Detailed analysis of various business sectors in Uganda

It’s a nerd’s world – can you make money from video games?

Outside Looking In

D E Wasake, FCCA

About my guest writer(s)

Ayub Mubiru is the proprietor of Gamers’ Hell. He can be contacted on: +256 701 190 579+256 701 190 579

Shadrack Kuteesa is the proprietor of Games 4 U. He can be contacted on +256700993925+256700993925 or +256782300142+256782300142

About the writer

For over 10 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My experience with various clients in different sectors enables me to have a good understanding of this business. To see the full depth of my experience, please see my profile

Article summary

With one of the youngest populations in the world – 78% estimated to be below the age of 30, the video game sector is potentially ripe for investment in Uganda. This combined with a change in the world wide gaming demographic – the average user being 30 years old and increasingly mainstream means this is no longer a purely “nerd’s world”.

The article estimates a good return on investment by in investing in a communal gaming parlour (with the opportunity to franchise).

Introduction

Women, violence – in a virtual world, who cares for that stuff?  What is Grand Theft Auto V anyway? You might wonder looking at the image above?

For the uninitiated, within twenty-four hours of its release in September 2013, Grand Theft Auto V ("GTA V") generated more than $800 million in worldwide revenue. Three days after release, the video game had surpassed $1 billion in sales, making it the fastest selling entertainment product in history!

Welcome to the real world – yes that’s right, the real world is indeed a virtual world, judging by the sales figures for GTA V (as its fans say). And that is just one of them.

I remember as a boy, playing my first video games with my brothers and having constant arguments/fighting for playing turns and much filled fun with the latest gaming console at the time (play station 1).

Before this, we often borrowed a Chinese cartridge game where we enjoyed the delights of Super Mario. So out went the traditional games like “dool”[a form of marbles] and “Tapo” [hide and seek] together some of my ‘local’ neighborhood friends and in came the video games! Much to my mum’s delight – the gaming console that would keep us in doors and out of neighborhood trouble, her prayers had been answered!

There are many more fond memories such as of the car racing games, with one of my brothers being the navigator through the dirt roads of Laguna Seca and the smoky Mountains in Grand Turisimo and the unforgettable grim adventures of vampire slayer Raziel in Soul Reaver: Legacy of Kane (which I swear, we would never have completed till this day, without the help of a cheat code from our friend Joel).

That said, little did I know then, that you would be able to play games and also make money from being a gaming geek and fanatic.

Just how big is the gaming industry?

The gaming industry is one of the most lucrative businesses worldwide, with over $10.5 billion in sales revenues on average in the last five years starting from 2009-to date(www.ersb.com) with major software companies Microsoft, Sony, Nintendo and Sega, among others being market leaders each with their different gaming consoles.

Today there are quite a number of gaming consoles on the market each with different features to suit the pleasures of the gamers needs.

From the Nintendo WII, Play station series 1 to 4, X Box series et al. Access to games has never been more in this generation than it was ever, today you can access a game to play as long as you own a smart phone at the very least. Gaming companies are now shifting increasingly to online gaming, together with multi player options.

There has been gradual advancement from “simpler” games like Super Mario and Packman to the current games of today like GTA V which by the way had surpassed another unprecended record – Call of Duty: Black Ops 3 which had taken “only” 15 days to surpass $1 billion in sales!

From the above, it is obvious the gaming industry can be very lucrative and growing by the day and hence be a key for an investor especially in Uganda as video game penetration and gaming parlors have not been fully exploited and realized and yet our population is one of the youngest in the world – with an estimate of 78% being below the age of 30.

When we carried out research in this sector for a client, we noted for example that there were less than two or no gaming parlors from the three major districts of each of the regions of Uganda. Western region (Mbarara) had none, Eastern region (Mbale) only had one, while Northern region (Gulu) also had one only.

It was only the central region in the capital Kampala that had about 30 establishments in and around the suburbs. From this, it was a clear indication of the lack of deep penetration in this segment commercially – particularly in the up country locations.

Our guest writer, Ayub who has been operating a gaming franchise (Gamers hell) for the last 5yrs weighs in:

“This business has mainly university students and working class people coming in to play, I normally close at midnight because the customers are many and I’m also situated on Kampala road. This is a good location and easily accessible, I also charge low rates of 3,000sh per hour and occasionally give bonus and good customer care, this business has paid off more than I expected.”

Ayub’s success has paid off and he has opened up another branch in town and gone on to franchise the gamers hell brand to third parties who operate in the Ntinda business district. His success keeps coming and in 2012 his team organized the first annual video game tournament and challenge sponsored by soft drink giants Mountain Dew!

Another one of our gaming experts and veteran in the field, Shadrak who operates gaming company Games 4 u had this to say:

Yes it is lucrative especially when the kids are back from school, but also from the corporate and adult crowd, I see grownups playing all the time and wonder no more since I’m above 18 and yet I still love playing games. We have also been able to grow because of companies hiring out our consoles and the additional income from repairs and selling of the games. I had to learn to repair games as the consoles would always get faulty and control pads damaged, other than that, it’s a very lucrative business, I love it because I love to play games and have fun as well.”

Video games played by adults? Really?

Times have indeed changed since my childhood. In fact video game companies these days are making games specifically for adults. Check out some “fun facts” below:

  • The average gamer is 30 years old and has been playing for at least 13 years.
  • 68% of gamers are 18 or over – proving that games are not only for children!
  • 45% of all players are women! Today, adult women represent a greater portion of the game playing population (31%) than boys aged 17 or younger (19%). So don’t mess with these girls, they are the real deal!
  • 62% of gamers play with others, either in person or online. 77% of these gamers play with others at least one hour per week.
  • 93% of parents pay attention to the contents of the games their children play and are present when games are purchased on rented.
  • In the USA alone, an approximate 70% of all households have and play video games or have video game consoles.
  • Studies have shown that there is no direct correlation between violent and action games and violent destructive behavior patterns in teens.

So what next? In our article, we are assuming that the “advanced thinking” business will set up a business that provides “gaming facilities” – playing of games, sale of games and consoles as well as repairs. If it succeeds, the concept can be franchised.

Before we go into the financial analysis of this enterprise:

FIRST THE CONS (what might hold you back)

  • Location is the most important aspect of this enterprise. This is after all a retail business and thus if the establishment is not strategically placed, flow of business will be low and result into loss making. Urban centres are therefore of course a key location – some considerations could be set up near large educational institutions but an “advanced thinking option” would be to deliberately set up for example “25 and above” only sections  – to appeal to the “older” gamers – who after all statistics show are the core of the industry.
  • Accessories and replacement parts. Games and consoles are bound to high levels of wear and tear owing to constant usage. At times gamers are “aggressive” and will misuse and abuse the equipment, thus, you should have stock or quick access to spare parts and repair avenues for the consoles and other equipment like the television sets, sound systems et al.
  • Piracy and counterfeits are some of the main and leading problems in this industry, particularly in Uganda. Majority of the games sold in the market are pirated and hence cost less than the original games. This is one of the reasons for the high levels of video game availability to the masses. So, if you are selling or dealing in strictly authentic games that cost 10 times as much as the fakes this will be potential challenging to the enterprise as not all your competitors act ethically and Uganda’s copy right, Intellectual Properties and Trade Marking policies are not that strict as of yet.One “advanced thinking” strategy that I tested when I did sell video games (another day’s story!) was to source for good quality second hand games from markets like the UK. This is especially because gamers often quickly move on or want to exchange games and so there is a large and robust 2nd hand market for games. Blockbuster and HMV before they shut in the UK for example had used game sections.  Another alternative might be to rent on a monthly basis multi player game options say a 30 day rental. This is offered by online rental gaming companies like gamefly.com, gamerang.com and redbox.
  • Growth of income levels. As income levels increase, gamers especially those in urban dwelling homesteads can afford to have consoles for their children already. Combined with the increased access to cheap internet, which means they can easily play online with other player but from home) communal gaming areas can be at risk.Your marketing strategy therefore needs to deliberately emphasise your facility giving “companionship” which comes from playing physically “side by side” rather than “alone at home”.  Alternatively build a community through “off line” only gatherings.

Now the Pros (the good stuff)

  • Growing and dynamic population. The percentage of people in the ideal gamers’ age groups of between 12 and above is gold. After all in the US the average gamer is 30years old – this works in favour of the Ugandan gaming provider.
  • Recession proof industry(?). Many in the industry argue that video games are “recession proof” –Because video games are cheap and relatively affordable to access, people keep playing, even when they need to escape the gloomy reality. Respected newspaper the economist is not fully convinced – but there is one fact – more and more households are increasingly accessing all types of gaming consoles, and they are becoming more main stream – for example due to the WII consoles and the increasingly mobile games (candy crush saga anyone?)
  • Linkages. This business can be merged with others such as an internet café, coffee and confectionary bistro or with other gaming consoles like slot machines (dependant on the location of the business and the entrepreneur’s interests and limitations to minors et al).
  • Alternative entertainment. There is also market for the gaming consoles and services for outdoor events, tournament’s and children’s parties. For instance many corporate clients will hire the gaming consoles for their staff for purposes of recreation and in other cases, functions and events like children’s parties will provide an opportunity to provide gaming consoles at such avenues through the year.
  • Work as you play hard. Finally (at least according to my guest writers) you will make money while at the same time enjoy what you do. The combination of work and play have never worked better!

Just how profitable is this sector?

From our model, and using a 3 year horizon as a basis for comparison, we estimate the following:

  • The initial investment requirement shall be 18,000,000Ugsh (A)
  • Average returns per year will be approximately, 15,372,160Ugsh (B)
  • Hence total Return on Investment (ROI) (C = A/B) will equate to approximately 1.17 years.

Our model is below:

Gaming parlour model

P.S Clicking the above link will take you to the Inachee Databank where the full version of this document can be dowloaded after you register.

Now the basics you must get rights before you get the games started:

Location: This is the most important aspect of this business, so preferably set up, the businesses in a busy shopping mall and arcade area, where parents and children are bound to be. Alternatively next to a university or secondary school district or any other very busy location of the business area.

Games and consoles: Have a wide selection of game varieties like sports, adventure and action games especially. Gamers can be very territorial and so you MUST have a number of different gaming consoles like Play stations, XBox, Nintendo’s et al. This will provide the customers a wide range of games to select from to enjoy the gamers experience, in addition, you can install play gadgets like virtual reality shades, driving simulation sets et al. Access to an online rental might help you reduce the costs of buying games and help you counter the counterfeit games challenge in Uganda.

Focused marketing: The gaming clientele though cover a considerable % of the population, they are very niche and selective in nature (some call they “nerds” or “weirdos” but I disagree – this is now a “Nerd’s” world) – Hence all the advertising and strategic planning should be very niche, from gaming promotions and organization of tournaments, the focus clientele need to be treated with special good customer care services. Some of the marketing strategies to implement include:

  • Seasonal campaign offers (considering some clients are at school part of the time)
  • Low cost options and bundling offers – As older games are less demanded than the news ones offer a bundling offer to get rid of old stock by factoring their prices within new ones e.g “buy 2 new games and get a 3rd one free”.
  • Customer loyalty scheme including for walk ins, perhaps ask if they are interested in taking an extra minute or two to get a loyalty card which allows you to provide them more information, discounts (including on online play) and quicker service (e.g members’ only consoles to reduce waiting time).

Final word

We are living in strange times. It used to be a man’s world, now it is a nerd’s world. It used to be that our closest friends were real friends with whom we played “dool” but now our closest friends might be virtual friends with whom we share a gun in the latest installment of GTA V or speak to about the latest game via Face book. I suppose then the only question is – if you are not in the virtual world, what are you waiting for?

Welcome to the real world!

END

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