The DeanBeat: Indonesia’s growing game economy leans toward blockchain

Indonesia is pretty serious about building its game ecosystem, and it hopes that blockchain games — potentially as disruptive as mobile free-to-play games were a decade ago — could be the way to build a sustainable game industry.

The Southeast Asian nation of 17,000 islands might seem like one of the underdogs of gaming. The country’s industry isn’t nearly as advanced as a lot of would-be superpowers of gaming, such as the U.S., Japan, China, the United Kingdom, France, and Canada.

And Indonesia is also behind strong up-and-comers like Finland, Sweden, Turkey, Spain, Ukraine, and many more countries that have proven the world is flat when it comes to making hit games. A long list of rivals are gunning to build their game ecosystems.

But you have to start somewhere, and Indonesia’s local gaming ecosystem has been brewing for more than a decade on pure passion. If I’ve learned one thing while traveling the world, it’s that the world is flat when it comes to game development talent. Some regions get into a groove and produce hit after hit, but eventually everybody has an equal shot at mastering the art of game development and producing a hit game. In Indonesia, I saw entrepreneurs and companies finding stepping stones and a path to climb up the food chain of the game industry.

The opportunity is big, even in just the home market. Roughly 50 million Indonesian gamers spent $1.9 billion on games last year. But only $7 million of that amount was spent on games made in Indonesia, said Arief Widhiyasa, chairman of Agate, in an interview with GamesBeat. Still, the revenue was enough to support companies like Agate, which has 200 people in Bandung, and Anantarupa Studios, which has more than 80 people in Jarkata.

Full told, Indonesia might have 2,000 game developers across 25 studios. The devs may be making games for multi-person studios or working as freelancers or indies, Chen said. And Bali itself has just eight game studios, said Orlando “Nando” Nehemia, the head of Big Fire Studios and Miracle Gates Entertainment in Bali.

In general, the Indonesian developers are working for relatively low wages, as are many others in the country as the per capital annual income in Indonesia is just $3,105. But costs are low too, and so it is possible for smaller companies like Agate to turn a profit.

While the numbers show that Indonesia has a long way to go to become a player on gaming’s global stage, Agate has been at it since 2009 and Anantarupa has been going since 2011. That means that the teams of developers have been learning and getting better.

The Indonesian government

One of the things that Indonesia has going for it is the attention of the central government. Last week, I attended the NXC Summit in Bali, where I moderated a session on blockchain games with Simon Davis of Singapore’s Mighty Bear Games and Diana Paskarina of Anantarupa Studios in Jakarta, Indonesia.

Lots of government ministers and leaders spoke about the need to transform their nation of 271 million people into a digital economy — even though roughly 95% of the economy is currently non-digital. While it has more than 100 million unbanked people (those without bank accounts), Indonesia has made strides since it threw its first Nexticorn event (short for next Indonesian unicorns) in 2017.

Now on its fourth event, Indonesia now has 14 unicorns, or companies worth a billion dollars or more. That’s about 38% of the share of the unicorns in the ASEAN region, the government said. During the pandemic, the economy has seen lower inflation and better relative growth. Now that’s pretty awesome propaganda, but the country has real reasons to see the potential in games.

About five of those unicorns are in ecommerce, but none are yet in games. The model to copy is Finland. The Finnish government once gave Supercell a loan of around $400,000. By 2018, Supercell was so successful with its titles like Clash of Clans it was paying taxes of $122 million a year. Overall, the Finnish game industry is generating close to $3 billion in revenue and 3,600 employees.

Not every country is so lucky to have such skillful game devs. Indonesia’s government has begun setting up accelerators to invest in tech startups and its event last week drew 159 venture capitalists from overseas locations such as Singapore or Europe to a luxurious hotel in Nusa Dua. But Indonesia isn’t yet making direct investments into the game companies or giving those companies tax breaks.

A local advantage

Yet Indonesia is clearly excited about the chance to disrupt the industry with blockchain technology, said Ivan Chen, CEO of Anantarupa and the Web3 theme organizer for the event. A large percentage of the gaming population has cryptocurrency, Chen said in an interview, and that’s a pretty good indicator that they’re going to be receptive to blockchain games.

“In our local market, I don’t see the problem, and I think people understand that when you earn something in a traditional game, you don’t actually own it or get value from it,” Paskarina said. “But with blockchain and NFTs, you’re getting more value out of it and people understand that.”

In his presentation on stage, Chen described the Web3 opportunity, following the 1990s era of the web, the Web2 days after 2000 that saw the creation of web-based giants like Amazon, and now the new era of decentralization and blockchain games.

Asian gamers haven’t shown the kind of resistance to blockchain games that Western gamers have, said Yat Siu, executive chairman of Animoca Brands. In fact, the hottest blockchain game, Axie Infinity, took off in 2021 thanks to its acceptance in markets like the Phillippines, Vietnam, Malaysia, and Indonesia.

Still, Chen agrees that a lot of players have soured on the early blockchain games and have legitimate concerns about the number of scams among blockchain projects. That’s why he is trying to come up with something unique that will get both Web2 and Web3 players onboarded easily and excited about the utility of non-fungible tokens (NFTs) when used in the right way.

“Some of the trends we’re seeing in Southeast Asia — people are more willing to try new things,” Wei Zhou, CEO of the Coins.ph crypto exchange in the Philippines, in an interview. “Much of the population is young and many are unbanked. There is a very interesting dynamic. The developers are from Southeast Asia, for Southeast Asia. With Web2, we paid (the game companies). With Web3, it’s starting to feel like a two-way street.”

Blockchain game companies are getting about a third to half of all fundings, and so the acceptance of the technology — including by Indonesian government ministers who were present at NXC — will likely lead to the creation of more blockchain game studios in the Indonesian region. Chen hopes the government can encourage big companies to invest in startups by giving them a tax break if they invest in smaller companies.

Vulnerable economies

Betting on the wrong industry is always a risk. I saw first hand a lot of poor folks in Bali, as the economy was dependent on tourism, and it is only now just starting to come back after two devastating years of the pandemic.

In between beautiful tourist locations were run-down and sad-looking places where people were under-employed. Chen believes that in 2014 Indonesia had more than 400 game studios, but after the pandemic, he thinks that number fell to just 25. Too many of those studios concentrated on casual games, rather than unique games.

“We saw our game grow, but a lot of indies just suffered,” Chen said.

On top of that, Indonesia has some fierce competition from its neighbor, Malaysia, which has tax incentives. That’s a lot like how Australia has tax breaks and work visas that make it easy to prey upon the New Zealand game economy.

The country has 22 universities that are churning out people with technical degrees. Davis from Singapore noted that Indonesia has, in addition to good skills, an arts culture that makes Indonesia very unique. People can also join a local Indonesian Game Developers Association. That group helped get small Indonesian game developers to the recent Gamescom show in Cologne, Germay.

Getting a start

The game developers that I met like Nehemia, Chen, and Widhiyasa were self-taught.

“I don’t have a degree in game development,” Chen said, who was a stunt man for movies before moving into gaming. “I just started doing it. We’re still learning now. My passion is storytelling.”

Nehemia started teaching himself how to make games in high school, and he became an indie game dev in 2013.

“I wanted to become one of the biggest studios in Bali. I just have a dream. I don’t have any experience,” Nehemia said. “I only had a laptop with two gigabytes of storage.”

He eventually assembled a work-for-hire team of four people, and in between projects they worked on their own mobile games. Nehemia returned to freelance work and started building up his skills. He got to go to the Gamescom show in Cologne to pitch his skills.

A few years earlier, Widhiyasa assembled a team from 18 computer science students who were game fans. Nehemia tried making games in high school and he eventually opened a work-for-hire business. Then he started making his own games based on Adobe’s Flash format. Then the company pivoted to making Android mobile games. Chillingo eventually began to publish its games.

“We had a dream of creating our own game studio and helping our game industry take a more sustainable shape in the future,” he said.

Agate published several games that broke through the international market, including Valthirian Arc: Hero School Story. The company still does work-for-hire games, but it has a lot of people working on its own blockchain game, Mythic Protocol. That title has a more global design, in contrast to a focus on Indonesian lore or art.

“We think Web3 can be the answer if we figure out how to scale the games,” he said. “We want to create economic value for all the participants.”

Chen and Paskarina’s studio, Anantarupa Studios, is also one of the biggest with more than 80 people working for it. The company has seen success with a multiplayer online battle arena (MOBA) game called LokaPala, which debuted in 2018. The game had three million downloads through word of mouth. The company is trying to take the game to new countries.

And now the studio is also developing a blockchain game, as Chen believes that, after blockchain technology becomes entrenched, content opportunities will follow. Chen started thinking about blockchain as early as 2016, and he thinks his team can build a bridge from Web2 to Web3. He wants to craft a balanced ecosystem where the NFTs have utility and players play the game because it’s fun and yet still participate in the economy by selling the things they earn in the game.

“We just need a champion to show it is possible,” Chen said.

Blockchain games carry risks, as players in the Philippines learned. Sky Mavis’ Axie Infinity took over during 2021, enabling players to make a steady income during the pandemic through “play-to-earn” mechanics. Thousands of people earned several times the minimum wage in the Philippines during the lockdown. But as the prices of Axie Infinity’s token plummeted and new players became scarce, the players could no longer earn the money that they had before.

“We need to learn how to make everything balanced,” Chen said. “The core game has to be sustainable.”

Widhiyasa believes the key to survival and growth is proper investment, as the capital invested in game development in Indonesia is perhaps smaller than $3 million a year. But he also said it remains a positive that Indonesian and Southeast Asian gamers in general are receptive to experimental games like blockchain titles.

“Everybody hates to pay in games, but sometimes you find the right model, like free-to-play,” Widhiyasa said. “I think we will do that again.”

If they play their cards right, I think we’re going to hear more about the Balinese and Indonesian game developers.

The organizers of NXC paid my way to Indonesia, where I moderated a panel on blockchain games. Our coverage remains objective.

Originally appeared on: TheSpuzz