BUENOS AIRES, Argentina – During the late 1990s, a group of young video game fanatics in Argentina joined forces to accomplish their dream of developing video games on Argentine soil.
They had no capital, no chance of attracting financing and zero business experience. The majority of them had just finished high school.
But they never gave up.
In 2000, the group created the Argentine Association of Videogame Developers (ADVA), which, over the course of eight years, transformed the country into one of the most dynamic production centers in Latin America.
Currently, the sector boasts about 65 companies – 90% of them financed with Argentine capital.
“The sector earned US$50 million in 2011 and employs between 2,000 and 3,000 people,” says Andrés Chilkowski, founding partner of the ADVA, which has 30 member companies.
A truly vibrant community, the ADVA brings together programmers, designers, engineers, illustrators, script writers and musicians, all of whom have an average age of 27.
“We export 95% of the games, mainly to the United States, Europe and Asia,” says Chilkowski, who is also the director of NGD Studios, a pioneer in the sector.
During the last decade, the video game industry has grown worldwide thanks to new distribution platforms, such as social networks and smartphones, according to Chilkowski.
Massively multiplayer online (MMO) games have grown exponentially, with thousands of users playing online at the same time.
The expansion of the global market lessened the concentration of video game developers in the United States, Europe and Asia. As a result, the activity has expanded in Latin America, particularly in Argentina, Brazil and Chile, according to businesspeople from the sector.
The first advantage Argentina had in creating its videogame industry was its low cost of production.
In 2002, with the devaluation of the peso after 10 years of parity with the U.S. dollar, wages were significantly reduced. It became cheaper to develop games in Argentina than in China.
“But we didn’t have any experience. We were paid to develop a U.S. football game and we didn’t even know how [the sport] was played,” Chilkowski says. “But since the budget from the United States was three to four times higher than what we’d been getting, it was worth taking the chance. On the second attempt, it turned out well.”
With a shrinking local market and growing piracy, the solution for Argentine companies always involved exportation, according to businesspeople from the sector.
Since then, the developers of electronic games have increased their professionalism, adding value to their services.
“Nowadays, our costs are more reasonable. A starting programmer in the United States earns roughly US$60,000; in Argentina, it’s about US$25,000 [in 2002, they earned a quarter of that],” Chilkowski says. “And we haven’t even mentioned inflation [an annual rate of 23%, according to private sector estimates], which complicates matters.”
Argentina has established itself as a center for ideas, with talented artists and graphic designers, says Hernán Rozenwasser, CEO of the company QB9.
“To Argentina’s credit, it has positioned itself as a hub for creativity and skills,” Rozenwasser says. “Now we can sit down with international clients and they don’t look at us merely as a cheap place to do business.”
The story behind QB9 is an example of Argentina’s success in the video game market.
Founded in 2005, the company has 47 employees and earned US$1.8 million between August 2010 and July 2011, Rozenwasser says.
Mundo Gaturro, QB9’s main product, is the preferred MMO game among Latin American children.
Each month, almost a million unique visitors have fun with Gaturro, a playful cat created by Argentine cartoonist Cristian Dzwonik, who is known professionally as Nik.
As happens with most companies in the sector, the majority of QB9’s revenue comes from services for third parties, such as games developed for promotional campaigns of major companies such as Lego, Mattel and the TV show South Park.
“The challenge is to market our own games, without neglecting the part focused on third parties,” Rozenwasser says.
In the case of Mundo Gaturro, the game was developed in conjunction with Clawi, the company that owns the product. Clawi takes care of the infrastructure and the marketing, with QB9 developing the games for the website, for which it earns a share of the profits.
Mundo Gaturro follows the free-to-play business model, in which users can play up to a certain point without paying. In order to personalize their avatars (characters), they need to buy a passport that provides access to the complete game catalogue. Players can dress their avatars like rockers or pirates, for example.
A one-month passport costs $19.90 pesos (US$4.80).
Rozenwasser says that free-to-play games will be the major trend in Latin American markets.
“Over the next five years, Latin America will probably be the region with the highest rate of smartphone adoptions,” he adds. “People are going to have access to high-quality games over the Internet, using mobile devices on subways, trains and buses. At home, they’ll play using their laptops. We want to be in all of those places.”
Antidote for the crises
In addition to its creativity, Argentina can be defined by its unique entrepreneurial community, says Ezequiel Baum, managing director of NGD studios, whose clients include the Cartoon Network.
“Dealing with a crisis every 10 years has turned Argentina’s entrepreneurs into survivors. They’re always looking for a way forward,” Baum says.
Prudence was a fundamental part of NGD’s growth, Baum says.
Other offices grew too fast with the recent influx of foreign capital, forcing them to change their business strategies or even close when funding dried up.
For example, the company Three Melons was acquired in 2010 by Playdom, a major social media gaming company. Months later, Disney bought Playdom and cut nearly 30 jobs at Three Melons.
“This market is constantly changing. We’ve been able to grow in a moderate manner,” Baum says.
In 2011, NGD bought Hungry Games and its team grew from 20 to 30 employees. The company’s main product is Regnum Online, a free-to-play game with 50,000 active users per month. The majority of gamers live in Spain or Latin America and are between 18 and 25 years old.
Regnum generates income through premium content that players purchase to assist their progress through the game’s medieval universe, such as a saddle for riding horses or a spell allowing them to advance to the next level more quickly.
NGD also developed Bunch of Heroes, the first product developed in Argentina to be sold on Steam, the largest global platform for online game distribution.
Other major companies based in Buenos Aires include Band of Coders Argentina, Compañía de Medios Digitales (CMD, connected with the Clarín Group), Eudaimonia, Globant and SIA Interactive, as well as France’s Gameloft and the Brazilian leader Vostu.