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October 30, 2017

eSports - the Next Growth Industry?

While they disagree on timescales, it’s hard to find an analyst who doesn’t believe the revenues from the eSports industry will top $1bn soon.

With the rise of high profile conglomerates – Disney, Amazon, Facebook, Adidas – investing in every aspect of the industry, it comes as little surprise to learn that many analysts are calling eSports the one to watch.

ESports gets a bad rap from many, mainly generations too old to enjoy videogaming. Therein is the basis of the criticism: it is just a bunch of ne’er-do-wells sitting in front of television screens playing the latest games. Geek squad, some label the players.

And then you see arenas filled with 50,000 people or more, watching the professionals at work. Or play, if you like.

This is the reason why many tip stocks in the technology and event companies which create the eSports events.

The key to this is the players are professionals. Hi-Rez, the studio behind the hugely successful Paladins game, is ploughing $3m into the soon-to-be-formed Paladins Premier League which will be stream on Facebook Live following a deal struck between the world’s largest social media and the World ESports Association.

That Facebook chose to stream the league is telling. It underlines the audience is there; Twitch.tv, bought by Amazon, topped 100m visitors last year.

A report from NewZoo found that 43m viewers streamed the finals of the League of Legends in 2016, comparable with the World Series that year when the Cubs beat the Indians. That was highest viewing figures in 25 years for the MLB, underlining the potential of eSports, still very much in its’ infancy.

Where eSports scores strongly compared to traditional sports is the high viewer participation numbers. Most of the watching audience are gamers themselves, spending six hours each week playing online on average.

Brand Promotion Opportunities Unleashed

The opportunities for studios and others to monetize the fanbase are currently assessed as being under-utilized with an average of $2.83 being spent according to NewZoo. One area where online companies are breaking ground is eSportsbooks. Betway pioneered large-scale investment into eSports, sponsoring events as well as the team Ninjas in Pyjamas. This year the online bookmaker will sponsor ESL Pro League 2017 following the successful ESL One Cologne event earlier this year.

The betting market is estimated to be worth $12bn and Betway esports as part of their deal for the ESL Pro League 2017 is broadcasting live odds as part of the commentary at the event. The global nature of the tournaments provides the bookmaker with a useful marketing tool, promoting their brand in different markets which is something other companies in different fields will watch with interest.

This is particularly relevant for companies who are seeking to break new ground. With traditional sports continually looking to invest in new online ventures, exploiting their own fanbase. Tying in with professional eSports – Roma, Schalke and Manchester City are among the soccer clubs to strike deals with teams and players – is regarded as evolution rather than a radical departure from their core business.

Unsurprisingly, the technology growth is being driven from California. Los Angeles finds itself at the epicentre of eSports start-ups, an area of the industry recognised with Major League Gaming, the industry body, and most of the major tournament organisers having a presence in the city.

Add into this mix US game companies Activision, Blizzard and Riot Games, publishers of some of eSports most popular titles, being based in Los Angeles, and there’s a heady mix of the industry great and good. Their presence brings a natural gravitation to the area. While the synergy of the creative chain attracts these interdependent businesses, the vibrant investment scene in L.A. fuels the entrepreneurial spirit.

Major Players Enter the League

The success of the Twitch.tv platform, sold to Amazon for $960m, encourages all the new start-ups and nascent corporations. There are many avenues where the industry has yet to fully exploit the revenue streams.

An influx of major companies as sponsors, the ubiquitous Visa and McDonald’s, joined by Adidas and Audi, Paramount and Turner, underlines the value to found yet in the industry. These are players at the biggest events in the world – Super Bowl, World Cup final, Olympic Games – who see a longevity in the industry.

With the average customer depicted as male between 15 and 35, there is a niche in the industry for female players and influence. The biggest concern must be that stereotypes come true, that the consumer sets the pattern too strictly. A 21st Century industry must reflect the times it is born in if it is to be the success eSports should.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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Item Reviewed: eSports - the Next Growth Industry? Rating: 5 Reviewed By: EconMatters