The North American market has been somewhat a sleeping giant across the global eSports landscape. SuperData Research puts revenue estimates at $275M for 2016, slightly ahead of Europe ($269M) but behind Asia ($328M). However, Activision Blizzard’s better than expected second quarter earnings – 54 cents per share of on $1.61 billion in revenue – thanks in large part to the gainful launch of “Overwatch” – could signal an inflection point.
In addition to advancing Activision Blizzard’s bottom line, the continued success of Overwatch – a wildly popular first person shooter (FPS) game title responsible for $269M in digital sales in May 2016 alone – aligns with three key eSports trends in North America.
Made in China
Overall, China accounted for $23.5 billion of U.S. targeted M&A in tech and digital media during Q1 2016. This activity is being driven, to a large degree, by a global arms race in content creation – one which has emphasized digital transformation strategies in media and entertainment. Similarly, investment in electronic sports is a valuable asset for hedging against disruption by mobile and digital consumption trends. Meaning the flow of Chinese money will have no issue continuing to find its way to the North American eSports market.
Accordingly, expect more activity like Allied eSports’ strategic investment partnership with eSports Arena to continue. While Allied’s partnership primarily focuses on the opening of new arena locations in North America, starting with Oakland, CA. Broadcast facilities at the current Santa Ana location will also receive an upgrade – a move which shouldn’t be overlooked. Particularly since content plays such a central role in an eSports experience that’s still primarily digital.
“While Esports Arena has taken pride in our ability to translate the energy of our events in the arena to our broadcasts, the chance to add an industry-leading studio in Santa Ana will enable us to offer much more dynamic broadcast options to the industry, with increased opportunities for content creation.”
— Paul Ward, eSports Arena CEO
Ultimately, content is still king, and the eSports variety offers an extremely attractive price point for Chinese companies intent on expanding intellectual property (IP) footprints. Especially in comparison to the sums doled out for deals like the $1.1 Billion acquisition of Carmike Studios in March 2016. Emergence of Overwatch as a prominent eSports title will only serve to strengthen the value of investments in the space.
National storylines
Widespread acceptance of video games – and eSports – remains an ongoing battle across the world. The United States, in particular, has some unique cultural quirks that complicate matters. For one, the institute of sport is an extremely important part of U.S. culture. The “Big Four” leagues – Major League Baseball (MLB), National Basketball Association (NBA), National Football League (NFL), and National Hockey League (NHL) – enjoy elevated status and cultural significance. So the notion of competitive video games as a sport, which should share in that limelight, is still unthinkable for some.
However, the United States is currently ahead of other world regions in producing professional playing talent for Overwatch. Yes, it’s still early, but the signing of a US-based team by Fnatic – a leading competitive organization – is no fluke. If the current trajectory for Overwatch eSports continues, the U.S. market could develop into a global hotspot. Sustained American success in a popular eSport will improve prospects of wider cultural acceptance across the continent. Plus, more storylines that are American-centric will increase traction among casual audiences accustomed to nationally-based sports narratives.
“It’s incredible…I never realized how big it really is, how popular it is and the demand for it.”
— Luiz Aragon, commissioner of development in New Rochelle, NY
Additionally, downtown city hubs – facing continued decline of brick-and-mortar retail – will continue to pursue eSports centers as family-friendly destinations where visitors can practice, compete and spectate. While the rapidly rising financial costs of year-round, travel youth sports in the U.S. are becoming too costly for more and more families. Competitive video games offer a cost-effective outlet between seasons of physical sports.
DNVB disruption
The rise of digitally native vertical brands (DNVB) is a hot topic in ecommerce today. According to Andy Dunn, the DNVB is characterized by a “primary means of interacting, transacting, and story-telling to consumers is via the web. In almost all cases the brand is born digitally.” As the recent $1 Billion cash acquisition of Dollar Shave Club shows, a DNVB approach is far more attractive than a third-party ecommerce model – and competing against resident 800-lb gorilla, Amazon.
So, it’s fitting that today’s crop of digitally native brands finds some overlap with competitive video games – a digitally native sport itself. And as MeUndies has shown, there’s plenty of value to be realized from partnerships between the two domains.
However, this trend is bigger than just sponsorship. Look for closer integration between the eSports experience and methods for driving online conversion. For example, partner DNVBs could begin offering limited time price breaks associated with tournaments and/or team performance. Also, the trend of virtual passes for eSports events could begin to tie in digital retail rewards. Further out, team and player branded DNVB products is a possibility.
Also, consumer packaged goods (CPG) giants are increasingly under attack by a range of upstart DNVBs (see image above). So, expect the timeframe for massive firms like P&G making an eSports plunge to be shorter than some expect.