2013-12-24

A Fascinating Look At The Indian Video Game Market

This article about the new Playstation 4 game console offers a fascinating view of the challenges faced by businesses when regulations and market complexities get in the way of an otherwise straight-forward business model. Here are some stand-out excerpts.

First, on why PS4 costs more in India than in Europe or the USA:
In India, gaming products unfortunately attract a heavier duty. Let's assume you're importing a product that costs Rs 100. Your duty on that product will roughly amount to 24-25% of the cost of that product, and this is just the import duty. Add to this local customs clearance cost as well as port handling cost, and you're looking at a 2-3% increase. 
Over and above all of this comes the VAT (value added tax), which for items of this category amounts to roughly 13.5-14.2%. When you add it all together, you're looking at a pretty substantial amount that goes into the hands of the government. 
Even when you consider the price of this product in the US, once you add the 36% duty upon that number, you get a much higher price than you would with a simple dollar-to-rupee conversion...
People also need to understand that India has a multi-layered distribution system market, so you are talking about a straight deal between 10-15% that is fed into distribution channels. This is not the case in bigger, more developed markets like the US.
An idea I hadn't considered before is the fact that local Indian distributors will find a way to replicate - meaning mass-produce - games from within India in order to undercut the import price-plus-duty. This is, of course, the whole point of high import duties - they force local customers to buy from local businesses rather than from abroad. The price differential represents a dead-weight loss to Indian society in the form of foregone video game consumption. The interviewer demonstrates some awareness of the dead-weight loss (if not its root regulatory cause) when he says:
The average American gamer is supposed to be 30 years-old, but in India, most gamers are still in school or college. How do you expect them to pay these premium prices for both hardware and software?
But, back to local game replication, the Sony representative says:
It's too early to say now, but once we have an established base, that opportunity looks extremely viable given that we already have a Sony disc replication plant. But even then, people shouldn't expect drastically lower prices. A locally replicated game may go down from Rs 3,999 to roughly Rs 3,499. We unfortunately do not have a magic wand that can take the price all the way down to Rs 2,499.
For reference, 3999 Rs is equivalent to about $65, and 2499 Rs comes out to about $40.

Of course, in some cases, the taxes and duties mean that no one in India has access to the product in question at all. This would be an unintended consequence.
The demand for the PS monitor wasn't that high to begin with, and considering the tax structure that I just explained earlier, it just didn't make sense to us. However, this time around, first-party accessories like the controller, and camera will be available at launch.
The entire interview is economically fascinating, so do read the whole thing.

I leave you with one additional anecdote. This will come as a surprise to those of my readers who have spent their whole lives in the United States: In other countries, the infrastructure for debit cards is supplied by companies that are completely independent of Visa or MasterCard. Here in the States, since debit transactions are handled by the same companies that handle credit transactions, there is no special infrastructure required for retail processing. In foreign countries, however, debit cards are processed using a completely different technological apparatus. This is likely because banking regulations abroad prohibit banks from engaging in that degree of horizontal integration.

Think about that while you read the following:
We've heard certain debit/credit cards do not work on PSN. Any idea why this is happening?
Debit cards don't work on the store, and we don't have plans to add in debit card support. Most of the international credit cards like Visa and Master Card work, but cards from local or corporate banks will not work.