How to monetize such a hot e-sports market?

According to conservative estimates of growth rates, the entire e-sports market size will exceed 80 billion yuan in 2018. So how does e-sports make money in such an unprecedentedly huge market?

On August 19, under the watch of a crowd of onlookers, the 30-year-old professional player Wang Sicong stole the limelight in the League of Legends Professional League (LPL) Summer Games. He announced his retirement after a successful debut, leaving behind the legend of "debut was the peak, retirement was the peak, and a 100% win rate in his career."

Internationally, the number of live spectators at the TI Global Finals can reach tens of thousands, exceeding the audience scale of sporting events such as the NBA and the World Cup. In China, the 10,000 tickets for the 2017 KPL Spring Finals were sold out within 10 hours, which shows how popular e-sports is.

In addition to being sought after by gamers, e-sports has gradually won recognition from authoritative sports organizations at home and abroad, becoming an officially recognized sports competition event. Since 2003, e-sports has been listed as the 78th sport by the General Administration of Sport of China, and the International Olympic Committee also recognized the sporting identity of e-sports last year. Driven by the Olympic Council of Asia, the 2022 Hangzhou Asian Games will also include e-sports as an official competition event for the first time.

Prediction based on gamma data:

The scale of China's e-sports industry is expected to exceed 88 billion yuan in 2018.

What was once an outlier has now grown into a huge market space. How does e-sports make money? What is eSports?

Many people equate video games with e-sports, but this view is actually wrong. With the development of the game industry and the continuous replacement of e-sports projects, e-sports is no longer limited to stand-alone games with direct IP connection or local area network.

Although online games have great differences in distribution, operation, payment methods, and game platform construction, this does not affect the inclusion of some online games with strong balance and confrontation into e-sports projects. Whether it is a stand-alone game (single-player game) or an online game (multiplayer game), as long as it meets the two characteristics of "electronic" and "competitive", they can be called e-sports games in a broad sense.

1. E-sports refers to electronic game competitions that have reached the "competitive" level. It is an intellectual confrontation between people using electronic devices as sports equipment.
2. E-sports events provide a platform for e-sports competitions and are a vehicle for e-sports athletes to compete against each other.
3. Mobile e-sports refers to activities in which electronic game competitions on mobile devices (tablets, mobile phones, PSP and other electronic devices) reach the "competitive" level. Use mobile phones, tablet computers, PSP and other mobile gaming devices as carriers to engage in intellectual confrontation between people.

From electronic heroin to official justification

In the late 1990s, the World Cyber ​​Games (WCG), which originated in South Korea, brought the term e-sports into people's vision.

However, at that time, most people did not regard e-sports as a sport, and the vast majority of professional players were in a state of separation from their families and society. At this time, electronic games are still regarded as "electronic heroin" by the older generation, and words such as "Internet addiction", "unfocused", and "distracted by play" are attached to almost every professional player.

After that, e-sports took off in our country. After experiencing policy suppression, the establishment of an e-sports club alliance, and the entry of live streaming platforms into the market, China's e-sports industry has risen with the influx of capital from all sides. In 2018, the Jakarta Asian Games included e-sports as an official event for the first time, and e-sports is expected to be included in the 2024 Paris Olympics in the future, becoming a sport of the same status as table tennis, swimming and other sports.

The development of the e-sports industry ultimately stems from the change in people's entertainment concepts; at the same time, the development of mainstream online e-sports games, e-sports events and new technologies has also greatly driven the rise of e-sports.

• First, the development of early third-party e-sports events has cultivated a solid audience base, and Chinese players’ repeated victories in international competitions have sparked people’s attention to e-sports events.
• Secondly, a number of high-quality competitive games were born around 2010, and game manufacturers began to host e-sports events in order to promote their own games.
• Subsequently, the rise of live streaming platforms solved the monetization problem that has plagued e-sports for many years. It not only multiplied the influence of e-sports events, but also greatly increased the income levels of professional players, game anchors and other groups. The monetization problem that has plagued e-sports for many years has been solved.
• Finally, the country's attitude towards e-sports has changed from restriction to encouragement, which has not only increased positive coverage of e-sports, but also hosted a number of national and even world-class e-sports events, playing a demonstrative role.

How big is the e-sports market?

Data source: iResearch

Statistics show that the size of China's e-sports market reached 65.5 billion yuan in 2017, and the market growth mainly came from the explosion of mobile e-sports games.

Since 2015, the market share of mobile e-sports games has continued to expand, and by 2017 its proportion exceeded that of PC e-sports games, reaching a scale of 30.3 billion yuan. At the same time, although the overall scale of the e-sports ecosystem market is relatively small, approximately 5 billion yuan in 2017, its proportion is constantly increasing. According to conservative estimates of growth rates, the entire e-sports market size will exceed 80 billion yuan in 2018.

Data source: iResearch

Thanks to the promotion and popularization of popular products, the main source of growth in e-sports users is new users who have never had any experience in e-sports games before .

The explosive growth of users has also brought huge growth space to the e-sports derivative market. In 2017, the scale of e-sports users in China exceeded 260 million, doubling its growth. Based on the large number of game users in China and as the demographic dividend gradually disappears, it is conservatively estimated that the number of e-sports users will exceed 320 million in 2018, with the main user group being young people aged 19 to 24.

The rapid growth of the market and the continuous influx of capital have directly led to a surge in the income of e-sports practitioners. According to incomplete statistics: 36 e-sports companies have obtained financing since 2017, covering multiple industries such as e-sports event operations, anchor brokerage, live broadcast platforms, e-sports social networking, and e-sports clubs.

At the same time, some strong brands, such as Tencent E-sports, Suning, Ali Sports and a number of A-share companies have already laid out the e-sports track:

1. In 2013, the A-share company Zhejiang Daily Media entered the casual interactive online game market. Its subsidiaries include a large-scale interactive game community platform, and it has invested in Zhanqi TV, a live broadcast platform mainly focusing on game live broadcasts. At the same time, it co-organized the NEST competition with the Information Center of the General Administration of Sports and Huaao E-Sports.
2. In 2015, SES, the e-sports league operated by Suning, launched a series of events.
3. In 2016, Ali Sports invested over 100 million yuan to launch an e-sports platform and hosted the original World Electronic Sports Games WESG.
4. In 2017, Tencent proposed the "golden five years" of Chinese e-sports. Among the six games announced for this Asian Games, half of them belong to Tencent.

The logic of e-sports monetization

After more than ten years of development, all links in my country's e-sports industry chain have become increasingly standardized and entered a stage of orderly growth.

We can divide the entire e-sports industry into upstream, midstream, downstream and derivative industries. The copyright of game content is provided by companies such as Tencent and NetEase, and the content producers include tournament operators, professional players, and clubs. Through the fan effect, the content is disseminated through channels such as tournament live broadcast platforms and game live broadcast platforms, and finally reaches users.

Data source: PwC

Data shows that the revenue of the e-sports market has grown very rapidly in recent years. In 2016, the total revenue of the global e-sports market was US$490 million, a year-on-year increase of 48.5%. It is expected to reach US$1.49 billion in 2020, 3.04 times that of 2016.

The name of e-sports implies two attributes:

• One is the electronic (Internet) attribute, which corresponds to in-game payment on the content side and the relatively new payment model on live broadcast platforms;
• The second is the competitive attribute, which corresponds to traditional sports competitions and the revenue model in event and club operations.

The commercial monetization of e-sports mainly includes e-sports game revenue, e-sports derivative revenue, and e-sports event revenue: e-sports game revenue refers to the total consumption of e-sports games (i.e. the total amount paid by users in the game); e-sports derivative revenue refers to the revenue from e-sports clubs and players, live broadcast platforms and anchors; e-sports event revenue includes event tickets, peripherals, and sponsorship advertising.

At present, e-sports game monetization occupies a dominant position. In 2017, the revenue of China's e-sports game market was 203.61 billion yuan, of which Tencent's revenue was 97.83 billion yuan and NetEase's revenue was 36.282 billion yuan. The combined market size of the two accounted for 66%. In other e-sports chains, e-sports live streaming and e-sports events account for 38% and 30% of the entire industry respectively.

1. Content Authorization

In the field of sports, content licensing is at the top of the pyramid and is a money-making tool. Previously, content licensing in the e-sports field was not given much attention. Now that the industry is booming, content licensing has immediately come to the fore.

Take Tencent as an example. Among the current important copyright revenues, the annual copyright revenues of the two major events, League of Legends LPL and Honor of Kings KPL, both exceed 100 million yuan.

2. Media Platform

In the field of e-sports, content and media complement each other, and e-sports directly promoted the first rapid development of live broadcast platforms.

Take live streaming as an example: live streaming actually became popular as early as 2008, when it was mainly in the form of live shows. In 2012, with the popularity of e-sports games such as "League of Legends", game live streaming separated from traditional live streaming and became an independent content. Independent game platforms such as Douyu and Huya were established one after another. Signing e-sports stars at high prices became a quick solution to accumulate platform popularity at that time .

On the other hand, the rise of live streaming has provided a channel for the dissemination of e-sports content, which in turn has promoted the stickiness of e-sports content.

3. Video Anchor

The popularity of e-sports live streaming has directly driven the fan economy effect in the live streaming industry. Users are highly dependent on the anchors and have a strong willingness to pay for their favorite anchors.

At the same time, the income sources of e-sports anchors are also very diversified, including platform signing fees, virtual props sharing, advertising and promotion fees, and e-commerce sales. After the platform deducts a portion of the user payment income, the anchor and the guild will share the remaining income, and the anchor often gets 75% of the remaining income.

In addition, live streaming + Taobao store has become a common monetization model among anchors. After accumulating a certain amount of popularity, some anchors can earn an annual income of tens of millions of yuan from their Taobao stores.

4. E-sports star

The income of professional players includes professional income, live broadcast platform income and other income. Among them, signing fees and daily wages are the main sources of income for the players. The signing fees of first-line players can reach 2 million yuan/year.

The rise of live streaming platforms has given professional players the opportunity to expand their influence and increase their income. Moreover, after retiring, players can continue to accumulate popularity and earn high income through live broadcasts. Due to the fierce competition among game live streaming platforms in recent years, the value of anchors has also risen sharply. The top 10 game anchors are all worth more than 10 million yuan per year, with their star effect and wealth-creating effect highlighted.

5. Event Operation

As mentioned earlier, the number of e-sports users in China exceeded 260 million in 2017, doubling its size. The huge e-sports population base and industry scale have allowed e-sports events to gradually approach successful sports events. The organizers of the event strive to create a nationwide e-sports event super IP with huge traffic, such as: WCA, LPL, S League, etc.

At the same time, compared with traditional sports, the audience of e-sports is younger and has a higher willingness to pay . These characteristics determine that event user positioning can bring greater marketing potential. More and more e-commerce companies, video websites, car brands, and fast-moving consumer goods such as beer, which have similar user groups to e-sports, have begun to increase their investment in e-sports events to attract young audiences.

6. Club Operation

Looking at traditional sports clubs, a large part of the club's income comes from sponsorship. The same goes for e-sports clubs. Peripheral manufacturers, including mouse, keyboard, monitor, headset, etc., are the most enthusiastic sponsors of e-sports clubs because of their high correlation with e-sports games. In addition, some Internet companies such as automobiles, fast-moving consumer goods, and e-commerce video websites can also become sponsors. At present, we can also see that most well-known domestic e-sports clubs have peripheral sponsors.

Club Sponsors

At the same time, tournament prize money, player endorsement commissions, and revenue from peripheral product sales are all important components of e-sports clubs' income. Of course, there are still very few ways for teams to make profits. According to incomplete information, most e-sports clubs, including first-tier clubs, are unable to make a profit.

Finally, from the beginning of the 21st century to the present, e-sports has experienced a long period of growth, and first- and second-tier manufacturers focusing on the monetization of game content will continue to follow the growth of the industry as entertainment consumption upgrades.

As for platform companies that control the top content in e-sports, global game developers and operators represented by Tencent, Valve, and Blizzard not only have the right to develop games, but also have the right to operate games in most regions. Through the "platform + content" approach, a strong moat has been built to exclude competitors. The core engine of future growth will switch from game content monetization to ecosystem monetization .

Author: Good Life Investor

Source: Qingshan Capital