The CEO of 1D3 Digitech, Ruslans Jefimovs, outlines the challenges and pitfalls awaiting game developers and publishers aiming for global expansion.
As our experience shows, game developers and publishers tend to forget that selling games or in-game items internationally comes with an obligation to comply with the laws and regulations of every particular country you sell in.
The hard part about it is the variety of local legislation - what's unregulated in one country may require licensing in another.
A good example is so-called "games of skill", like bridge, backgammon or mahjong. While the mechanics of those games suppose a prize, the result is defined by the skill of the players, not luck. Games of this kind are quite controversial as there is no universal understanding of whether they should be regulated. Still, we see an upward trend towards regulation across multiple countries.
The UK, for example, doesn't require you to license games of skill, but as soon as the game has the slightest element of chance, it is subject to licensing, and things get a lot more complicated.
Working as an official digital distributor of game developers and publishers worldwide, 1D3 closely follows all the developments in local and international law to ensure full compliance with rules and regulations in your regions of operation.
Understanding local payment preferences is vital when entering new markets. Visa, Mastercard or e-wallets like Neteller, which dominate Europe, are utterly unfamiliar to African users and underrepresented in Asia, where local brands like JCB and UnionPay are used much more widely.
Ignoring the local payment methods people know and trust will reduce the overall earning potential of your product, decrease conversion and undermine brand loyalty. That’s why defining local payment preferences and integrating corresponding payment options with your product are among the main tasks of your distributor when entering a new market.
As a global digital content distributor, 1D3 works with several payment service providers covering all the most widespread international, regional and local payment methods worldwide. Our clients entering new markets access all the payment methods and a number of additional services after one simple integration.
Tax management is not an issue widely and openly discussed among video game developers and publishers. The markets, however, are getting increasingly regulated, and taxes on digital content sales are becoming more common and more vigorously enforced.
If paying VAT for games sold online seemed a rare thing ten years ago, now it's mandatory in most jurisdictions due to the unprecedented growth of tech giants like Apple, Google and Facebook being observed by the regulators.
There's nothing complicated about collecting and paying VAT in a single jurisdiction; however, most games are available in multiple countries, and the developers must pay VAT in the customer's country of residence.
If your game is played in 10 countries, you must pay taxes to 10 different jurisdictions with different rates, document flows and payment deadlines. This situation usually leaves game devs with three important questions:
How to identify the customer's country of residence?
You can go two routes to define the customer's residence. The first would be asking the customer for a document like a residence permit or a utility bill before the first transaction. That's quite a labour-intensive process that will bring your payment conversion down. The second option is to develop an algorithm to gather the necessary data at the checkout form and automatically apply a corresponding country's tax rate.
Another challenge is defining the countries where the tax applies, their exact VAT rates and thresholds. That's relatively simple in the EU with its zero tax threshold and VAT One Stop Shop system, but it gets more complicated in other jurisdictions. Take the USA as an example. It has over 11 000 standard sales tax jurisdictions, with different rates within states, counties or even cities. Add varying document flows and deadlines, and you are in a bureaucratic nightmare.
As for opening offices, you don't have to do it in most cases. However, you still have to register your company as a tax non-resident. Moreover, some countries will only allow working with local tax agents, which can get pretty expensive.
As we can see from the points above, game developers and publishers operating globally are faced with tax-related challenges that require an in-house finance team and tax experts to resolve. At 1D3, we understand that is a heavy burden for most companies. That’s why we take full responsibility for VAT collection and remittance on behalf of our clients.
Moreover, our tax management system does not require a separate integration. Coming together with our checkout form, it automatically determines the payer's residence by analyzing parameters like the user's IP, phone number and card issuer's country.
User experience is another issue worth addressing when entering new markets. While there are plenty of aspects to it, our experience tells us that localization and mobile usability are the most important.
Your conversion depends on the way customers interact with your payment form. If it’s not localized, you will sell less. English is not enough. Even in Europe, where it is quite widespread, customers still prefer using their native languages, while in Asia (especially China), people just don’t trust apps and sites that are not available in Chinese.
Mobile usability is vital, especially in Asia, where smartphones are the only medium for browsing the internet and playing games for most people. That means you have to prioritize the mobile user experience in terms of both content and payments.
1D3 mobile SDK is an easy way to add native mobile payments to your Android or iOS app. It’s also a great payment solution if you decide to distribute your game separately from app stores and dodge 15-30% platform fees.
So, your game is 100% compliant with local laws, your taxes are in order, your payment options are tailored to the region, and your UX is top-notch – none of that makes sense if you can’t attract the players. You have to build an efficient marketing funnel to ensure a steady influx of new gamers.
The hard part is you have to adjust it for every particular market – what works in Germany may be a huge waste of money in Japan. Let’s have a look at a few examples:
Those are just a few cases to illustrate our point – almost every market has its own specifics, that should be considered if you hope for a successful launch. You can’t just copy and paste the same marketing funnel from country to country.
1D3 Digitech has developed a worldwide network of advertising partners, possessing a deep understanding of almost any advertising market. Get in touch with our team to develop and execute a marketing campaign tailored to the country you wish to enter.