 per cent, Octroi in Mumbai is 5.5 per cent. All this builds into the price and then there’s the Central Sales Tax, which is another 2 per cent. Even if you take a weighted average, that’s about 40 per cent being just the tax component on software. Now take an EA PS3 game, which is at Rs 2,499. That’s approximately $60. The same PAL game will by 50 Euro and in Rupees that comes to about Rs 3,300. Now considering 40 per cent duties and taxes, you’re selling the game at Rs 2,499 when it should be selling at Rs 3,300 and if I were to add duty and tax, all next-generation games should cost between Rs 3,500 and Rs 4,000. So it is the publisher that is taking a hit. They are absorbing the costs that are going to the Government of India in order to ensure that the Indian consumer gets games at affordable prices. Again, in the grey market you will get it for Rs 2,800-3000, but these guys pick up the games from Dubai or Hong Kong and bring it through baggage and pay the carrier. These are smuggled goods and to the seller, he gets the game at about Rs 2,400-2,500 and he keeps a margin and sells it for Rs 3,000. So if it wasn’t for the big taxation, we could be competitive across the board.
So do these low prices mean that distributors aren’t in a position to negotiate for day one releases?
No, the dates issue is more of a logistics issue. In our experience with Sony and EA, Sony games we are able to give on day one or even two days prior. We get goods shipped out to us a week prior to release date. In the case of EA, because it’s largely Europe-driven, there is an assigned date, which then lengthens due to transit time. So if the street date is a Friday, goods ship on Tuesday. The same goods will hit stores in Europe on Thursday and they’ll be on sale on Friday. In the Middle East, because there are no customs duties, there is a direct flight from Europe to Dubai and they too have the goods on Thursday. Now for us, the goods arrive over the weekend, we have our customs department that takes its own sweet time, so by the time we get the goods, it’s the next Wednesday. So I’ve missed the street date by four days. Then there’s the logistics of our country, where in Mumbai, I can give it on Wednesday, whereas for Kolkata, it will be another week down. We can’t airlift all the time. For Delhi and Chennai, it takes three days. Effectively, we try to have a common street date for all of India so even though we may have the goods in Mumbai on Wednesday, I will release them only on Friday. So release dates have nothing to do with pricing because I think we’re taking all precautions to ensure that goods don’t flow back. We’ve had some big enquires from so-called online retailers, but the moment we verify their backgrounds, we notice something is fishy. For quantities like 100 and 150 we have not agreed to supply. As an organisation, we are very careful about this because this business is built on trust and goodwill and that’s not something we’re willing to compromise.
Next Page: PSN and games from Indian studios
Games like LittleBigPlanet place a strong emphasis on the community aspect of gaming, which is missing without PSN. There are also many good PSN games coming. Do you think its time we get PSN here and do you think people would actually use a service like PSN in India?
I think it will be. The fact that you can have so many casual games at low prices; $5 is like Rs 200! With PSN, the utility factor of the machine would be enhanced tremendously. And the fact that not everyone can find a way to get online in the current circumstances, once it is official, I think we will be able to aggregate a far bigger community. And who knows, it could give an opportunity for Indian content to show up on PSN. So it will be beneficial, but I think there are typical bandwidth issues that are coming in the way, because in Europe, Sony deals with over 100 markets. So to be able to localise and customise an offering for each country is time-consuming. So the desire and intent is there, it’s just that certain things are beyond our control from a timeline point of view.
But is this something that’s in the works?
Yes, it is. That’s what we were told. Sony handles that. What role we may have in the future in terms of microtransactions etc, we’re not sure yet. But something that’s online probably doesn’t need an aggregator like us.
Do you think Indian studios developing games targeted at the Indian audience will sell? Will it work?
It will work, but mostly with a lot of first-time users and the vernacular population. These are people who are a lot more rooted in the Indian culture, versus the more Western-oriented audience that is our current base. The current audience is used to a certain quality, whereas what may come out from India in the beginning may not be as good in terms of graphics, gameplay, etc. So if people start that benchmarking, critics will kill the game anyway. I think that would be wrong; we need to give local content a chance. We need to target this content to local consumers who see value in it. So pricing, distribution and targeting to a particular audience is important. It is not meant for you.
Like you said, these games won’t appeal to existing gamers, but to a whole new audience. Then does it make sense for a developer to make this game? Will they make money from it?
Why not? Gaming in India, in terms of console sales is touching only 5,00,000. About 6.5 million PCs are sold each year, of which 2 million go into homes. So console gaming has a penetration of about 0.25 per cent in households, whereas PCs have 16 per cent penetration, and this is only in the top 20 cities. Considering that, consoles have a long way to go. When MTV was just international and English, they were a niche channel. Today, MTV is mass because they’ve gone vernacular; it’s a combination of Hindi and English. They’ve tried to connect with the youth and their language. This country is driven by the mass language and I don’t see why that should be any different for video games.
Westernised English content will only cater to the top 30-40 per cent of the market. The moment you start to go below, you will need local content and vernacular content. You need to start somewhere and test the market, so maybe in 5-10 years once the market reaches there, we will have a solid strategy. In Russia, a Russian SKU of any game will sell 15-20 times more than an English SKU. That’s why Russia is such a large market and we’re couple of years behind them. So these are positive developments and they need to be encouraged. It’s a big risk that people who are funding and developing these games are taking because the basic math doesn’t match up. That’s where guys like you and the so-called hardcore community needs to give the first-time gamer and casual gamers a chance rather than taking a negative position and slamming these games like you guys seem to be doing. It’s good when you’re criticising a game that’s made to be of that standard, but compare apples with apples. Applaud the purpose, because in the end it is helping to grow the gaming community.
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