Southeast Asia’s iGaming market, encompassing online video gaming, has been on a steady rise. In 2022, the market value reached US $5.33 billion and is projected to grow to US $7.14 billion by 2026. Mobile games are the major contributor, accounting for approximately 70 percent of that revenue, followed by video games at 23 percent. Analysts predict that the shift to “hyper-casual gaming” will likely spur more growth in the mobile games market. This growth is further bolstered by increasing foreign investment, as exemplified by the new Sony PlayStation Studios in Malaysia.

Sony’s endorsement of Malaysia’s role in game creation

Sony’s decision to establish its first-ever PlayStation studio in Kuala Lumpur demonstrates the importance of Southeast Asia in game development. This Malaysian studio is a flagship for the entertainment giant. The studio, described as ‘state-of-the-art’, has been built from scratch, tailored to accommodate innovation and creativity. Rather than handling specific projects, this studio manages a wide range of projects on first-party games and titles such as The Last of Us Part I and MLB The Show 2022. It also creates new character models and other visual assets, including motion capture. The studio employs 77 full-time staff.

Emergence of indie companies

Environment modelling, concept art, animation, and video game development are much sought-after skills in all of Southeast Asia. However, many believe that Malaysia has the edge on innovation and technology. Sony is not the first investor of its kind in the country but joins an impressive number of international and indie studios who have also set up video game development projects in Malaysia. Overseas development to launch massive studios have been established over the last few years by Bandai Namco, Codemasters, and Larian. Changes in the market indicate a move away from the dominance of AAA developers such as Square Enix and Activision. Indie companies such as Toge Productions and Mason Games are also benefiting from setting up in Malaysia.

The Malaysia Electronic Sports Federation (MESF) is the governing body for all electronic sports in Malaysia. Established in 2014, its co-founder Dato’ Ananth S. Nathan, who also serves as the elected president, is dedicated to promoting esports in Malaysia. His ambition is for Malaysia to become the world’s foremost esports nation.

Currently, there is only one legal land-based casino in Malaysia. This establishment boasts over 400 types of electronic table games, 3,000 slot machines, and 30 other tables with games that include blackjack, tai sai, roulette, and boules. However, Muslims and those under the age of 21 are denied entry to the venue.

Future of online gaming in Malaysia

While online gambling remains illegal under the current Common Gaming Houses Act 1953 (CGHA), the Government is treading very carefully but it seems that they are working on finding a solution. The Government is also intent on bringing in new rules to regulate online gaming. Should the industry become regulated and companies given proper licenses, this could generate an estimated US $650 million currently lost in tax revenues for the Government.

Online games are favored by Chinese Malayans, with the most popular being mahjong, baccarat, sic-bo, lotteries, roulette, and slot machines. Skill games based on fishing and hunting are also big business.

The State acknowledges that the gaming industry is vital to the economy and an essential source of foreign investment which will also generate tax revenues. The country has attracted substantial Direct Foreign Investment (FDI) in leading SME gaming startups, with some studios originating IPs for games and others providing outsourced developers for international publishers.

Digital content ecosystem

Malaysia’s Digital Content Ecosystem (DICE) policy aims to strengthen the digital content industry. This policy, backed by government initiatives, facilitates growth in the industry through finance schemes, training, incubation, business links, and market access. The higher education system is geared toward nurturing talent with over 50 tertiary institutions offering gaming-related courses. With this ecosystem, Malaysia is well placed to provide opportunities for gaming startups with good state funding and a workforce skilled in gaming intellectual property creation.

A recent KPMG survey placed Malaysia fourth in the region for competitiveness, rating favorably with its Asian peers in terms of the cost of doing business, legislation, and tax. The Government recently invested US $5.1 billion upgrading its telecommunications infrastructure, providing 7.5 million premises with gigabit speed fixed-line broadband and expanding 4G mobile coverage to 96.8 percent in populated areas and upgrading mobile broadband speed to 35Mbps.

Potential for iGaming in Malaysia

Numerous offshore gaming sites accept Malaysian players, typically of Chinese or Indian heritage who make up 37 percent of the total population. With an average age of 30, a high English perception score of 562, smartphone ownership at 26 million, and 23 million gamers, the iGaming market is mainly still untapped. Malaysia offers iGaming companies rich opportunities and the prospect of the Government regulating online gaming points to a window opening for foreign companies to onshore operations.

The iGaming market in Southeast Asia, with Malaysia at its forefront, is a rising star. Its rapid growth, coupled with the shift to hyper-casual gaming and the rise of esports, presents a wealth of opportunities for both local and foreign investors. As the government continues to explore ways to regulate and tap into this lucrative market, the future of iGaming in Malaysia looks promising.