By: Gerrit Smit
Along with the global success of electronic gaming, the profile of eSports in itself is rising rapidly. In the recent 2018 Asian Games eSports featured for the first time as a demonstration sport, with indications of being a medal event at the 2022 Games. Similarly, Paris 2024 Olympic organisers are currently considering including eSports as a demonstration sport at their Games. This illustrates the progress that the gaming industry has made in showcasing itself, says Gerrit Smit of international family office Stonehage Fleming.
eSports (also known as competitive gaming or ‘pro-gaming’) have team-based elements and regular competitions that are held on specific multiplayer, online video games. This has developed already into huge stadium events, especially in the US and China. eSports revenues for 2018 are estimated at $906 million, still representing a mere morsel of the global games market worth approximately $130 billion. However, what cannot be underestimated is the huge growth of the segment globally, which translates to an increase of 38% year-on-year (Newzoo). Half of eSports are already played on mobile devices and an equal portion is played in Asia-Pacific alone. Further organic growth in the order of double digits is expected. Against this, the eSports industry has come to life through live tournaments in sports venues – originally in China, but today filling the likes of Madison Square Garden in New York and Key Arena in Seattle – to watch professional teams competing for significant prize money. Strikingly, the “League of Legends” 2017 World Finals happened at the same time as the NBA finals, yet drew 12 million more online spectators.
Virtual Appeal
eSports is a timing-free, 24/7 activity and one of the most truly global industries with almost anyone, anywhere with online access as a potential audience member. The global eSports audience is estimated to be close to 400 million members, which is more than the total population of the USA, the world’s largest economy. Over 40% are estimated to be core enthusiasts, with over half residing in Asia-Pacific. The growth in audience numbers is expected to stay in mid-double digits for some time.
The implications of eSports are far reaching as it is increasingly becoming interwoven into the fabric of sports organisations in terms of sponsorships, advertising, media rights, publisher fees, event attendance tickets and merchandise. According to the Newzoo 2017 Global Esports Market report, the eSports revenue per audience member is currently less than one tenth the comparable amount per NFL member, but with clear, positive growth expected. Combining this with the anticipated growth in audience numbers, general predictions are for eSports revenue to keep compounding for another few years.
The leading game publishers are also starting to take the lead in eSports. There are various investment opportunities in the wider industry, from game publishers, to online network distributors and equipment manufacturers (eg graphic cards, conductors, consoles, mobile devices, etc.) to sponsorships and media rights.
Industry Challenges
In an exclusively technical environment, a crucial consideration for success is access to particular development expertise in electronic engineering for a game to stay fresh and ahead of the growing competition. Keeping an audience interested requires continuous improvement and technological invention to attract astute gamers, which puts a spotlight on the importance of employing ‘best of breed’ software engineers. This in itself has become a huge new employment industry worldwide.
Regulation is also an evolving challenge. While industry laws are still relatively loose, it is apparent that regulation surrounding eSports is tightening, specifically in China, where draft legislation was introduced in early 2018 to potentially ban minors from playing online games between midnight and 8am. eGaming giant, Tencent Holdings, has since implemented age-related time limits across its range of popular smartphone games. We have also recently seen the Chinese government further restricting total daily playing hours for minors and reconsidering their own processes for approving the launching of new games.
Furthermore, with eSports moving into the physical arena, it is increasingly critical for companies to be able to wear many hats. Firms that will benefit most financially from the growth of the industry are those with the capabilities to rapidly develop and manage a game online to continue attracting a growing online audience, as well as being able to stage major events and fill stadiums.
eSport Companies to Watch Out For
When investing in electronic games and eSports, a broad-brush investment approach with a balanced exposure is best followed, by considering three primary categories: game producers, distributors and hardware (which also includes graphics and devices).
Hardware firms include companies such as Microsoft (X-Box), Sony (PlayStation), Nintendo and NVidia.
Companies operating within game production are: Electronic Arts, NetEase, Activision Blizzard, Ubisoft and Tencent. The latter has taken a broad approach by also investing in other game manufacturers and producers such as Riot, Supercell and Epic Games.
The companies upon whose platforms people will be watching or participating in the online games are classed as games distributors. These businesses are looking to capture online gaming audiences and convert them into customers. Google represents one of the largest distributors, with a separate business called YouTube Gaming that features both live and on-demand video game content. Other distributors are Amazon, Facebook and Russia’s Mail.Ru. Tencent’s multi-messaging and social media mobile app, We Chat has over 1 billion monthly active users with many making use of the tool to watch and participate in eSports. We can also include sponsors, event organisers and media groups getting more involved especially in the eSport aspect of the industry.
This article first appeared in MoneyMarketing magazine in South Africa.
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