Malaysia’s role in the growth of the gaming industry in Southeast Asia

Southeast Asia is a region with rapid growth in the gaming industry. Niko Partners estimates there are more than 300 million gamers in the six countries we track in Southeast Asia: Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. In these markets, total PC and mobile gaming revenues are expected to reach USD 6.5 billion by 2025, with a CAGR forecast of 7.1% in 2021-25 (Niko Partners, 2023). The size of the gaming industry includes revenues from various sectors including in-game purchases, game development, and esports.

Niko Partners conducts an annual survey of 2,400 gamers in Southeast Asia, with the main targets being Gen Z and Millennials aged 18 to 29 years. Whether for casual fun or competitive action, gaming has become an integral part of Southeast Asian culture. Esports, in particular, has emerged as an important component of mainstream entertainment in the region.

Esports first entered the medal race at the Olympic Council of Asia (OCA), the Southeast Asian Games (SEA Games) which were sanctioned in the Philippines in 2019, followed by the 2021 SEA Games in Vietnam and the 2023 SEA Games in Cambodia. . Singapore will also host the first Olympic Esports Week in 2023.

This region has leading esports organizations, such as EVOS Esports, Team Flash, Fnatic, and ONIC Esports. Southeast Asian countries have also hosted major global tournaments such as the Free Fire World Series and Mobile Legends: Bang Bang World Championships which have taken place in SEA for 5 consecutive years.

Malaysian policy for the development of the gaming and esports industry

The growth of esports and gaming in Southeast Asia is inspiring increased attention and investment, and Malaysia is one of the leading markets in the region, playing an active role in driving this growth. Gaming industry stakeholders, including governments, telecommunications companies, and other technology organizations, are taking the initiative in providing programs to nurture gaming and esports talent. Malaysian government agencies, particularly the Malaysia Digital Economy Corporation (MDEC), have also provided incentives and support to game creators, encouraging more people to start and grow game development companies. Programs such as the Digital Content Grants, the Digital Content Creator Challenge, and the IP360 Metaverse Catalyst initiative are prime examples of initiatives that are driving development.

Regarding esports, the Malaysian government has shown its support, through amendments to the Sports Development Act of 1997 which included recognition of esports last year. Minister of Youth and Sports Hannah Yeoh and the government-led Esports Integrated (ESI) also launched the National Esports Development Guidelines (NESDEG). NESDEG is one of the first government guidelines in the region to provide detailed protection for esports players and guidance for esports tournament organizers.

In October 2023, the Malaysian Ministry of Finance announced a MYR 30 million (USD6.3 million) budget to encourage foreign gaming and esports companies to invest in Malaysia. Although detailed information regarding the budget allocation is not yet available, this initiative is expected to increase Malaysia’s attractiveness to foreign companies looking to enter the market.

Why the gaming and esports industry is important to support

In analyzing support for gaming and esports in Southeast Asia, including Malaysia, it is important to consider the market context. The younger generation, especially Gen Z and Gen Alpha, are growing up in a digital-first world.

This environment requires a different set of skills than previous generations. Critical skills for thriving in this digital-first world include digital communication, collaboration, creativity, critical thinking, and problem solving. Specifically, these skills can be fostered through video games (Bailey, et al., 2006). (Hewett, 2022).

Video games and esports encourage competency in these skills in an engaging format. For example, multiplayer video games and esports can improve communication and collaboration skills through team-based aspects (Musick, et al., 2021). Furthermore, creativity, critical thinking, and problem solving can be fostered through game development activities (Thomas & Greene, 2011) and by playing certain game genres, such as strategy and role-playing games (Franco, et al., 2019).

Second, the development of the video game and esports industry opens up new job opportunities at home and abroad. Opportunities in the gaming and esports industry include becoming a game developer, professional esports player, esports coach, and content creator. The demand for esports in the region has also led to an increase in prize pools across esports tournaments. Jianwei Yap, a Malaysian Dota 2 player, has earned USD2,081,585 from the prize pool alone (Esports Earnings, 2024), which is the highest earnings among all players in Southeast Asia.

In the case of Malaysia, the country is experiencing an increase in the number of game studios that can develop AAA games. Studios such as Lemon Sky Studios, Passion Republic, Streamline Studios, Common Extract, and Kaigan Games take part in providing Malaysian game developers with valuable experience in developing successful games. Notable games developed with the involvement of Malaysian studios include Street Fighter 6, Final Fantasy Malaysia is also attracting foreign investment, with Lemon Sky Studios being acquired by Australian-listed games developer iCandy Interactive for USD 30 million, while Common Extract was acquired by Swedish studio The Gang for an undisclosed amount.

Malaysia has made significant breakthroughs in the esports industry. AirAsia, a low-cost airline based in Malaysia, became the first airline in the world to have an esports team, actively developing the esports scene in the country and region before the COVID-19 pandemic. Additionally, Esports Business Network (EBN) Malaysia operates EBN Esports City in Kuala Lumpur, the largest esports facility in Southeast Asia, with an area of ​​more than 6,000 square meters and can accommodate more than 1,000 people. Another important development is the establishment of an Esports Hub focused on Mobile Legends at Element X Hatten Land mall in Melaka, the first of its kind globally.

These initiatives demonstrate Malaysia’s potential to enhance its international reputation, nurture local talent and increase the popularity of domestic esports. Supporting the video game and esports industry can have positive outcomes, including developing important skills and creating job opportunities.

Challenges to growth

Despite all the developments that support the growth of the video game and esports industry in the region, especially Malaysia, we recognize that challenges still exist. First, increasing job insecurity in the global gaming industry, as demonstrated by layoffs over the last one to two years. These layoffs were largely due to overstaffing during the pandemic, based on overly optimistic expectations for the gaming industry’s growth. When growth returns to normal, companies will have to reduce the number of staff. This has also been accompanied by rising costs of talent search across industries, with inflation and cost of living adjustments as partial factors.

Second, elderly people in the region, including Malaysia (Osman & Bakar, 2012) (Ng, 2023), are skeptical about video games and esports. Video games and esports are often thought to have a negative impact on children, causing addiction, bad behavior and poor social skills. This generation’s attitude takes time to change.

Third, skills and experience related to games and esports are still lacking. Although dynamic gaming and esports developments have emerged in the last decade, the region is still far behind the gaming industry giants in China, Japan, and South Korea (Tiwari & Grace, 2023).

In Malaysia, in particular, we see investment and business openings in the country driving the growth of the gaming industry, compared to the mass layoffs and problems plaguing the gaming industry on the global stage. For example, US-based games trading and payments company Xsolla is opening a new office in Kuala Lumpur in 2023, making it one of the company’s largest offices. UK-based game developer and publisher Double Eleven also opened a studio in Kuala Lumpur in 2022, attracted by the talent provided by Malaysian developers.

However, this does not mean that there are no problems in the Indonesian gaming industry. For example, there are still issues such as the harassment scandal that hit the Persona Theory Games studio (Virtual SEA, 2024) and the opinion of local muftis (Islamic law experts) who consider several games haram (haram for Muslims).

Therefore, government agencies and stakeholders in the gaming industry need to collaborate further to ensure the formulation of future policies, incentives and protections to support the growth and security of the gaming and esports industry. Further action is also needed to provide information to the public about the positive sides of gaming and how to reduce its potential negative impacts.

Future outlook

The gaming and esports industry in Southeast Asia, including Malaysia, has continued to grow in recent years. The Malaysian gaming industry has grown by an average of 8.9% YoY since 2020 (Niko Partners, 2023) and since 2020, Niko Partners also estimates that more than 50% of the Malaysian population are active gamers.

There are many reasons to be optimistic about this trend. Malaysia has the potential to lead the growth of the gaming industry in the region as the country has a favorable business environment for gaming companies.

This includes talented and world-class game developers, the growing popularity of foreign gaming companies developing regional offices due to the supportive business environment in Malaysia, a significant increase in investment in the digital economy, and increasing recognition and support for esports in the private and government sectors.

By Darang S. Candra (Research Director Southeast Asia and East Asia)

This article is part of Horizon: Perspectives on Malaysia’s Digital Economy, strategic digital economic publication published by Malaysia Digital Economy Corporation (MDEC). This article is reproduced with permission. View the full publication here.