Esports: An Insight into The Next Billion Dollar Industry

This scope of this article will focus in on arguably the fastest growing segment within the entertainment industry - Esports. Despite global awareness of esports at a phenomenal 1.5 billion, there are a lot of misconceptions about what the esports industry actually is. This article aims to provide an insight in to the basics of the soon to be billion dollar industry, as we unquestionably enter the electronic gaming sports (or 'esports') era in history, with the hope of dispelling some of the stereotypes that unfortunately still exist. The stereotype that professional gamers are just solitary 'nerdy' creatures still lurk within society, particularly in the UK.

Despite the progress made by the competitive gaming scene, there are still a significant number of individuals that simply cannot believe that people who play virtual games can actually make a living through the activity. It is a matter of fact that many gamers are earning thousands per month, enough to live comfortably doing what they love. Tyler 'Ninja' Blevins, a famous Fortnite player that live streamed with individuals like Drake, recently announced that he is earning $500,000 per month, primarily from subscribers on his Twitch and YouTube channels.

When you consider the fact that one in three people on the planet are 'gamers' who partake in electronic gaming in some form, these stereotypes are proven to be bizarre. As seen with present day mainstream lucrative entertainment activities, such as football, these stereotypes become virtually obsolete as the activity matures through the early adoption phase.

The Evolution of Entertainment

Paul Lawrence and Nitin Nohria, the authors of Driven, posited that there are 4 core human drives that have a profound influence on our decisions. These are the desire to acquire, to bond, to learn and to defend. The book misses another core human drive that is also integral in how we make choices every day, namely the desire to feel. This core human drive is the inherent desire to feel pleasure, excitement and anticipation. It relates to the craving for an intense emotional experience through some action or activity, such as; watching movies, attending spectator sports and playing games.

When a group of people have an unmet need to one or more of these core human drives, a market will form to fill that vacuum. This inherent desire to feel has resulted in the entertainment sector growing to extraordinary heights over the last few decades, particularly as the world has become more globalised and technology has advanced. According to PwC, the global entertainment industry market cap reached a staggering $1.8 trillion in 2017. By 2020, it is forecasted that the sector will reach $2.2 trillion.

Entertainment is a form of activity that aims to capture and retain the interest of an audience satisfying the core human drive to feel, usually giving pleasure or delight. It is an inherent element of life that has evolved over time as societies perception of what gives them pleasure or delight has changed. Take gladiators fighting as an example. This bloody battle to the death, generally speaking, would not be considered an entertainment activity in society today. Due to social conventions, this would not be publicly acceptable to be considered as an activity to provide pleasure or delight. Instead, our society has developed a new type of gladiators with a fair set of rules, in the form of boxers and MMA fighters, not resulting in death (usually!).

Various new forms of entertainment have emerged over the years often broadly stemming from a previous form. This can be attributed to the core elements that are required to be considered a mainstream entertainment activity remaining the same . These core elements pertain to the entertainment activity providing excitement, engagement and being adopted by society. An example of variations of entertainment activities emerging can be seen in the proliferation of sports. Presently, there are over 8000 forms of sports globally, with around 440 being Internationally recognised. Once adoption occurs for an activity, monetisation follows. Unsurprisingly, the greater the adoption - the greater the monetisation potential.

Over the last few decades we have witnessed first-hand the evolution of activities considered as entertainment. It is almost a given that every single individual reading this will be able to recall at least one activity that they used to partake in which have become virtually extinct within the present entertainment ecosystem. During the digital age, we have seen this rate of change increase considerably.

Towards the end of the 20th Century, a new activity began to emerge and establish itself as a mainstream activity on a global scale, particularly as technology and internet connectivity developed further. The global phenomenon that is the electronic gaming industry, despite its relative infancy, has seen an explosive growth rate of the market, particularly in the last decade. The current 2.3 billion gamers worldwide generate a colossal $105 billion in revenue. Playing electronic games is definitely a mainstream entertainment activity with one in three individuals on the planet adopting gaming on an electronic device, in some form.

Considering the size of this market, the inherent competitive nature of humans along with the surging popularity of gaming, it is only natural to see a competitive element to arise from the rising flames of the gaming industry. Key driving factors, such as the rise of online streaming, mass adoption of social media and improved connectivity to name a few, have enabled competitive gaming to become a truly global activity. This competitive electronic gaming scene is known as esports or electronic sports. Think of esports as the conceived royal baby of traditional sports and electronic gaming.

What are Esports?

Esports is essentially the term used to describe the activity of playing electronic games competitively. This activity is facilitated by electronic systems, such as PCs and consoles, like the PlayStation and Xbox One. Just like football players play football together, esport players play electronic games together.. A specific game played competitively would be termed an esport (singular).

This definition gives you a misrepresented perception of what the esports industry actually entails. The esports ecosystem can be described as nothing less than a complex and vast landscape. Just like the football or other traditional competitive sport ecosystems consist of much more than just the players, esports has a vast number of stakeholders that play a part in the market. These key stakeholders are not within the scope of this article, however it is worth noting that they comprise of both endemic and non-endemic groups, including; game developers & publishers, players, teams & organisations, the audience, brands, 3rd party professionals and the wider public.

Gone are the days where parents could tell their kids that they should not play games as it will not help them get a job or earn money. The esports scene has developed from humble beginnings, where prize pools were a few hundred dollars, to an industry that has a huge online presence, filling stadiums and generating millions of dollars in revenue. As traditional forms of advertising have become less effective due to high proportion of ad-block usage by technically apt millennial, brands are looking for alternative methods of marketing their brand to their target audience. The hugely desirable demographics of the esports audience has proven to be highly attractive to both endemic and non-endemic brands. Esports has proven to have a remarkable return on investment for brands that get it right within esports. Below are some of the hundreds of brands that have become early adopters of the esports industry in some form:

The History

Before outlining the relatively brief history of esports, it is worth considering the origins and current state of the truly global sport - football, or soccer if your American! Esports and its traditional real-life sports brethren have many similarities in their nature, such as the competitive element along with the general spectating element to the activity. Due to the similarities between football and esports, considering of one of the most commercially successful spectator sports is definitely worthwhile. This analysis will provide an insight into what the future of the esports industry might look like.

Football (or Soccer if your American!)

A search down the centuries reveals at least half a dozen different games, varying to different degrees, and to which the historical developments of football can be traced back. The earliest form of football, from which there is scientific evidence, was an exercise from a military manual dating back to the second and third centuries BC in China. This Han Dynasty ancestor of Football was called Tsu' Chu, which consisted of kicking a leather ball filled with feathers and hair into a small net fixed onto long bamboo canes.

Countless variations emerged from this period to the present day, emphasising the fact that people has loved kicking a ball about for thousands of years and so it could not be considered an aberration of the more 'natural' form of playing with a ball using hands. Over this lengthy period of time, football emerged and established itself from the many variations as the dominant sport which entails the use of feet. Over recent years, we have seen football grow into a global phenomenon with a radical change in monetisation, resulting in multi-billion pound sale of broadcasting rights, tickets and other commercial income.

It is remarkable how football has developed into the current juggernaut that it is within the sports and entertainment markets, particularly over the last few decades, with football players being sold and paid millions - 'to kick a football about and into a net'. According to the Deloitte Annual Review of Football Finance 2017 (26th Edition), the revenue for the top 5 major European leagues generated 13.4 billion Euros in the 2015/16 season. This comprised of:

• Broadcasting Revenue: 6.6 billion Euros (49%)
• Sponsorship & Other Commercial Revenue: 4.6 billion Euros (34%)
• Matchday Revenue: 2.2 billion Euros (17%)

Although the revenue generated will be significantly higher in the present 2017/18 season, it still gives a good indication as to the size of the European football market. The English Premier League led the charge in the 15/16 season, generating over 36% of the total revenue from the top 5 major European leagues. In the present day, it could be safe to predict that the gap between the Premier League and the other European leagues has widened, particularly considering the English top flight division made so much money in the last year that 14 clubs made it into the top 30 highest earning clubs in the world.

Esports

The history of traditional 'gaming' can also be traced back thousands of years, such as ancient civilisations played board games for entertainment. Like traditional sports, many variations of games have emerged over the years. Think about the different forms of games that you will have played over your lifetime. I can recall board games, card games and miscellaneous games like Beyblade. These were often played competitively, albeit with friends or family.

Towards the tail end of the 20th Century, a new type of gaming emerged and looked to become dominant within the holistic 'gaming' industry, known as video or electronic gaming. As technology developed, more and more people became exposed and had access to participating in video gaming - particularly classic arcade games. From the offset, some of the earliest well-known video games, such as Pong in the '70s, were in fact competitive.

The earliest 'esport' competition, Intergalactic Spacewar Olympics, took place in 1972 at Stanford University for the game Spacewar. In this competition, players were pitted against each other in an arena-style format, where competitors played as one of five different ships avoiding hazards and gravitational pulls, whilst trying to torpedo enemies. Around 24 players gathered to compete in the five man free-for-all and team competition for a chance to win a year subscription to Rolling Stone.

The period between the '70s and '90s can be considered as the classic arcade game era. By 1980, the first large-scale recorder video game competition, called the Space Invaders Championship, was held by Atari for their renowned Space Invaders game. This competition attracted more than 10,000 participants across the US, all attempting to record the highest score. Shortly after in 1981, Twin Galaxies was established to keep track of top players' scores in titles like Donkey Kong and Space Invaders. On top of that, an American show called Starcade aired between 1982 and 1984, where contestants would also compete to get the highest score on an arcade game.

From the '90s onward, the gaming and esports industries benefited from increased internet connectivity and improved technology. More engaging and strategic games, such as Super Street Fighter II, Quake and Counter-Strike emerged. By the late 90's the number of esports tournaments began to proliferate, particularly for first-person-shooter (FPS) and fighting games.

The 21st Century has seen the further proliferation of esport titles and genres, with FPS and fighting games still prevalent, but also the emergence of Multiplayer Online Battle Arena (MOBA) games which have become a real hit. The MOBA genre of games often pit two teams against each other, blending strategy and RPG (role playing games) elements together. Each player controls a single character who can level up, buy new items to get stronger and work with teammates to defeat the enemy team. Two of the most popular MOBA games, League of Legends (LoL, 2009) and Dota-2 (2013), have gained enormous followings and have become a staple in the present day esports scene. LoL has hit peaks of an astounding 100 million active players and the Dota-2 World Championship had a jaw dropping prize pool of over $20 million!

Twitch, an online streaming platform launched in 2011 as a spin-off of Justin.TV, a general-interest streaming platform. Twitch was then acquired by Amazon in 2014 for $970 million! The platform is the market leading streaming platform within esports, routinely streaming popular esports competitions. As of July 2017, Twitch had over 241 billion minutes of gaming content live-streamed, 10 million daily active users and over 100+ million unique monthly users. This just demonstrates the following and size of the esports market. Majority of the top esports titles have well over 10 million active players. In 2015, Google announced 'YouTube Gaming', a dedicated service for gamers, in an attempt to compete with Twitch. The move saw Google go head to head with rival tech giant Amazon.

Over the last few decade, the increasing global accessibility to the internet is enabling huge communities to build around esport titles. This has resulted in mass viewings for huge tournaments which in turn provided an excellent return on investment for sponsoring brands. So much so, traditional sports franchises have begun embedding themselves within the esports space. Moreover, notable public figures have also endorsed the industry.

The growth of esports can be attributed to many driving factors, which I will cover in another article, including; improved technology and internet connectivity, rising popularity of gaming, social media and online streaming and the increased accessibility of gaming devices, to name a few. Despite the exponential growth, there are factors that are hindering total mainstream adoption, other than the infancy of the industry.

Existing stereotypes is undoubtedly one of those factors. There is a common stereotype that all gamers are solitary 'nerdy' creatures that only like to socialise online. This is the key stereotype, particularly observable in the UK, that is hindering the embracing of the era of skill based competitive gaming. Only by education can these myths and total nonsense be retorted.

Humans are a cause driven specie, and the millennial's are no different. They love playing games and can see the exact moment in history that they are currently a part of and the trajectory of where esports is heading. So, when mainstream media begin their usual propaganda the esports fans see straight through it. These are just normal people with normal jobs who just love playing games. This negativity by the media has no doubt instilled further determination for committed stakeholders to drive the industry further forward. To be honest, for people outside the esports world, it is hard to imagine how tournaments for a game can provide prize pools with millions of dollars.

Regardless, the media now have no choice to pay attention to the masses, and the masses like gaming content. Naturally, all media channels took a turn and now look to grab a slice of the pie. Despite this u-turn by the media, the damage from the propaganda still remains. Over time, as the industry matures and grows, these stereotypes will become extinct. Even now, professional esports players are considered superstars, particularly in Asia, winning millions in prize money. The tide is turning and the future of esports is looking exciting.

CLICK HERE TO WATCH A YOUTUBE VIDEO DEMONSTRATING THE JOURNEY THE MAINSTREAM MEDIA TOOK AS THEY DISCOVERED ESPORTS

The Future

Esports is essentially a start-up industry with dozens of start-ups within it. Presently, we have a landscape that is growing in all directions. When considering the fact that esports entails 'gaming' competitively, there are a vast number of electronic games that could be played at a competitive level. Think about how many single player and multiplayer games you can play on your console, PC or even mobile. All it takes is for a presence of an exciting competitive element of the game for the title to potentially sprout out as an esport. As the potential of the industry is realised and embraced, more game publishers will develop their games with esports in mind.

According to NewZoo, a leading market research company for gaming and esports, there are over 385 million esports fans worldwide, generating a global revenue of $696 million. The forecasted figure by 2020 is $1.5 billion, as brand investment doubles. When you compare the current esports global revenue with the gaming industry statistics, the trajectory of the industry becomes apparent, when considered with all the facts:

• In 2017. the Gaming Industry had around 2.3 billion gamers generating $105 billion global revenue.
• In the same year, the Esports Industry had around 385 million esports fans (16% of the total gamers worldwide) only generating 0.6% ($0.69 billion) of the total global gaming revenue. Interestingly, 16% of the global gaming revenue, if hypothetically speaking it remained at current levels, would equal an esports market cap of $16.8 billion. That is approximately 24 times the current market cap!

Additionally, it is worth noting that over 74% of the global revenue within esports is generated through advertising and sponsorships. Other sources of revenue, such as media rights, merchandise and tickets, account for a significantly smaller proportion of the global revenue, particularly when compared with football. This can be attributable to the nature and infancy of the industry, as well as the lack of stability and infrastructure within the landscape, resulting in the significant hindering of monetisation within revenue streams like merchandise. Revenue streams like merchandise are limited due to a lack of a narrative and rich history with teams, players and esports titles when compared with football clubs like Manchester United.

As the industry matures and a stable infrastructure develops, there will be a dramatic increase in all revenue streams. Presently, esports appears to be the 'wild-west', with significant instability across the whole landscape. Esports players, teams, games and organisations are here one day and gone the next. This is a major obstacle that is hindering total mainstream adoption and hence significant institutional money flowing into the ecosystem.

Game publishers hold all the power within the current landscape as they can control how and who can provide competitions revolving around their game. They also determine changes that are made in the game, such as updates and features that alter the game dynamics. Over the next few years it would not be surprising to see a few titles completely break out from the rest to become the dominant esport title within their respective genres. This will particularly be the case as game developers and publishers, such as Activision and Riot Games, further embrace the nascent industry by tailoring their strategy with the objective of longevity and support for the grassroots scene.

Esports is heading through a gold-rush phase with all sorts of ventures being created in the space, as with any nascent lucrative market. In the end, it is only the disruptive models that will be successful within the esports space. From the vast number of additional start ups that will be established over the next decade, the individuals or organisations during the early adoption phase that have the right motive will be the ones left standing. A venture that has a strategy that does not just latch on to and rely on the hype of esports, but instead carves out a market from within esports is what will have longevity. It is a venture that will need to add value to the industry, instill stability, create predictability, promote grassroots, facilitate monetisation and inspire innovation.

The future of esports is undoubtedly exciting. Similarly to traditional spectator sports like rugby and football, we will see more purpose built stadiums to hold the enormous crowds attending live events. We will see traditional sports organisations getting more involved and utilising their existing network to get the most out of esports as well as the potential global brand exposure. Will not be surprising to see a transfer like system seen in sports like football, with players being sold and bought by teams. We are already seeing players receiving professional contracts. Some Overwatch players are receiving well over $100,000 basic a year!

Thanks for reading. If you are in the esports space or intend to enter the esports space - I would love to hear from you.