SBJ/February 27-March 5, 2017/In Depth

Unlocking media riches in esports

How properties, media companies can balance reach, value in future deals

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Game publishers, tournament organizers and teams are searching for the best way to maximize value, exposure.
Photo by: RIOT GAMES
Esports might appear confusing and tumultuous to newcomers, but investors’ rationale is straightforward: No one is yet making as much money as they could be on professional video gaming, considering the size and commercial appeal of its audience.

One part of the plan to unlock that value is basic blocking and tackling, like the marketing, sales and merchandising clout that buyers such as Delaware North Cos. and the Philadelphia 76ers are bringing to their newly acquired gaming assets.

But the real gold mine is media rights. Digital viewership numbers are prone to hyperbole, but it’s clear that some esports have a worldwide audience that ought to generate many times the revenue they currently do.

“The battle for media rights in esports has global ramifications, and billions are in the balance,” said Jason Lake, founder of compLexity Gaming, a franchise with teams in “Overwatch,” “Counter-Strike: Global Offensive” and other titles. It’s hard to put a multiple on the value of a franchise in the current environment, but most experts think clarity will begin to emerge in the next 18 to 24 months, in turn causing team values to escalate.

“A lot of people are out there trying to solve this problem,” Lake continued. “Every astute observer knows that if you can rope in these eyeballs now while the getting in is cheap, you’ll be able to monetize that heavily in the future.”

With the stakes clear, game publishers, tournament organizers and teams themselves are experimenting with the best way to maximize value and exposure through online streaming. That, in turn, has created an opportunity for any company with advanced digital video streaming capacity.

So far, MLB Advanced Media’s BAMTech has grabbed the brass ring: A $300 million-plus exclusive development deal with Riot Games, an offering that drew intense interest from a range of broadcasters and streamers. Riot’s top game, “League of Legends,” is the most popular game in the world with 100 million monthly active players and viewership that peaked at 14.7 million concurrent fans during last year’s world finals.

But Facebook and YouTube have struck exclusive deals of their own in recent weeks. Those contracts pale in comparison to the Riot prize, but both Silicon Valley goliaths have the eyeballs and money to follow through on their ambitions.

In all of their targets sits Twitch, the Amazon subsidiary that enabled the rise of video games as spectator sport and still hosts a massive community of gamers, but now finds itself besieged by competitors that threaten to eclipse its technical abilities.

TBS’s telecast of ELeague’s Major finals on Jan. 29 drew 228,000 viewers, while Twitch saw concurrent viewership reach more than 1 million for the “Counter-Strike: Global Offensive” game.
Photo by: GETTY IMAGES (2)
“Twitch’s monopoly is in jeopardy for the first time,” said Bryce Blum, executive vice president of esports for Catalyst Sports & Media and a lawyer who represents esports teams.

Traditional broadcasters are also interested, but they’ll have to prove their worth primarily as streamers. Few industry experts think linear broadcasts will ever be a major part of esports’ future, despite positive reviews for the WME-IMG/Turner Sports collaboration ELeague. Consider the ratings for the ELeague Major finals on Jan. 29: 228,000 viewers watched the “Counterstrike: Global Offensive” match on TBS, but concurrent viewership eclipsed 1 million on Twitch at one point. (Twitch data that allow for an exact apples-to-apples comparison to Nielsen ratings is not available, but experts are confident the online viewership far exceeded the TV program.)

Exclusivity brings risk

For esports rights holders, the conventional play would be to engineer a bidding war for exclusive rights to a high-demand tournament, game or even a star player’s practice time and sponsored videos. But exclusivity is problematic.

For starters, it would undermine most games and publishers’ ongoing search for new fans. Until publishers or their licensed tournament organizers can promise recurring, significant revenue sharing, team revenue relies on sponsorship and advertising. “In a world in which there’s not meaningful revenue sharing, the teams’ and players’ only benefit is reach,” Blum said.

But also, exclusivity runs afoul of powerful traditions in the gaming community, where enthusiasts started to follow the exploits of elite players 15 years before the C-suites noticed. Fans expect a wide-open, democratic approach to content and resist any whiff of corporate gamesmanship.

“There’s always an opportunity for someone to write a big check for that content and put it behind a paywall,” said Tobias Sherman, global head of esports for WME-IMG. “But I think it’s too soon to say that exclusivity is going to apply and work for everybody. There are too many platforms out there. People are figuring out what they like and there’s too much experimentation.”

James “Dash” Patterson and Aiden “Zirene” Moon discuss gameplay during the Summer 2015 “League of Legends” Championship.
Photo by: RIOT GAMES
As publisher of the world’s most popular game, Riot went to market in a better position than most to consider a single distribution strategy. But BAMTech is billed as its exclusive partner on tech development and sales. “It’s not exclusive on distribution,” said Riot Games co-head of esports Jarred Kennedy.

However, watch this space. There’s much still to decide about the long-term future within the six-year Riot-BAMTech contract, and the contract calls for the parties to develop future distribution strategy together. Deal adviser Alan Gold, head of media for Evolution Media Capital, CAA’s investment bank, declined to rule out a narrowing of options. “It’s a complicated arrangement,” he said, “but ultimately, ‘League of Legends,’ Riot and BAMTech are only going to do things that are in the best interest of fans.”

ESL, a Germany-based operator of dozens of esports tournaments under license from publishers, is also tinkering with its distribution strategy. It’s moved away from longtime partner Twitch for some competitions while also looking to develop noncompetition content, such as a deal with Lionsgate’s Pilgrim Media Group to create reality shows around esports.

“We’re figuring it all out,” said Craig Levine, CEO of ESL America. “Obviously, there are business decisions that ultimately weigh into this, but I don’t think we’d take pillar ESL content and put it on a niche player that didn’t have reach.”

Incidentally, Levine shared some numbers that highlight the gap between present-day financials and potential. Nielsen Sports has told ESL sponsors they’re getting upward of 50 times return on the cost of their buy. “Everybody needs a good return, but 50 times? We are delivering extraordinary reach compared to the dollars being spent.”

A third way

If not exclusive, but also not the low-return diversified approach of today, then what? A trend toward a tiered, semi-exclusive approach appears to be emerging.

Imagine if the NFL let several broadcasters air a basic, low-definition feed of games for free, but the league focused all of its technical and business energy on a single platform, either one it owned or chose via bidding. Or, more directly on point: Think of esports distribution like free-download video games that make money only off digital enhancements after you’ve already started playing.

Properties and streamers think that could be the ticket to making money off viewers who are willing to pay, while not shutting off growth and reach. It could also be a path toward eventual exclusivity, if fan reaction is positive.

Major League Gaming, the tournament operator and in-house video platform for parent company Activision Blizzard, has been tinkering with limits on where its competitions can be viewed. Fears of losing fans if you abandon Twitch might be overblown, if early results are an indicator, said President and CEO Pete Vlastelica.

At MLG’s Call of Duty World League stop in Atlanta on Feb. 10-12, the main stage action was available for the first day on the usual broad range of sites: MLG.tv, YouTube, Twitch, Facebook and inside the game itself. The final two days were only available on the MLG.tv and in-game viewers, though Twitch got a delayed feed of the action on the last day.

“We were very happy with the results of that experiment,” Vlastelica said. “We didn’t see nearly as much dip in audience as some people predicted we would by not being on Twitch. When the content is high quality, and you’ve done a good job of building hype around the event, people will seek out the content. Those are things we’re learning.”

A subscription product is not in the plans: “We believe in the accessibility of the product,” says Riot Games’ Jarred Kennedy.
Photo by: RIOT GAMES
MLG.tv launched its “enhanced viewing experience” product last year, and the MLG viewer is integrated into the game itself for Activision Blizzard-published games. Being owned by the publisher, MLG can keep whatever revenue is generated by that product in the future, even if its tournaments are still free to watch on Twitch.

Following the “freemium” software approach, monetization means charging consumers, and that might be big business. Dedicated enhanced viewing apps would be well-positioned to add micro-transactions for specific features, or for pay-per-view access to special events.

But the immediate concern is advertising and sponsorship sales, and that also will take great leaps if publishers can steer fans toward a preferred platform.

ELeague has been able to sell some sponsorships for $2 million a year, a price tag it can command partly because sponsors get total exclusivity for advertising breaks, as well as close cooperation from the league to develop in-game messages and sponsored content.

“We want to make sure our content and our audience are on a platform that we’re able to significantly monetize,” Vlastelica said. “But also, reach still matters to us.”

Riot’s Kennedy dismissed speculation that Riot and BAMTech are preparing a subscription product. “We are very confident we can build a business around sponsorship and advertising,” he said. As to the speculation: “That’s all valid because a lot of BAM’s deals are subscription-based, but our model has always been the same — we believe in the accessibility of the product.”

Growing demand

It’s still early, and the streamers are saying little about their specific ambitions and goals. But bidding for the Riot deal was fierce, and BAMTech will likely make “League of Legends” content a key part of its coming ESPN-branded over-the-top package.

Facebook’s push into live video appears tailor-made for esports, because its commenting system can facilitate real-time interaction between fans and players, which was one of Twitch’s original appeals. Also, with 1.86 billion monthly users, it mollifies concerns over sacrificing reach. (Twitch has far fewer users, about 100 million, but boasts a gaming-centric culture and far more time spent on-site than Facebook.)

Turnkey Sports Poll

The following are results of the Turnkey Sports Poll taken in January. The survey covered more than 2,000 senior-level sports industry executives spanning professional and college sports.

Which of the following statements about esports, if any, applies to you/your household? (Please select all that apply)

Someone plays an esport at least weekly 10%
Someone watches esports on TV or online at least weekly 9%
Someone has attended a paid esports event in the last year 5%

When compared to traditional sports properties on each of the following aspects, are esports …

Inferior Comparable Superior Not Sure
Sponsorship platform 43% 26% 11% 20%
Growth potential 11% 12% 61% 16%
Audience demographics 25% 29% 27% 19%
Live media content 39% 27% 15% 19%

Which of the following will best describe esports in five years?

On same tier as minor league sports 59%
Marginalized or nonexisting 17%
On same tier as major sports leagues 7%
Not sure / No response 17%

Source: Turnkey Sports & Entertainment in conjunction with SportsBusiness Journal. Turnkey Intelligence specializes in research, measurement and lead generation for brands and properties. Visit www.turnkeyse.com.


Gaming is an “integral part of the Facebook experience and our video strategy,” said Guy Cross, Facebook’s head of North America games partnerships. Esports make up a large part of long-form video consumptions, Cross said, and engage large audiences because of the world-class game play and high production values.

Facebook recently won exclusive rights to stream Blizzard Entertainment’s Heroes of the Dorm college tournament in the title “Heroes of the Storm,” replacing ESPN. European esports franchise G2 signed a deal with Facebook to begin streaming on its site last month as well.

YouTube launched YouTube Gaming in 2015, and won exclusive English-language streaming rights to the ESL Pro League in 2017, which accounts for about 40 percent of total consumption of all ESL Pro league viewing worldwide.

While industry insiders are open to options other than Twitch, they know fans won’t leave the traditional home of gaming easily. “Credit goes to Twitch and partners around the world for helping us build the sport, and anything we do that joins the conversation around distribution needs to be great,” Riot’s Kennedy said.

Lake, the founder of the compLexity franchise, said Twitch is like ESPN. “There’s a lot of people who just go there, and see an event, and click,” He said. “Just like ESPN with sports. You might lose that built-in audience whenever you leave Twitch.”

Smartly, he said, Twitch has been pursuing sponsor and media partnerships at the team level. That lacks the big-dollar potential of rights to major competitions, but ensures a grassroots, day-to-day reason to keep viewers.

Twitch declined to comment for this article.

Facebook also sees potential in the lower tiers of gaming content, Cross said, and wants to offer something to “all parts of the gaming ecosystem,” he said. “People love watching the pros compete at the highest level,” he said. “But each tier of the gaming video pyramid, whether it’s gaming entertainers broadcasting walk-throughs, game publishers sharing their latest game trailers, or people sharing highlights and live streams from their own gameplay, is a unique constituency, each with its own needs, experiences and opportunities.”

Whether any given streamer ever overtakes Twitch as the esports leader, demand will keep coming. Just as esports properties salivate at the multiples of their investments, media companies are desperate for their viewers.

“It is very rare to find a relatively new content offering that has a built-in, massive audience on a global nature with a demographic that is extremely difficult to reach with normal sports offerings on a live basis,” Gold said of the Riot property. “That to me is what makes this unique: live, massive following, key demographics and global.”

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