Esports Media Rights: Driven by Ad Revenue
Media rights are a critical component of the monetization of esports. As this industry matures, each video game title with a professional scene (CS:GO, Dota, CoD, etc) will seek to have media rights as a substantial revenue stream.
In traditional sports, media rights typically account for a significant portion of team revenue. In esports, we expect it to remain significant as the industry matures (10–25% of team revenue).
Summary: We have built an ad-revenue model that can be used to predict the media rights value (break-even) of each esports league. If you use Twitch ad-revenue and viewership as a basis, you can then back into an estimate of what each game’s professional scene is worth. Below is our estimate of the revenue each game generates for Twitch:
Choosing a Pricing Benchmark: Ad Driven vs Overwatch League
Last month, we published a piece that used the Overwatch League (OWL) as a pricing benchmark to predict the media rights value of the Call of Duty League (CDL). We used the OWL as a benchmark for 3 reasons:
- Activision is the publisher for both Call of Duty and Overwatch
- Twitch bought the media rights for OWL and will likely purchase the media rights for the CDL
- The OWL deal is the only public comparison we have in exclusive media rights for an esports league
We understand that using the Overwatch League (OWL) as a benchmark is imperfect, yet it’s one of the only hard data points out there today. That said, we chose to build a new model for predicting media rights value in the esports space.
We believe this new ad-driven model is a more accurate and data-driven process for predicting the media rights value for each professional esport.
Ad Revenue Model: Rational
To price the exclusive media rights value for each esport, we are using the following metrics on Twitch to calculate a value:
- Ad Revenue on Twitch (estimated)
- Average Concurrent Viewers
- Hours Watched
Rational: Media rights deals are directly related to the projected amount of revenue a platform can generate from being the exclusive channel/stream for an event. While there are indirect revenues (ie. new users) for Twitch that are hard to estimate without more sensitive data, the most important revenue for a media rights contract will come from advertising, just like in traditional sports.
Twitch: Ad Revenue of $1B (estimated)
To build an ad-driven prediction model, we need to estimate how much ad revenue Twitch generates. According to Bloomberg, Twitch CEO Emmett Shear set a $1 billion goal for Twitch ad revenue in 2018. Amazon earnings do not disclose how much revenue Twitch specifically generates, so we will assume that Twitch hit their target in 2018 (or at some point in 2019). We believe this is a safe assumption given that Twitch’s viewership growth has not slowed. Average concurrent viewers are up 19% y/y and hours watched per month is up 23% y/y.
Twitch: Viewership Per Game
Next, we need to determine what portion of Twitch viewership can be attributed to each game. Fortunately, this is public data. We chose to look at a 12 month period from September 2018 to August 2019. (Source: Twitch Tracker)
Here are the metrics for Twitch as a whole:
Twitch: Ad Revenue per Game (estimated)
As we mentioned above, we estimate that Twitch generates somewhere around $1B in ad revenue a year.
If you use viewership as a basis for ad revenue generation, you can back into an estimate of what each game generates in revenue for Twitch.
Across these nine esports titles, below is an estimated breakdown of the ad revenue per game title, across all channels, on Twitch:
Popularity: Game vs Esport
Following this ad revenue breakdown, Call of Duty: Black Ops 4 is worth around $19.8M a year in estimated ad revenue for Twitch. However, it’s important to note that a video game’s popularity on Twitch does NOT have a direct correlation with its professional esports viewership. For example, streamers of Call of Duty on Twitch won’t necessarily stop streaming if the professional scene has a lackluster adoption from fans or if another platform buys the rights to the CDL (i.e. YouTube, Mixer, Caffeine).
Overwatch Example: let’s look at Overwatch as an example for how the game’s popularity compares to the popularity of its professional esport scene. According to TwitchTracker.com, between September 2018 and August 2019, OWL amassed 88,098,735 hours watched on Twitch for its competitive esports channel. This is only 29.67% of the total 296,962,556 hours watched on Twitch for the Overwatch game, in general.
Looking at ad revenue estimates, that means that the OWL esports channel contributes ~30% ($8.2M) of the $27M in ad revenue that the Overwatch game generated on Twitch over that same period.
Twitch paid $90M for two years of exclusive media rights for the OWL. Our model would suggest that the ad revenue for Twitch is only worth ~$16.4M ($8.2M/yr). It’s possible that ad revenue for the OWL channel is worth more than general Overwatch CPMs, yet it’s not likely worth 4–6x.
Note: it’s worth mentioning that Twitch can monetize users in more ways than just ad revenue alone. They’re also looking to convert users to paying subscribers and push traffic to the Amazon store. Additionally, they want to keep competitors out of the esports market given increased competition from new entrants.
Nevertheless, a $90M deal for two seasons of OWL seems very overpriced.
Conclusion
We believe that streaming platforms are mispricing esports media rights deals when considering ad-revenue projections & viewership.
At a minimum, these deals need to break even and we have concluded through our process that the first major media rights deal in esports (OWL <> Twitch) was mispriced. We estimated that Twitch paid more per season for the OWL ($45M/season) than Overwatch as a game generated in total ad-revenue for Twitch ($27M). OWL comprises only ~30% of Twitch Overwatch viewership and is therefore worth about ~$8.2M/year.
If exclusive media rights are going to be the norm, the pricing of these contracts needs to more accurately reflect the potential ad revenue for that esports league.
Other Relevant Konvoy Content:
