3 ways to increase esports monetization
Players and viewers are equally important to esports monetization going forward
Monetization remains the key pain point in esports
Esports remains significantly under-monetized compared to traditional sports. This industry view is also confirmed by PwC’s Sports Survey 2019, in which 87.6% of the 563 industry leaders across 50 countries ranked esports as the sport with the highest revenue growth potential (PwC Sports Survey 2019).
The average revenue per fan (based on total viewers) in esports grew from $1.96 in 2018 to $2.14 in 2020 and is expected to reach $2.47 in 2023 (Newzoo, Rocket Capital, 2020). The average fan monetization is growing at a 4.7% 2018–23 CAGR, significantly lower than the equivalent growth in esports revenues (15.5%) and audience (10.3%).
To put things in perspective, the average revenue per fan in traditional sports is about $67, based on four of the most watched sports leagues — NFL ($54), NBA ($33), MLB ($91) and NHL ($90) (Goldman Sachs Equity Research 2019; Newzoo, 2019). According to Deloitte’s 2020 Consumer Survey, on average only about 26% of total esports viewers pay for esports content in Europe (Deloitte, 2020).
In 2021 we expect different stakeholders within the esports ecosystem to be united by one main goal — bridging the monetization gap. We see three ways this could be achieved: i) micro streamers and non-endemic brands become more valuable, ii) casual viewers’ monetization doubles esports revenue potential and iii) data-driven fan engagement creates additional revenue streams.
Micro streamers and non-endemic brands become more valuable
According to Twitch the highest paid streamer earned c$2m revenues last year. On average, the top 20 streamers (by audience size) earn around $1m revenues each year. The three main revenue streams for gamers are subscription (c80% of total), ads (c16% of total) and donations (c4% of total) (Twitch, 2020).
Overall, there are about 8 million streamers that stream live content each month but 98% of them are considered micro streamers (have less than 100 viewers). Subscription revenues are allocated by streaming platforms such as Twitch and YouTube Gaming mainly based on three criteria: generated content ($1 for 100 bits-worth of cheers), number of hours streamed and number of viewers. Similarly, donation revenues are correlated with the number of viewers, with larger streamers generating larger revenues. Hence, the only revenue source accessible to micro streamers is advertising.
However, until recently esports advertising mainly attracted endemic brands, i.e. brands which are directly related to esports such as Intel, Samsung, ESL and others. There are a few reasons for the slow adoption of non-endemic brands. The esports ecosystem is very complicated and there is no centralised regulation of sponsorship or media rights holders, which poses a challenge to some brands. In addition, the size and reach of the esports audience was underestimated in the beginning. However, in the last couple of years it has become clear that the esports phenomenon is here to stay and most importantly, it provides a unique opportunity for brands to target Millennials and Generation Z customers.
As a result, we have seen a spike in advertising of non-endemic brands (to name a few, Burger King, Nike, Domino’s and others). You can find a comprehensive list of the latest ads from both endemic and non-endemic brands here. In fact, according to McKinsey, sponsorship from non-endemic brands (53% of total) has surpassed that of endemic brands (43% of total) in 2019 (McKinsey, 2020). Yet, small non-endemic brands are experiencing similar difficulties to micro streamers — they do not have the budget to work with large streaming platforms and famous streamers.
We think that the simultaneous rise of non-endemic brands and micro streamers would be the main growth driver of sponsorship revenues going forward. We already see multiple esports solutions that address this opportunity such as Athlane, inSTREAMLY and Stream Hero. Most of the solutions provide a marketplace, which connects brands and streamers to facilitate sponsorship. Some of the companies even provide additional services such as AI and data-driven targeted advertising. Overall, we expect to see higher adoption of these solutions going forward and an increase in the total sponsorship revenues, with a higher allocation to micro streamers.
Casual viewers’ monetization doubles revenue potential
The main difference between traditional sports and esports is in the audience. Unlike traditional sports where all viewers are equally monetized, esports’ audience is divided between professional gamers (enthusiasts) and casual viewers. In 2020 global esports viewership is estimated at 495m people and is forecasted to grow at a 9.3% CAGR to 646m by 2023 (Newzoo, 2020). The current mix of esports audience is in favour of occasional viewers (55% of total) vs gaming enthusiasts (45% of total), and this mix is going to remain broadly unchanged going forward (Newzoo, 2020).
However, current monetization strategies are predominantly targeting enthusiast gamers. Average revenues per enthusiast gamer is estimated at $4.7 in 2020 and expected to reach $5.4 in 2023. Based on the average esports fan $ value, we estimate that monetization of casual viewers could unlock additional $1–2bn of revenues for the industry in the next five years.
Fan engagement creates additional revenue streams
The shift in esports platforms from PC (23% of total) and consoles (32% of total) to mobile (45% of total), combined with increased Internet and social media connectivity, has given rise to a global, connected and engaged fan. In 2021 we expect to see fan engagement going one step further in engaging viewers during live streaming via questionnaires, quizzes and games, resulting in rankings, rewards and additional revenues. We expect to see solutions which allow viewers to not only observe the game, but also participate (in a similar fashion to Black Mirror: Bandersnatch movie). We already see the industry moving towards this direction. Twitch recently launched a ‘Predictions’ feature, which allows viewers to bet against the outcome of a game, with the winner receiving Channel Points that can be used to unlock rewards set by streamers (Twitchtv, 2020). This is in addition to the already existing Twitch extensions that allow streamers to create polls and quizzes for their viewers. Other fan engagement solutions such as Sport Buff and Maestro plan to monetize viewers via additional revenue streams such as real-time betting and in-game e-commerce on top of sponsorship and advertising. Fan engagement is a key solution to monetization and hence, going forward, it will be the main focus for streamers, streaming platforms, and league organisers.
2021 will be the year of monetization
In 2020 we saw esports becoming a mainstream phenomenon that is here to stay. We expect 2021 to be the year of esports monetization. The esports ecosystem is complex with various stakeholders, but ultimately it is all dependent on two main parties, players and viewers, which are the key to monetization.
