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Video gaming has moved out of the basement into the big league with eSports—the next wave in social networking. Will traditional TV sports get into a battle royale with eSports or will broadcasters work with gaming companies find monetization synergies? Deloitte’s Duncan Stewart and Chris Arkenberg have the answers.
Sports matters. The phrase that’s often used for it is the anchor tenant in the TV mall. Without sports, the rest of the industry would be significantly less profitable [and] perhaps not even viable.
—Duncan Stewart, director of technology, media, and telecommunications research for Deloitte Canada
Chris Arkenberg: When we hear eSports, some of the top titles have these enormous communities and they’re generating literally hundreds of millions of dollars a month on free-to-play titles based on in-game purchases.
Tanya Ott: I’m Tanya Ott and today we’re tackling sports—the physical kind and the virtual kind. It’s a whole new game out there!
It’s a typical weekend at Chris McCullers’ apartment—a bunch of guys in their mid-20s camped on couches and chairs, hunched over their controllers playing video games for hours. Sometimes, they multi-screen it—videogame on one screen and a real, live sports game on another.
This kind of scene plays out in millions of living rooms across the country, say my guests today. Duncan Stewart is director of tech, media and telecom research for Deloitte Canada.
Duncan Stewart: But I don’t just work in Canada. I have a global responsibility as well.
Tanya Ott: And Chris Arkenberg is a research manager with the [Deloitte] Center for Technology, Media and Telecom.
Chris Arkenberg: I really focus on emerging technologies that are a little past the early emerging stage, that have a strong capability and likelihood of being rather transformative.
Tanya Ott: A little background on me. I live in Alabama, which, if you believe the locals, is the center of the college football universe. Nothing else exists here in Alabama. But I’m an MMA [mixed martial arts] fan so I’m a little bit of an outlier when it comes to sports. But no matter where you are, obviously sports are big—and are big business. People have been speculating about the future of sports on television for quite a while as younger people, in particular, have been cutting the cord and leaving traditional [TV viewing]. What does the playing field for sports look like? What’s the lay of the land when it comes to traditional television viewing and then we’ll drill down into sports?
Duncan Stewart: The important thing is that TV, in general, is still a growing industry in North America. This is not generally understood, but in terms of dollars, the value of the TV industry continues to rise. That includes both advertising and subscriptions. Now, within that, the number of minutes that Americans watch TV is dropping by a couple of percent per year since about 2010, which means that on average Americans are watching a little bit less TV than they used to. That’s particularly focused in 18- to 34-year-old young Americans. They are watching about half as many minutes as they used to. Where, at one point, about 90 percent of them watched TV of some kind—I’m talking about traditional TV here—that number has dropped into the 80s and maybe even the high 70s. So, young people are moving away from traditional TV to some extent, but probably the most important finding—and this will not surprise anybody in the room—is that TV sports, especially for young men, has been more resilient. Although young people are watching about half as many minutes, they’re down about only 25 percent for young men in TV sports. They have hung on to sports. The reason that matters is that in the context of the traditional television industry, sports matters. The phrase that’s often used for it is it is the anchor tenant in the TV mall. Without sports, the rest of the industry would be significantly less profitable [and] perhaps not even viable. From the perspective of the traditional TV industry, hanging on to young men who watch sports is one of those make or break deals. If they fail, the industry itself may be in peril. If they can keep them, happy times.
Tanya Ott: My family is a sample size of one, obviously, but the only thing that’s kept us buying cable TV is live sports.
Duncan Stewart: And you are not alone. There are a lot of people out there. It’s from a few years ago now, but one study showed that for all Americans, both men and women—and this is a shocking thing—95 percent watch sports at least occasionally. As you get younger, that number drops into the 80s. So, it’s a really big thing for both men and women and it is one of the things that is keeping television together. That’s why I use the anchor tenant line. A critical thing about sports is that people tend to watch it live. They tend to watch it in groups, and because it’s live, that means they see all the commercials and they’re not ad skipping through them. It is not merely a large audience and an important audience, it’s an engaged audience that sees the ads and at the end of the day a lot of television is about the ads.
Tanya Ott: You took a deep dive into TV sports watching and looked at demographic breakouts and you have some predictions. And one of them is that you’re predicting that TV sports watching by that crucial 18- to 34-year-old men in the US is going to decline by five to seven-and-a-half percent in 2019 compared to 2018. So, it’s a decline, but not maybe a really significant one. Is that the number of men in that age cohort that are watching or is the time they’re going to spend watching?
Duncan Stewart: That’s the number of minutes. There are two terms we use when we talk about the TV industry. One is reach and then the other is usage. When we talk about reach, that’s the percentage who do an activity at all in a given period—on a day, on a week, on a month, in a year. But number of minutes—it’s the average number of minutes that we’re referring to. That will decline. It’s been declining for a few years now. We’re not expecting that decline to stop. But it is much more like a gentle slope than a staggering cliff and that’s an important thing for the industry.
Tanya Ott: One of the things that does drive people to watch is betting on games. And globally, gambling is a half-a-trillion-dollar industry and betting on sports is about 40 percent of that. So, that betting connection is pretty significant.
Duncan Stewart: The betting industry—and that’s not just TV sports, that’s all betting of all kinds—is roughly the size of the TV industry worldwide. They’re both about roughly half-a-trillion dollars. There is a link between them, as you said 40 percent is estimated to be sports betting. That’s a really hard number to talk about because, of course, in many countries, sports betting is not actually legal. And people, when you ask them how much or how often do you bet on sports, might not be telling you the truth. So, it’s difficult to be sure of that number, but it’s ballpark in that size. And the interesting thing we have found is that young men who watch a lot of TV sports are also likely to be betting on sports. According to our survey, 31 percent of the young men that answered our survey self-reported that they watch 21 hours of TV sports per week, which is, if you’re good at math, three hours a day. That’s a remarkable number. Even more remarkable, 18 percent, or one in five young men 25 to 34 in the United States, report watching five hours of TV sports per day. So, not everybody watches sports and not everybody watches that much sports, but there are some massive super fans out there.
Tanya Ott: That’s really interesting. Chris, I want to bring you into the conversation because the sports world these days is not just television sports. You’re in the field of eSports. I want to slow down for just a minute for people who are listening who might not be familiar with that term—eSports—and have you just explain what it is.
Chris Arkenberg: Perhaps the best sort of concise definition, and it’s not always the truest definition, but primarily: eSports are competitive online video games that have a professional league structure. Now, that’s not always the case. The most popular competitive online game on the planet right now doesn’t really have a league structure, although they do have competitions, they do have prize packs. So, the definition can vary a little bit. But, again, typically it’s that there is a realized, fully professional league structure where you have players that join teams. The teams are developed and trained and invested in and branded, and they compete on a national or international stage for very large prize packs.
And it’s also important that eSports itself—although it’s gaining a lot of attention and there’s a lot of activity and a lot of growth in it—it’s still a rather small part of the much larger video game market. And eSports, of course, just sit on top of these video games. In a given eSport, you might have, say, a thousand professional players, but on that same game platform, playing those same games, there may be 10 or 20 million other amateur players.
Tanya Ott: And there’s a whole environment that builds up around that.
Chris Arkenberg: It’s remarkable and this, I think, really gets at the key of why eSports has become such a phenomenon, particularly in North America, and particularly why a lot of traditional sports are interested in it. Because for so long, video gaming was seen as something that you did in your parents’ basement.
Tanya Ott: Right.
Chris Arkenberg: Or maybe have LAN parties with their friends. It was like an underworld. And then it turns out that not only are enormous amounts of people playing these games, but even larger numbers of people are watching them.
Tanya Ott: I think we should just stop and explain real quickly for someone who’s not in this world, they’re watching other people play games. Just to watch them play. To see either how they’re playing or to watch their reactions. I mean, there’s a lot of people watching other people play video games online.
Chris Arkenberg: The numbers can be quite large. They can be in the tens of millions for some of these larger championships. There are champion star athletes, for lack of a better term, that themselves have millions of viewers on their social streams. Players go in the game and they broadcast their own play through their own streaming platforms. And, at the same time, so many of the people who are watching them are able to connect with them in a way that you can’t really do with a professional sports athlete. They can chat with them. They can engage them through these social streaming platforms. Again, many of the audience, many of the viewers are themselves players.
So, it’s a really interesting landscape and it’s easy to want to think of it as just the new spectator sports. And there’s a lot of activity by broadcasters to try and license rights to put that onto their linear, traditional cable and satellite programming. And, yet, the world eSports itself is really deeply wedded and embedded to this very, very large world of social streaming. And that’s large, relatively speaking. As Duncan noted, TV is a quite large market compared to eSports on social streaming. But it is kind of a whole other world.
Tanya Ott: That raises a really interesting question because you talk about how some of the traditional broadcasters are looking at trying to get into the eSports game and I want you both to weigh in on this, because, as you point out there Chris, they are two different experiences. Linear television tends to be very passive and one-way, and eSports is very immersive and two-way and you can communicate with other people who are watching the same thing at the same time. You can communicate with the people that are playing and competing. So, how would that fit work if you’re going to try to merge traditional TV broadcasters with eSports?
Chris Arkenberg: You know, it depends on the audience. For the audience that is already watching traditional linear cable satellite TV, they may be quite interested to see programming for eSports. That could be, to them, a new world, a new type of entertainment, something different. Some of the early broadcast experiments have seen some good traction on that with existing TV audiences.
Now, the trick with that audience is will they get enough, or will that lead them to say, “Oh, well, maybe I want to see what this is really about on social streaming. Maybe I want to actually play this game myself.” And then they find out that the game world underneath the eSports is actually a really fascinating immersive social network. There’s some risk of cannibalism there. Yet, at the same time, if they’re trying to reach this younger demographic that’s tending to be cord-cutters, more digital natives, possibly people who are already experiencing eSports directly through the eSports ecosystems and through social streaming and through the game platforms, that may be more difficult for them. There’s two audiences and then, underneath it, again as Duncan mentioned, there is this sort of slowdown and concern on the traditional TV side that the audience itself is shifting with the generations. It may be that there are some big wins in broadcasting eSports over the next few years, but there is a grander movement of that audience distributing further across all these other types of entertainment. It’s just a very fragmented world of entertainment now.
Duncan Stewart: So, probably worth weighing in here on just some feedback I had. As part of [TMT] Predictions, I go not just to North America, but around the world. I just got back from Europe where a number of broadcasters I spoke to are putting eSports on their TV channels and trying to reach that demographic that is the core. Just some numbers here from Belgium—80 percent of the people playing eSports are under the age of 34 and 80 percent are men. It skews to that demographic, which is from a broadcaster perspective not a bad thing. You want programming that appeals sometimes to highly targeted demographics. Not everything is a tent pole that everybody watches.
According to the broadcasters I spoke to, they have put eSports out there. They plan on putting more. They think it’s a good thing to do. But it’s niche. It’s really small. The ratings, the viewership, it’s smaller than they had at first hoped. They’re doing it. They’re going to continue to do it and they’re going to continue to invest in it. But what they said to me is people will watch it on the large online streaming platforms in preference to watching it on traditional TV. In other words, from a broadcaster perspective, it usually doesn’t take a lot of money to show eSports on a channel, but they should also have very moderate expectations. Most of the audience for eSports remains on large streaming platforms that are the ones that are generating, as Chris says, the tens or even hundreds of millions of viewers.
Tanya Ott: Interesting. I want to go back to the gambling, because you talked about how gambling drives TV sports watching. And you mentioned that it’s kind of hard to really know how many people are gambling on it because it’s not legal in many places. The US Congress is reviewing gambling laws right now. What specifically are they looking at?
Duncan Stewart: Well, it’s a comprehensive review. Currently, gambling is allowed in only certain areas such as Las Vegas or Atlantic City and, of course, at casinos that are found in a number of places. Online generally not so much, so it would probably be ... That’s the thing, when we talk to people around the world who are betting on sports, one of the favorite ways for young men to bet on sports is to have the TV on, maybe with their friends, a beer or two may be involved, and they’ve got their smartphones, their tablets, their computers in their hand, and are they are betting sometimes in play? You know, betting on will they make this field goal? Will they make this fourth and one conversion, to use NFL terms on it? That activity is the sort of thing that seems to work—I don’t want to use the word best—but one of the ways that that becomes the most engaging is when you can do it online. And that’s where probably we’d see the biggest changes. Once again, those reviews are ongoing. It’s unclear what all the effects will be.
But the important thing is not merely that young men bet occasionally on sports. In our survey, 73 percent of young men, 25 to 34, said they bet on sports at least occasionally. The real number that shocked me and shocked almost everybody I’ve spoken to is the behavior of 25- to 34-year-old young men in terms of betting once a week or more. Four out of ten—43 percent of the people in our survey that age—said that they bet that often. Young women as well, but not to the same extent. Only 14 percent of young women that age about that often. And it’s really age-specific. Those young men—43 percent of 25 to 34-year-olds—it dropped by more than half when they hit their 30s. It drops by more than half again in their 40s. And by the time young men are, I guess not young anymore, and are age 55 to 75, only 4 percent are betting weekly. This is a really age-specific effect and of course it’s driving betting. The phrase that I like using on this is you’re more likely to watch the game when you’ve got skin in the game.
Tanya Ott: Yeah. And when you don’t have a mortgage, kids, and are looking at retirement.
Chris Arkenberg: (laughs).
Duncan Stewart: If you think about it, I think young men age 18 to 24 are much more likely to do—I don’t want to use the term “risk” in too casual a sense—but gambling is to some extent a risky behavior, just as going out and diving into a pool can be fairly dangerous. I think that when young men are 18 to 24, they’re more likely to physically do those risky behaviors and at around age 25 they shift towards doing it vicariously, if you will, through betting on the action rather than being in the action.
Yes, we know that young men watch TV sports. Some young men watch a lot. Yes, we know that young men bet on sports. Some young men bet a lot. It’s the combination of the two. What we found in our survey is that those who bet a lot tend to watch about twice as much TV sports as those who don’t bet at all. And that’s the real takeaway on all of this. When we look at the ability of the global or North American or US television industry to continue to pull eyeballs in for watching TV sports, there’s almost certainly a link—a positive link between betting and TV viewing. And I will predict that broadcasters and gambling companies are probably going to look at working hand in hand going forward to see how do we monetize this? How do we how do we make this part of our strategy?
Tanya Ott: Well, it certainly seems like there is an economic incentive there for TV broadcasters to be very interested in gambling and gambling laws. Chris, any final thoughts from you?
Chris Arkenberg: Yeah, eSports are best thought of, in my opinion, as the next wave of social networking. They have become massively social landscapes—immersive, tens of millions of players on different platforms, probably hundreds of millions across the world—and these are increasingly becoming their social groups. They communicate with headsets. They are personalizing their appearances. Underneath this, there’s a lot of innovation, disruption, and volatility in the video game market. And one of them is this shift to free-to-play and creating games as a service that have a point of sale and that have merchandise.
Tanya Ott: Explain that ...
Chris Arkenberg: You know, they have virtual clothing that they can buy. They can purchase specialized gear. When we hear of eSports, some of the top titles have these enormous communities and they’re generating literally hundreds of millions of dollars a month on free-to-play titles based on in-game purchases. They host massive events. They host celebrities inside these games and people stop hunting each other down and have dance parties. It’s really phenomenal. And this is shaking up the entire video game industry as they shift and transform their platforms and they chase some of these really, really large titles that are just aggregating such a huge amount of attention. At one of the top video-on-demand streaming companies, the CEO in their recent shareholder letter noted that they’re not so much concerned about other streaming video-on-demand providers. They’re concerned about the massive battle royale, huge phenomenon, immersive competitive online games platforms. These are becoming sort of worlds unto themselves and they have very rich ecosystems that are monetizing this stuff. They have incredible transparency into analytics across the value chain. It’s really worth looking at eSports, in my opinion, to understand the breadth and scope of these new competitive online video game platforms and the ecosystems in which they’re embedded.
Duncan Stewart: There’s one thing that jumps out at me and once again this is from talking to people, clients, companies, media companies. One of the things I keep hearing is as interesting as the battle royales are, and although they are currently the leaders in eSports, when I was talking about Chris’s prediction—again, Chris was the author of this one and so I was just being the messenger—but one of the things that I got some pushback on, especially in Europe, was the interest in various eSports that revolved around the equivalent of physical sports. So this is like the equivalent of soccer or futbol, as of course they call it over there. I was talking to large rooms and they said, “Yeah, my son or daughter plays this battle royale, this video game and they’re really into eSports.” I said, how many people worldwide know how to play that and they looked up the number on their smartphone and they said oh it’s 50 million people. And I said great.
So, about 50 million people know enough of the rules to be able to watch this. So even if you had a 100 percent penetration for eSports, you can’t go higher than 50 million, and they went, “Yeah, that’s our point.” When it comes to soccer/futbol over there, they said there’s like 5 to 7 billion people who know the rules and know what to watch. And they said to me, keep your eye on the eSports equivalent of soccer, football, baseball, and basketball. A lot of people out there are already fans of those and although they want to watch real human beings play them in stadiums or on TV, they also might be interested in watching the video game equivalent of those. When I sort of think about how will eSports maybe break out and go mass market, just the pushback I have from meetings in Europe is that that idea of keep an eye on the ones that have physical analogues. Those, theoretically at least, could appeal to audiences that are one or even two orders of magnitude larger.
Tanya Ott: Chris, your thoughts on that?
Chris Arkenberg: That’s a really good point, because those sports and their virtual simulations lend themselves to broadcast much better. There is a ball or a puck that anchors the focus of the audience. And in something like a battle royale, the points of interest are multiplex. There are maybe 100 people in the arena and there may be many, many different points of engagement. So, it’s actually a real challenge for broadcasters to create a visual product that really follows this game. And again, this gets back to this streaming landscape that individuals can follow the stream of the player. There are battle passes [one] has, to get the head-mounted camera of a champion that you like. So not everybody is seeing the same game, which is another big difference with eSports.
Duncan Stewart: Agreed. And Chris—thank you on behalf of all Canadians for including the word puck in your comments there.
Tanya Ott: Well, thank you both for joining us today to talk about sports on TV and eSports, as well. It is a complicated field I guess and very interesting to watch and you’ve got a lot more predictions in your report which is available on our website. Thanks so much you guys. Have a great day!
Duncan Stewart and Chris Arkenberg: Thanks again. Thank you so much for having us today.
Tanya Ott: Duncan Stewart and Chris Arkenberg’s 2019 predictions for sports on TV and eSports are on the website deloitteinsights.com. They’re part of a series of reports from the Deloitte’s Technology, Media and Telecom practice. We also talk about smart speakers, rolling out 5G, the surprising future of radio, and more. It’s free to subscribe to the podcast and you’ll have all of it at your fingertips.
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