The esports ecosystem

Sports Business International 

A guide to the main segments that make up the esports industry, followed by a round-up of attempts by third party analysts to map how money flows through the ecosystem.

http://www.sportbusiness.com/sportbusiness-international/esports-ecosystem

1. Esports ecosystem segments

(i) Publishers

Leading names:

Publisher	Top esports titles
Riot Games	League of Legends
Activision Blizzard	Call of Duty (published by the Activision division); Candy Crush Saga (published by King Digital Entertainment); Starcraft, World of Warcraft (published by Blizzard Entertainment)
Epic Games	Unreal Tournament
Electronic Arts	Battlefield 1, Madden American football series, Fifa football series
Microsoft Studios	Halo, Forza Motorsport 6, Gears of War
Capcom	Street Fighter V
Warner Bros Interactive	Mortal Kombat X

There are around 250 computer games publishers worldwide. A subset of these produce games which have become major esports titles.

It is worth noting that Chinese media and communications business Tencent has acquired stakes in three of the top esports games publishers in the last couple of years - it acquired Riot Games in December 2015; it is a major investor in Activision Blizzard; and also holds a stake in Epic Games.

(ii) Games

Leading names:

Genre	Title
Multiplayer Online Battle Arena (MOBA)	League of Legends (published by Riot), Dota 2 (Valve), Heroes of the Storm (Blizzard), Smite (Hi Rez Studios)
First-Person Shooter (FPS)	Call of Duty (Activision), Halo (Microsoft), Counter-Strike (Valve), Crossfire (Smilegate Entertainment), Battlefield 4 (Electronic Arts), Overwatch (Blizzard)
Real-time Strategy (RTS)	Starcraft II, World of Warcraft (Blizzard); World of Tanks (Wargaming)
Collectible Card Game (CCG)	Hearthstone (published by Blizzard, which dominates this genre)
Fighting game	Street Fighter (Capcom), Mortal Kombat (NetherRealm Studios), Super Smash Bros (Nintendo)

Superdata reports that the esports games market is going through a transition where simpler, more accessible games are rising in popularity versus some of the more complex MOBAs and shooters that have traditionally been at the heart of esports.

There are currently no mobile esports games with large-scale audiences, but this could change. Vainglory, a title from publisher Super Evil Megacorp is considered one to watch in this regard.

(iii) Teams

Leading names:

• Fnatic
• Virtus.Pro
• Na’Vi
• Luminosity Gaming
• Ninjas in Pyjamas
• Evil Geniuses
• TSM
• Cloud 9
• Team Liquid

Esports  teams often compete on multiple games and in multiple leagues. London-based Fnatic, for example, last year fielded teams in competitions for League of Legends, CS:GO; Dota 2, Smite, Battlefield 4, and Heroes of the Storm.

To give some indication of their popularity: Cloud 9 has 150,000 Twitter followers; TSM attracts 6m unique Twitch viewers per month; and Team Liquid's YouTube channel has been viewed 25m times (data as of January 2016). Thanks to this reach, in January 2016 mobile phone maker HTC announced it would be sponsoring all three. Explaining the decision, HTC said: “Esports is rapidly growing in popularity around the globe, achieving viewership levels on par with many traditional sports. This means elite team sponsorships present a tremendous opportunity for HTC to connect with the gaming community.”

In contrast to traditional sports where fan loyalty tends to go first to the neighbourhood team, and then the national team, in esports team loyalty is more geographically dislocated – fans often support teams from the other side of the world. Newzoo says this has hindered investment by sponsors in esports - marketers understand the traditional sports structures of local teams and national leagues, with sports sponsorship budgets set up accordingly.

Sponsorship is the main revenue stream for teams. According to Newzoo, sponsorship is also the fastest-growing component of team income.

Teams generally have multiple sponsors. Inventory includes, for example, logos on jerseys that players wear during competitions and in media appearances. Top teams will earn in the range of $3,000 to $30,000 per month from their sponsorships. For most teams this represents around 40 to 50 per cent of income.

For most teams, the bulk of the remaining income comes from two sources: advertising revenue from streams of their game-play, and prize money. Some teams, such as Fnatic, are also able to generate substantial revenue from merchandise.

(iv) Players

It is currently difficult to get an accurate figure for the number of professional esports players worldwide. SuperData says the total won't top more than a few thousand, “largely because it is currently still very risky and expensive to financially support an esports team.”

Players’ revenue streams are from sponsorship, prize money and a share of advertising income from online streaming.

Prize money is rising. Newzoo put the global pot at $61m in 2015. Major publishers and tournament organisers like EA and Microsoft are offering prize pools north of $1m to attract top players. The International 6, a Dota 2 tournament played at Seattle's KeyArena over six days in August 2016, was won by five Chinese teenagers playing as Wings Gaming. They shared $9.1m from a total $20m pot.

For some players, streaming video of themselves playing games is more lucrative than competing. Platforms like Hitbox, YouTube Gaming, and Twitch allow streamers to create channels that fans can pay to subscribe to, and give streamers a cut of the income.

Under Twitch’s ‘partner’ programme, popular streamers can set up subscriptions for their viewers of $4.99 per month, of which the streamers collect $3 and Twitch the rest. The streamer Summit1G, to give a prominent example, has over 8,000 subscribers on Twitch, which equates to more than $288,000 annually. The streamer can also take a cut of the advertising run by Twitch over their stream. To build audiences, streamers run giveaways and competitions, play with fans, run 24-hour marathon sessions, and add information and data into their stream, among other value-add elements.

In order to become a partner, Twitch streamers must have an average concurrent viewership of more than 500 people and broadcast at least three times per week. Research by The Huffington Post in March 2015 found that only 34 out of more than 900 League of Legends broadcasts sampled attracted over 500 concurrent viewers. Out of those 34, only half were seeing over 1,000 concurrent viewers - a level which has a direct impact on the amount streamers can make from advertisements.

Just like YouTube content creators, leading streamers might be sponsored, or sign affiliate deals with brands to place, or comment favourably on, brands and products.

Streaming platforms such as Dingit are introducing advertisements into streams, and splitting revenue with the streamer.

(v) Brands

Sponsorship accounts for the lion's share of esports revenue. Of SuperData Research's global 2016 esports market value of $892.8m, some $661m derived from sponsorship and advertisements. Technology and consumer electronics brands, among them Intel, AMD, Logitech, BenQ, Nvidia and SteelSeries, were a natural fit for esports and were the first to enter the field. Energy drinks were the next to follow, including Mountain Dew, Red Bull, and Gamma Labs’ Gfuel.

Intel sponsors the Extreme Masters, a major tournament series that has been running since 2006, featuring competitions in titles including League of Legends and Starcraft.

As the audience has grown and the sector has garnered wider media attention, more ‘non-endemic’ brands have invested. These include Duracell, Visa, Coca-Cola and Dolby. US cable company Comcast is sponsoring the ESL and gaming club Evil Geniuses with its Xfinity pay-television and broadband subscription product.

Investment value and type

Esports sponsorship deals primarily follow the cash-for-rights model. But some brands, particularly those with an endemic tie to gaming, that incorporate a value-in-kind or barter component, for example by supplying equipment.

At the moment there is a difference between commitment to the space and monetary investment. Dan Ciccone, managing director at esports agency rEvXP, says most endemic brands are carrying out a lot of activity in esports with minimal financial investment. He says there is a big opportunity for brands, including non-endemic brands, that are willing to invest money and creativity, such as in the deal struck between Pepsi-owned energy drinks brand AMP Energy and Twitch to launch a new flavour and limited-edition co-branded can.

Talent sponsorships are currently much cheaper than for traditional sports, but six- and even seven-figure annual dollar investments are starting to appear more frequently.

According to Matt Hill, senior vice president, global sports and entertainment consulting at marketing agency GMR, team sponsorship and athlete endorsements are impacted by their visibility (reach) and their success (impact), and can range between high-five figures and mid-six figures (dollars per year). Media sponsorships, for example buying ad units within a game broadcast, are dependent on the reach (number of viewers) and frequency (how often is the brand visible), and range from the low- to mid-six figures . Sponsorship of major esports events requires a comparable low- to mid-six figure investment. A holistic platform that incorporates assets from each of these stakeholders and provides a brand with a meaningful position in esports generally starts in the low-seven figures.

(vi) Competition organisers

Leading names:

Competition	Description
Electronic Sports League (ESL)	Based in Cologne and owned by Swedish media company MTG since July 2015. Has a strong presence in League of Legends, Dota 2, Halo, CS:GO, Battlefield 4, Starcraft II.
Major League Gaming (MLG)	Owned by Activision Blizzard since January 2016. Has a strong presence in Call of Duty and Smite. MLG operates online esports network MLG.tv; the MLG Pro Circuit, which claims to be the longest-running esports league in North America; and GameBattles, a cross-platform online gaming tournament system with 9m registered users.
Eleague	Launched by Turner Broadcasting and WME | IMG in May 2016. Focused on CS:GO. The league features 24 teams competing in two 10-week league seasons annually.
OGN (formerly known as Ongamenet)	A South Korean cable television channel that specialises in broadcasting video game-related content, including coverage of StarCraft 2. It also organises tournaments such as the Ongamenet Starleague and League of Legends Champions Korea.
Evolution Championship Series (EVO)	Annual fighting games tournament held in Las Vegas. Games include Ultra Street Fighter IV and Ultimate Marvel vs Capcom 3.
Electronic Arts	EA is about to launch its own esports tournaments based around Madden NFL Football, Fifa and Battlefield 1. These will include Challenger events for amateurs; Premier events, which will be sponsored and organised by partners; and EA Majors for which the analogy is the tennis or golf major tournaments. There will be four Madden Majors a year, for example, each with a $250k prize pool.
Xbox Arena	Also launching soon, Microsoft's esports tournament platform is designed to work with a wide range of games including Smite, World of Tanks and Fifa, and will be accessible via Xbox consoles, Windows 10 PCs, Android and Apple iOS.

(vii) Consumers

Newzoo reports that the global number of 'esports enthusiasts' (comprising players and viewers) is 148m. It says there are another 144m occasional viewers (those who watch esports less than once a month and mostly tune in for a big event or watch along with someone else), taking the total audience to 292m.

SuperData Research says that 214m people will watch competitive gaming this year.

Gamers tend to be light TV viewers, and to not have pay-television subscriptions, making it hard for advertisers to reach them through traditional TV commercials.

SuperData says esports audiences are predominantly male (85 per cent), and 46 per cent are between 18 and 25 years old. US trade body the Entertainment Software Association’s 2015 report on the broader computer and video game industry suggested that 56 per cent of gamers skew male. Women aged 18 and older make up a larger portion of consumers than boys under 18.

The average revenue generated per esports enthusiast in 2014 was just over $2, compared to $56 for traditional sports enthusiasts, according to Modern Times Group, which used this figure to justify its $90m purchase of a majority stake in Turtle Entertainment, the holding company for esports network ESL, in July 2015.

“The bottom line is that the core esports consumer is not the dude playing in his mom’s basement,” Joshua Spiegelman, managing director of agency Mindshare Spotlight, told CNBC this year. "A significant percentage of fans are working professionals with buying power.”

Esports enthusiasts spent $231m on tickets, merchandise and prize pool contributions for events (SuperData) as direct consumer revenue grew 36 per cent year-on-year to spring 2016. SuperData reported that the average fan’s 2015 household income was $76,000. The average HHI figure dropped to $58k among all those who play downloadable digital games.

(viii) Streaming platforms

Online streaming platforms are used by fans to view game play as a spectator, by amateur or professional players to ‘broadcast’ their own game play, and by competitive events for streaming coverage.

Players that stream their own game play, or ‘streamers’, usually include an audio commentary. A webcam video of themselves sometimes appears as a picture-within-the-picture. There is usually a chat feature for viewers to comment or ask questions. This interactivity gives online platforms a superior viewing experience to broadcast TV.

The dominant esports streaming platform is Amazon-owned Twitch. Twitch describes itself as a platform for users who want “live social video that relies on audio and chat to enable broadcasters and their audiences to interact about everything from pop culture to life in general as they game”. According to the official Twitch traffic stats:

• Over 100m unique viewers and 1.7m ‘broadcasters’ per month use the site
• 16bn minutes are viewed per month
• 106 minutes are viewed per person per day
• There are more than 2m concurrent viewers at peak times.

Twitch ‘broadcasters’ can apply for the Twitch partnership program, which enables them to get a cut of advertising and subscription revenue. Acceptance onto the program requires approval, which is based on requirements including a minimum number of viewers, and a minimum number of broadcasts per week. There are currently more than 13,000 members of the Twitch Partner Program.

Every major video game publisher and developer has a Twitch channel, as do all of the top video game media sites. It also hosts user generated programming: original content created by community members such as casual gaming between friends; subcultures like speedrunning (in which players race through games as quickly as possible); and ‘Twitch Plays’, in which a chat forum is used to control the progress of a character through a game.

Twitch's biggest competitor is Google’s YouTube Gaming. Facebook has begun promoting itself as an esports destination. MLG plans to stream on its Facebook page to reach viewers who would not visit the dedicated MLG.tv site. Notable others include Akubu, Hitbox and Dingit.

All generate revenue in a similar way: from advertising and subscription, with ‘broadcasters’ revenue sharing with the platform. Advertisers most frequently include gaming companies, game portals, game developers, and game event organisers.

(ix) Traditional media

Currently only 4 per cent of the total esports market value comes from media rights sold in the traditional way, according to Newzoo. In traditional sport, media rights accounts for about 50 per cent of revenues.

But traditional TV networks have begun covering esports in a bid to reach its valuable audience:

• US sports broadcaster ESPN began its esports focus several years ago by streaming coverage on its website. It expanded its offer recently to include blocks of esports programming on its linear television channels ESPN2 and ESPNU.
• European pay-television broadcaster Sky recently launched esports television channel Ginx.TV, with a studio based in King’s Cross, London, from which it covers events live. It is not Sky's first foray into esports. In 2007 it launched the Championship Gaming Series in partnership with US pay-television operator DirecTV, but the venture folded a year later.
• American pay-television broadcaster Turner Broadcasting has rekindled the Sky/DirecTV strategy: if you don't acquire rights to air an esports competition, then create your own. With global entertainment marketing agency WME | IMG it launched the Eleague this year, with competitions hosted at Turner’s Atlanta studios, distributed on TV channel TBS TV and simulcast on Twitch.
• An alternate strategy is to acquire a league. Swedish media group Modern Times Group did so with ESL.