New market entrants spark online supplier price war

An influx of new third-party suppliers is driving intense competition in Asia’s online gambling space, with a ferocious price war driving what some onlookers are describing as an unsustainable “race to the bottom.”

The most high-profile casualty of the harsher competitive landscape has been Playtech. In July, the Isle of Man-headquartered company issued a profit warning which caused its share price to nosedive by around 25 percent in a single day.

In a statement at the time, Playtech said it expected revenue from Asia in 2018 to be around EUR70 million lower than original expectations, blaming the impact of “an increasingly competitive backdrop”.

“Towards the end of the first half, this market has seen a particularly aggressive pricing environment from new entrants to the market and this has impacted revenue,” Playtech said.

It was the company’s second profit warning in eight months; Playtech’s share price topped GBP10 in June 2017, but now sits at roughly half that level.

While the warning singled out Malaysia – where Playtech finds itself under greater scrutiny amid a wider gambling crackdown – it is increased competition in China that is likely to be causing more concern.

According to Credit Suisse, approximately 40 percent of Playtech’s profits come from China; in November, Investec estimated that Malaysia accounts for about five percent of total revenues.

Regulatory concerns mean most suppliers are reticent about their activities in Asia, but AGB understands that many of Europe’s ‘new breed’ of gaming suppliers, particularly slots developers, have aggressively targeted Asia over the past 12 months.

These companies bring with them not only market-leading products, but a degree of scale built up in Europe’s regulated markets that allows them to price aggressively.

One industry consultant told AGB that some of these slots suppliers are asking for as little as six percent revenue share from Asian operators, compared to the 10-12 percent that more established suppliers tend to demand.

Another industry source based in Asia also told AGB that Playtech is unlikely to be drawn into a price war and that it considers the current pricing environment as unsustainable.

However, AGB understands there is an acceptance that the current landscape is the new normal, and Playtech will not again enjoy the free run it had as recently as one year ago, when its only major competitor of scale was Microgaming.

“We have taken steps to further support our partners in the region and we will continue to work to preserve our position in the face of an increasingly competitive environment,” Playtech CEO Mor Weizer said in July’s trading update.

As one industry consultant summed up, Playtech is no longer the only game in town, and both operators and players are turning to games that are competitive on quality and price.

Long-term outlook

New supplier competition in Asia currently takes three forms. A number of Europe’s biggest online suppliers – including the likes of NetEnt and Evolution – are now major players in the region having previously focused solely on Europe’s regulated markets.

Younger, fast-growing European suppliers have also entered the market on mass in the past 12 months, seeing an opportunity to generate additional cash flow away from Europe’s mature and competitive regulated markets.

And Asia-based suppliers are also growing in confidence and scale, with the largest – such as Asia Gaming – becoming major players, and a cohort of new providers willing to cut prices to grab market share. One industry consultant revealed to AGB that some Asian slots suppliers are even giving away their content for free in hope to gain a foothold with major operators.

Casino content has been at the heart of the price war. European suppliers have been creating a wealth of high-quality, Asia-focused games for a number of years now.

The question of trust in Asian markets is also important. For many years, the Playtech brand had become a byword for casino content that could be trusted by players in an environment where significant doubts continue to linger over the veracity of online casino.

But armed with Maltese licenses and years of operating experience in Europe, new suppliers are eroding Playtech’s monopoly on legitimacy.

Another factor is on-the-ground sales. More European suppliers are setting up offices in the region, while recent trade shows have observed a significant uptick in European casino providers attending, if not displaying. The charm offensive appears to be working.

The growth of aggregators and the entrance of new suppliers leaves Asia’s online casino market increasingly fragmented. While there are still a number of platform mega-deals up for grabs, competing on quality and price across multiple operators is now critical.

With other Malta-licensed suppliers encouraged by the speed at which rivals have grabbed market share in the region,  the battle for online supply supremacy in Asia could just be getting started.