Russian mobile games and computer industry are disappearing under the sanctions
The 2022 year was a positive year for the Russian gaming industry. Russian companies released the games Loop Hero and Black Book, King’s Bounty II, Pathfinder: Wrath of the Righteous and King’s Bounty II to the global market last year. According to VK, the Russian videogame market reached 177.4 billion rubles. Game Development, which is closely linked with Western technology and foreign companies, experienced serious problems at the end February. Many companies were forced to move their employees to friendlier countries and change their residence permits. How Tatarstan GameDev feels today, whether it is possible to develop the industry in the conditions of sanctions and “closed borders” — in the review of the analytical service of Realnoe Vremya.
The Russian gaming industry was a disaster in 2022. Since February 24, a number of foreign game development companies — Activision Blizzard, Sony, Nintendo, Microsoft and Bethesda, Electronic Arts, Amazon, CD Projekt RED, Rovio, as well as many others have announced the suspension of their activities in the Russian market. Many authors were unable to purchase software to develop their projects after the Steam online service stopped paying Russian developers in March.
Sberbank announced in May that it had closed its mobile game development division SberGames because there were no Western buyers. VK purchased My.Games’ gaming division which was geared towards the international market for $642 million. However, it launched its VK Play gaming platform this spring. My.Games has announced that Russia will cease operations. The company will focus its efforts on international business development. It will continue to develop console, mobile and PC products as well as publishing in key markets.
Market participants who were interviewed by Realnoe Vremya said that the Russian gaming industry needs state support and investment.
“There are no forecasts for 2023″
“There’s almost no one left here, I haven’t seen anyone from game dev for five months,” Yan Shevchenko, the founder and CEO of GD Forge and Fair Games, admitted to Realnoe Vremya. “Game Dev is an international industry. You can’t feed yourself purely on local markets.”
“The overall situation in esports is not easy. It’s a fact that working in Russia has been more difficult than it is abroad. Although commercial contracts have almost disappeared, it is still possible for some to be obtained. Aleksey Talan (CEO of Click Storm) stated that we need to work harder. According to him, amateur computer sport is also growing. Universities are hosting more and better events, and more students are joining them.
Aleksey is hopeful that everything will improve and it will be possible for new business models to emerge. “Now is the time for rebuilding. He believes that the most important thing is that businesses have enough resources to be competitive on the global market.”
They have to go.
“A fairly large community of game developers has been created in Tatarstan. It’s smaller than St. Petersburg and Moscow, but it has a lot of companies,” Anton Skudarnov of Innopolis University, who is the CEO of Indie GameDev Club told Realnoe Vremya. “But the gaming industry is an international market. Of course, there are projects that are made for the local market, but when we talk about medium and large businesses, the gaming industry is a global market.”
Anton, a Tatarstanian developer of mobile games, is one of the most prominent players. He also has Taptics, a company that develops games for Mr.Marmok, a YouTuber who blogs about gaming; Yan Shevchenko studios GD Forge, Fair Games and Axlebolt, which both created the Standoff2 mobile game. It was the most downloaded Eastern European mobile shooter in 2021.
Startup of Innopolis SEZ Lipsar Studio received a grant this year from the Institute for Internet Development to help develop Sparta, a tactical gaming game set in an imaginary country in Africa. Skudarnov explained. In October 2022, the IRI approved the grant of 90 million rubles. The game will be released by the IRI in 2024.
Playrix is one of these striking examples. Their central office is located in Ireland, but historically it is a native Russian company with more than 3,5 thousand employees worldwide: “The company is in the top 3 most successful mobile publishers in the world. Playrix recently closed its Russian operations. Skudarnov said that it is possible that this was due to inability to attract investment and sanctions risks.
“We have to leave in order to maintain profitability. Our main bank had been sanctioned and money transfers were being threatened with blocking. We were forced by our own will to establish a Kazakhstani legal entity. There were issues. Anton Skudarnov shared that when the dollar was below 90, it was difficult to get funds for operating activities. “The bank didn’t make the payment due to the high exchange rate.
According to him, a startup and a small-scale developer can both remain in Russia today. The problem is that if the company grows actively, it will fall under the jurisdiction of another country. This will mean that the state loses the potential to benefit from such growth. Every small project that is feasible will be funded in another country.
“Spartan” survival conditions
He believes that the current situation has effectively destroyed the Russian and Belarusian game development market. Today it is “rebalancing” or shrinking to the right size: large companies are leaving, specialists are leaving with them. “Most likely, we have already lost about 30% of all personnel, and 80% of them are senior and middle specialists. Kirill Fedoseev says there are many trainees and average specialists still left.
According to his projections, the sector’s revenue loss will be between 50-70%. “Companies and their products have not gone away, they just had to move to other jurisdictions to receive funds and not close down,” explains Lipsar Studio CEO.
The majority of the Lipsar Studio team are located in Russia, and they won’t be moving. “We started our business during Covid-19 and from the first day we were a distributed team — our office is the whole world,” Kirill Fedoseev smiles. “It’s easier to look for cool specialists, give them freedom of movement and choice of working conditions. Of course, such a scheme is suitable only if all processes are built this way from the first day.”
It’s hard to work, he admits: “We work a lot on the safety of our employees, on the psychological health of the team (everyone in game dev is very empathetic), on building chains for obtaining funds/licenses/equipment. Although our lives are more complicated, we have grown stronger and diversified many processes.” he stated. “You can work, grow too, but it’s all through the workarounds of ‘closed borders’.
Kirill Fedoseev believes active actions by the government are required to save today’s market. Still, the forecast for 2023 remains negative. The forecast for 2023 is still negative. Large companies have already pulled all their assets and sent only salaries to Russia. Even small transfers could be blocked by Google Play/Appstore/Steam, leading to bankruptcy and large losses.
“The outflow of specialists does not affect the companies themselves, as major players have always worked with specialists from all over the world. But for a local game developer, this is a cross on future companies and the growth of current ones.”
Russia is a small market and venture funds have had to cut back their activity. However, it is much easier to find a team in another part of Russia than in Russia. “The only positive thing is that there is real support from public funds, which has become a lifeline for us personally,” the CEO of Lipsar Studio admits. “But these funds are not unlimited, and their main goal is to help studios survive and not lose their weight in the next 2-3 years.”
First and foremost, today’s government needs to provide secure environments for IT specialists in order to solve problems. “They shouldn’t even have the thoughts to leave,” he says. It is also necessary to eliminate VAT from advertising, legalize cryptocurrencies as a payment method, and make it easier for investors to invest in them.
“Cryptocurrency is a convenient and transparent means of transferring money. A legal entity cannot now receive payments in the crypto. Kirill believes that it is possible to legalize only stablecoins, or create your own stablecoin using a cross-chain or based upon established blockchains.”
The CEO of Lipsar Studio also encourages companies to develop products for markets in China, India and Indonesia. “A player from these markets brings 5-10 times less income than a player from Europe and the USA, but you can make money on quantity,” Kirill explains. “So far, few of our developers are ready to make games for such a target audience. To adapt to these markets, funds are needed. The process can take from 3 to 5 years and require large investments.”
“Many will be happy to return”
“85%” of games are distributed digitally by the world’s top trading platforms: Steam. PS Store. Nintendo eShop. Microsoft Store. “The first thing players had to face after disabling SWIFT is the inability make a purchase using cards issued in Russia,” says Sernur.tech Kirill Kolotsov, cofounder, producer and game designer. “Then, in an avalanche, the world’s largest publishers reported the cessation of sales in the territory of the Russian Federation in digital and physical media. If over time, players have learned to overcome these inconveniences through various payment services, VPNs and new accounts, then there is nothing we can do about the refusal of publishers to localise games into Russian.”
According to him, there are more and more cult games that would have been translated and voiced earlier, but now there are no more, and this hits both localisation studios and Russian-speaking players not only in the Russian Federation, but also abroad — and in the long run contributes to the polarisation of players on all other and Russian speakers.
The developers faced a series of other difficulties: “For the first months it was impossible to receive royalties from sales from trading platforms and publishers, which also turned out to be technically solvable over time, albeit at the cost of extra commissions,” says the co-founder of Sernur.tech. “But the main blow fell on the investment climate. The vast majority (over 90%) of games development investment came from Western publishers and Western funds. This led to a halt in investments. You can be as talented and experienced as you like, but now it is impossible to sign a contract for the development of the game with Western companies because of the risks that have arisen.”
Large companies that are financially independent relocated quickly and took over the organization of the relocation costs for their employees and their families. Companies with lower financial options often lay off key staff members and cut their workforce. Companies were increasingly forced to leave in order to keep working.
Like world cinema, games are built on archetypes that are easily understood by everyone. Players around the globe feel part of a global community. “In general, I think that there is no point in condemning the cancellation culture that we are facing today, we just need to make such games so that the whole world plays them. Sernur.tech co-founder says that quality products always find their consumers.
Yulia Garaeva
Tatarstan
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