On your marks, get set, game! eSports and the shape of media in 2019

Video games today are often a massively social activity—and they can draw massive crowds of spectators as well. Can traditional media companies capitalize on this phenomenon to attract more digital natives to their audiences?

Deloitte Global predicts that in 2019, the North American market for eSports will expand by 35 percent, driven by advertising, broadcast licensing, and franchise sales. The global eSports market will grow a bit more slowly due to the maturity of Asian leagues and uncertainty in China’s growing regulatory response. In 2018, overall eSports revenue saw a considerable boost from the introduction of the first North American franchise leagues. Investors paid up to US$20 million to launch a league team.¹ In 2019, existing leagues will expand, and new leagues could launch under other top game titles, all generating significant revenue for leading game companies.²

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Indeed, Deloitte Global predicts that in 2019, the new North American franchise leagues for Overwatch, NBA2K, and League of Legends will expand into major US cities, following the model for professional sports. This will help draw more fans and players, making them even more attractive to broadcasters. Overall, analysts expect reported revenues from the global eSports market to reach US$1 billion in 2019, driven by advertising, broadcast rights, and league expansion.³ But how much more can it grow?

Granted, eSports have momentum, especially with young demographics, perhaps most visibly in the Epic Games battle-royale phenomenon Fortnite, with the largest payer base and the biggest audience.⁴ In the month of August 2018, Epic Games hosted 78.3 million Fortnite players.⁵ In the first week of that same month, viewers on the social streaming platform Twitch watched an aggregate 28.5 million hours of Fortnite play.⁶ But as more broadcasters spend to fit eSports into their programming, they may learn that eSports—and the video game platforms on which the industry is built—are more complex than they appear.

The appeal of eSports

eSports are competitive online video games with a professional league structure. The global eSports industry includes numerous game titles, leagues, and players competing on PCs, gaming consoles, and mobile devices. While the eSports industry itself is still young, it represents a confluence of contemporary digital services and user behaviors.

People are consuming more media than ever, but how they engage with entertainment continues to evolve.⁷ Consumption has become more fragmented across devices, platforms, and content services, particularly among the 18–34-year-old demographic.⁸ More content is being viewed through the web, smartphone apps, and social networks.⁹ Americans still consume a lot of TV, but the number of overall subscribers is declining.¹⁰ Likewise, the number of 18–34-year-olds who watch any TV in an average week has declined 10 percent since 2016, to 77 percent.¹¹ Media analytics company Nielsen also found that 18–24-year-olds are less likely to watch professional sports on TV than older generations.¹² For broadcasters, the salient point is that while linear TV viewership remains large, the changing behaviors can be worrisome, especially among young digital natives.

Could eSports help traditional TV broadcasters recapture young audiences? In 2018, Disney, ESPN, and ABC bought a multiyear license from Blizzard Entertainment to broadcast games and content for the eSports hit Overwatch.¹³ The game, a frenetic first-person shooter pitting two teams of six players against each other, is one of the world’s most popular eSports, with an estimated 40 million-plus people playing the game.¹⁴ During the three nights ESPN broadcast the Overwatch League finals, the network saw a peak viewership of 358,800 Nielsen TV households, a little lower than for its popular show SportsCenter, which aired just prior to the closing Overwatch final.¹⁵

ESPN may bank on the size of its audience to draw high eSports numbers, but it is still unclear how many viewers were merely curious, how many were existing eSports fans, and how many would watch again. Twitch counted 350,000 individual viewers for the same Overwatch finals but it’s not a simple comparison.¹⁶ The Twitch channel overwatchleague commands over a million viewing hours each week, with approximately 1,300 other Twitch channels broadcasting Overwatch play at any given time.¹⁷ This is fundamentally different from linear TV, and it creates an uncertainty for broadcasters: Can traditional TV capture the full eSports experience?

Sports, video games, and eSports

Back in 2014, 40,000 South Koreans filled a stadium in Seoul to watch the League of Legends World Championship.¹⁸ Millions there were regularly watching eSports leagues and professional teams on TV. Internet cafes—called PC-bangs—became focused on supporting online video games with affordances catering to the young customers.¹⁹ Big Korean brands became regular sponsors.²⁰ And the PC-bangs are still filled with gamers. China has followed suit, growing to become the second-largest eSports market in revenues behind North America.²¹

This trend is not lost on the business of professional sports. Teams, players, and executives have all been investing in eSports.²² These traditional sports stakeholders see an opportunity in eSports to not only expand professional sports as a domain but to also play a role in what has become a new competitive spectacle. In fact, professional sports franchises may be uniquely positioned to expand the reach of eSports, especially in the less-mature European and North American markets. Leagues have helped coordinate strong ecosystems of stakeholders in media, merchandising, ticketing, and venues, all committed to sustaining year-round engagement with their sport. They have built durable franchises with regional anchors sustained by competition, human interest, and the drama that swirls around the road to championship. And they offer support to developing athletes and install protections to safeguard their wellness—something that will likely become more important as more careers are tied to eSports.

These same elements—from media and merchandising to competition, human interest, and championships—are also native to eSports. It’s just that they have not yet been orchestrated into high-performing ecosystems, at least in North America and the European Union. The National Basketball Association’s NBA2K franchise league in the United States is an early effort to do so, and 2019 will almost certainly see more activity from professional sports working to expand their audiences and the definition of sport itself.

An eSports league and its road to the championship would seem like a simple fit for broadcast TV. And broadcasters would do well to continue their efforts to bring eSports into their programming. But linear broadcasters may find it difficult to grow their audience given the many millions of people watching eSports through social streaming services like Twitch and YouTube Gaming. Original programming—dramatic documentaries about top teams, for instance—may bring more TV viewers into the world of eSports but may not draw existing fans accustomed to engaging directly with top players through social media and streaming platforms. This can introduce the risk of cannibalization. Traditional TV viewers who become interested in eSports may themselves switch to social streaming platforms for a more direct experience. Younger eSports fans also tend to show more sensitivity to advertising, and brands have faced challenges trying to reach them effectively.²³ These considerations all point to larger changes in the way people engage with entertainment.

As we will see, eSports are situated within an ecosystem of digital services and platforms that support immersive, interactive, and highly social entertainment. The top video game platforms are moving quickly to adapt to this new digital landscape and deliver entertainment, engagement, and monetization that meet the demands of a hyperconnected world.

The video game platforms that drive eSports

To better understand these changes, it’s worth looking past the headline stories surrounding eSports to examine more closely the video game platforms that power the industry. While the global eSports market has not yet reached the billion-dollar mark, in 2017, revenues for the US video game industry were an estimated US$36 billion, growing 18 percent over the previous year.²⁴ In January 2018, the Epic Games phenomenon Fortnite: Battle Royale attracted over 2 million concurrent players; a month later, it recorded 3.4 million.²⁵ Fortnite’s growth was at the expense of its direct competitor, Player Unknown Battlegrounds, which saw its dominance decline by 44.7 percent between January 2018, when it averaged 1.5 million players, and May of the same year, when the number of players dropped to 876,000.²⁶ Due to increasing competition, Valve Corp.’s battle arena game Defense of the Ancients 2 fell from a high of 1.2 million concurrent players in March 2016 to around 700,000 in July 2018.²⁷ Even back in 2014, Riot Games reported 27 million daily players for League of Legends.²⁸ These are the same titles grabbing the professional eSports headlines but most of their players are just doing it for fun.

These numbers and their trendlines are certainly notable, indicating the online video game market’s large size as well as how fragmented that market is across top titles. Of course, an hour playing and socializing in an online video game is an hour not spent watching TV. And competitive video games seem to be grabbing more of those hours.

eSports are different from TV: Inside an immersive experience

Top gaming companies have capitalized on digital transformation to deliver powerful platforms of engagement for very large user bases. In some ways, the biggest multiplayer videogames have evolved social networks into virtual worlds, complete with communications services, point-of-sale solutions, open-ended extensibility, social streaming ecosystems, and the ability to evaluate and modify play to maximize engagement.

Unlike with traditional pro sports, game developers can continuously alter and update game play. They can add new weapons and modify the behavior of existing gear to fine-tune the balance of play.²⁹ They regularly introduce new game modes and character classes.³⁰ With centralized ownership and dominion over their digital platforms, game companies can innovate and experiment until they find approaches that advance engagement for both players and viewers—and if changes don’t work, developers can easily roll them back.³¹ This agility is made possible, in part, by upfront investments in robust and extensible platforms that enable developers to quickly and easily try new things. For players and audiences, the experience is regularly refreshed with novelty.

Platform plays

Some games are evolving to become full platforms with point-of-sale interfaces that further monetize engagement and extend game life. Many game titles now offer DLCs—downloadable content—that can be purchased to enhance gameplay. These can be anything from gear packs and accessories to new storylines and new game modes and capabilities. The revenue opportunity can be significant. Fortnite, for example, is free to play but nevertheless generated US$318 million in revenue in May 2018 alone—more than any free game before it.³² Fortnite players can buy credits called V-Bucks and trade them for skill multipliers, wearable virtual costumes, and physical “emotes”³³ such as dances.³⁴ This lets players personalize the avatar they use when they play the game with others, underscoring the social nature of eSports titles. For US$10, players can purchase Fortnite’s BattlePass, which gives them new challenges that are unlocked each week.³⁵

For the 2018 Overwatch League, Twitch partnered with Activision Blizzard to promote its Overwatch All-Access Pass, styled as a VIP experience for superfans. The pass included a changing VIP badge that players could wear in-game and in their Twitch chats, as well as multiple special skins and emotes.³⁶ Perhaps more interestingly, the pass gave users access to the Overwatch League Command Center, a second screen with alternative in-game camera views, backstage cameras, cameras with the player’s PoV, and additional stats, all focused around the game-day livestream.³⁷

This arrangement is notable for the level of control and collaboration required between partners. Each worked to tie the two platforms together to offer fans a high-value experience. Not only could fans show their status across the platforms—they could purchase greater control over how much of the game they could see, paying a fee for more cameras and deeper analytics. In 2019, the market will see just how much this approach has lifted revenues. If it works, such partnerships around fan engagement might become more common.

The audience is on stage

For viewers, television has always been a passive experience. With eSports and online video games, by contrast, entertainment is highly social, immersive, and active. Many who watch eSports are also players. And many who play use social streaming platforms such as Twitch to broadcast their games to others. Top teams and players typically stream from their own accounts, engaging directly with their fans through chat. Engagement with online video game platforms is fundamentally a social experience.

In most cases, broadcasters and many streaming video-on-demand players have resisted the calls to integrate messaging and social affordances around their content. This relative lack of social enablement in the traditional TV experience may put it at a disadvantage in pursuing the eSports market. In popular online video games, players meet up and coordinate through the game. Communications platforms such as Discord and TeamSpeak make it easy for players to find each other and for teams to collaborate. Discord alone counts 145 million users in 2018, up from 45 million the year before, citing video games with strong team dynamics as a driver.³⁸ One of the largest makers of gaming headsets, Turtle Beach, claimed a 185 percent increase in net revenue year-over-year in Q1 2018.³⁹ The company cites the growth of Fortnite and Player Unknown Battlegrounds as contributing factors, as well as the value of collaboration and the advantage of a greater ability to hear in-game audio cues.

These elements point to another key difference between eSports and traditional sports. Unlike the audiences for top TV events, the audiences for online video games are highly fragmented and distributed across numerous game titles and viewing channels. And yet one of the most valuable components of top-tier gaming platforms may be their ability to better understand the customer. TV audience counts are often approximations, but social streaming channels have total visibility into viewership.⁴⁰ They publish usage statistics instantaneously and publicly, enabling much greater transparency.⁴¹ Game platforms likewise can instrument their interfaces to track purchasing and playing activity; this helps them to better understand engagement and set valuable advertising rates. Capabilities such as these become much more attainable when the value chain is mostly digital. Recognizing this, Nielsen Media recently partnered with Activision to obtain analytics from the game developer’s eSports titles, and they also purchased the eSports market research firm SuperData.⁴²

Digital analytics can help drive engagement

In eSports, audience engagement is all about optimizing both the viewing experience and the play—and because digital platforms can generate detailed analytics about usage, these analytics can deliver priceless insights on how to make that optimization happen. In 2018, SAP partnered with one of the world’s most successful eSports teams, Team Liquid, to bring competition analytics into the team’s gaming.⁴³ SAP has brought similar analytics capabilities to professional sports, and the company sees a new opportunity in the all-digital world of eSports. The company’s approach to eSports analytics takes sabermetrics, the 20th-century method of evaluating baseball players’ statistics and amplifies it into digital precision. Using its HANA platform, SAP will evaluate Defense of the Ancients 2 replay data to quickly show patterns and pitfalls in play.⁴⁴ These kinds of supporting services may further drive expansion of the eSports market.

This type of analysis is growing in value, and it is increasingly being used to gain insights into engagement, balance, and retention.⁴⁵ And analytical insights do more than benefit eSports teams. They can also drive learning for average players, helping them perform better and stay more engaged—all of which advances the value of online video gaming. Fundamentally, the similarities between eSports and professional sports will potentially make it easier to expand the broadcast viewing audience into new-but-familiar territory. The differences, however, will likely be either limitations or opportunities, depending on how broadcasters evolve and transform their services.

Bottom line

The eSports phenomenon is large and growing. It offers traditional broadcasters an opportunity to access a young demographic of digital natives who are less engaged with TV and professional sports than previous generations. By adding key eSports events to their programming, broadcasters can get a better sense of how much of their existing audience will engage with this form of entertainment. eSports programing could also potentially offer additional advertising revenues, although broadcast executives might not see the upside they associate with professional sports content. Conversely, linear broadcasters could develop closer relationships with game platforms to bring some of their top media franchises into the games. Some popular eSports such as Fortnite may be particularly well suited to such high-profile marketing crossovers.

When making forays into eSports, broadcast companies should consider how they can minimize production costs to enable more lightweight experimentation and reduce risk exposure. By trying more things more quickly, they can better learn what works and what doesn’t. This approach can be reinforced with better modeling, stronger market prediction, and a more global outlook on niche programming.

For savvy broadcast companies that are breaking out of the box and launching their own digital streaming services, understanding online video games offers a potential road map for developing stronger digital platforms that engage audiences around all of their content. Broadcasters that are rolling out digital streaming services should view this venture as an opportunity to better digitize customer engagement and sell to viewers more directly. Shifting from linear TV’s mainly passive mindset to a more active and involved digital mindset can be the first step to getting closer to customers and keeping them engaged.

While linear solutions do remain viable with existing audiences, broadcasters should look to build more diverse portfolios that better align with macro shifts in consumer behavior. A contemporary broadcaster might have a linear service, a multichannel subscription video-on-demand solution, and a social streaming platform, all tied together with messaging and point-of-sale capabilities. With robust identity management across these touchpoints and a strong data analytics model underneath, broadcasters could transition more effectively and durably into the new landscape of entertainment.

The rise of social networks and, now, social streaming speaks to a deep human need. People often want to engage with entertainment together, whether physically or virtually. And this is one driver of the migration away from subscription TV, especially for young digital natives.⁴⁶ Broadcast and cable TV could better reach younger generations by becoming more social. Efforts to build network streaming services can help traditional players maintain their ground—but likely only if they incorporate ways for the audience to connect with others and share their content.

For better or for worse, media entertainment is becoming a participatory social experience, less something one consumes and more that something one does. It appears to be time for traditional media companies to get on board with getting online.

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