August has been a rollercoaster ride for the gaming industry. Moving forward, it is going to get even rougher. At the 51st GST Council meeting, it was announced that starting October 1, a 28 percent tax would be imposed on online gaming, horse racing and on casinos.
The GST will be levied without differentiation, on both games of skill and games of chance, and 28 percent would be charged on their face value at the entry point. The announcement was met with strong criticism from the gaming fraternity where a group of 130 gaming companies wrote an open letter expressing their fear that users would migrate to offshore gambling and betting platforms.
In the past, a GST of 18 percent and 28 percent were levied on the commission of games of skill and games of chance respectively. With the imposition of a common 28 percent GST weeks away, its impact on the influencer economy raises serious concerns.
Pre-28 percent GST introduction: Marketing spends of brands
In terms of the influencer budget, on an average, a brand would easily spend close to Rs 1.5 crore per year.
But there are certain brands where the influencer and the yearly budgets exceed Rs 2.5 crores to 3 crores respectively. However, on an average, top tier endemic brands spend approximately Rs one crore to 1. 2 crores.
Endemic brands are brands that take up a natural space within the market. In the gaming industry, endemic brands are the ones which are related to Esports (electronic sports) or gaming peripherals. Non-endemic brands are brands which belong to industries outside of Esports.
As per Agarwal, the second tier endemic brands usually spend close to around Rs 5 lakhs - 6 lakhs a month, which accounts for somewhere around Rs 60 lakh to 70 lakh a year.
He says, “Non-endemic brands have a very wide ecosystem. We have seen spends that go as good as Rs one crore to two crores. But, there is no consistency from a non-endemic brand in terms of influencer spends. In the case of endemic brands, it is somewhere around Rs 1. 5 crores.”
Content put out by gaming brands
"With endemic brands, there will be content like unboxing videos and product review videos. Since, endemic brands are usually tech brands, tech brands mean they have a product that they would want to push. So in order to push the product, brands find ways to work with influencers to review their products," says Agarwal.
In the case of non-endemic brands, the brands could range anywhere from a KFC or Hyundai to a TVS bike. KFC associating with a gamer would be very different from TVS associating with a gamer. Most of the time, it is a tricky marketing task.
Recession and its impact on the influencer economy
The year starting 2022 saw a global recession affect the tech industry as a result of Covid-19, the Russia-Ukraine war and increased rates due to rising inflation. Major tech companies like Facebook, Amazon, Google, Netflix and Tesla, lost over $3 trillion in combined market value.
As per a media report, domains such as social media, semiconductors and cloud computing were hit by the recession, leading to poor growth and a decrease in stock prices.
Although the recession didn't have much of an impact on India, influencer marketing was one of the first domains to get affected because of the recession.
“So, we are actually starting to see the budgets slightly recover because we are inching closer towards the festive season. Before that, for at least 4 months - 5 months, it was a very dry period, because the recession had a very indirect effect on the industry,” adds AlphaZegus’ Agarwal.
As per Agarwal, in the influencer space, the imposition of 28 percent GST is less of a concern than recession, which is a greater concern.
“Because at a time when recession is there, and numbers of the creators are not at the best, the only thing that can be done is creating unique content that kind of reaches to newer audiences or appeals in a very different manner to the current audience,” adds Agarwal.
Effect of 28 percent GST: Endemic brands and non-endemic brands
As per AlphaZegus's Agarwal, endemic brands don't go towards in-game marketing. For example, in-game banner ad placements or in-game real estate placements. They have had a more systematic procedure, in terms of the way they do their marketing spends, whether it's with influencers or with media buying.
He explains, “The point is that the 28 percent slab does not really apply to media buying or influencer marketing in any way. So, they are the major cash burning areas for an endemic brand. Since influencer marketing is kind of immune to this whole system, the marketing spends don't really get affected.”
However, in the case of non-endemic brands who have been experimenting in the gaming space, they have been trying to do a lot of in-game integrations. They have been trying to do in-game real estate. Here, 28 percent GST does have an effect.
Agarwal says, “A 28 percent implication on a non-endemic brand would be a hiccup because some of them would have a reservation like, ‘Why should I end up spending more on an experimental category? Rather, I just spend that amount on some other category, like a non-gaming category.”
Shagufta Iqbal, an influencer who works in the video gaming and content creation sector is a part of the PC gaming community. Currently, she is collaborating with computer peripheral brands like Intel, MSI, HP and Lenovo.
Iqbal highlights that the introduction of 28 percent GST has not affected her brand collaborations. Iqbal keeps her distance from real money gaming and gambling sites so as to not let her present and future collaborations with brands be affected.
Expert say: Implications of 28 percent GST and steps to be taken
As per Pavan Padaki, branding coach and principal - Insights - In Sight Consulting, and author of Brand Vinci explains, “When it comes to vice marketing, it can be horse racing, an online game of chance, or other vices like liquor. In the vice marketing industry, history tells us, there has always been some kind of an opposition when there has been an increase. But the government will always like to flog this vice market because these are addictive and they are not going to stop. Initially, you could see a small dip. But eventually, they catch up with the curve because vice marketing will never fail.”
As per gaming consultant, Navneeth Srinivas Garre, the imposition of 28 percent GST is going to affect companies whose repercussions will be experienced by the influencers. This will impact the marketing strategies and revenues.
Companies will look at other sources of revenues or other models of revenues. If social gaming is one of the models of revenues that a company requires, then they will walk towards social influencers.
“Social influencers have communities under them, and have people following them. And social influencers will also help keep the community engaged,” concludes Garre.