Beyond PUBG Mobile: unraveling the esports landscape and its potential in India
We explore trends in live streaming and esports
In 2019, there was much press about esports and viewership of the 2018 League of Legends finals rivaling the estimated 100m annual viewership base of the US’s Superbowl finals.
And this year, more people are watching gaming than HBO, HULU, Netflix, and ESPN combined, meaning esports is no longer a niche and can rival not just traditional sports but also entertainment avenues.
In November 2020, gamers were euphoric with the PUBG mobile comeback (India is the largest market with 175m users). This was further sweetened with an announcement that the PUBG Mobile Global Championship prize pool will increase from $5m in 2020 to $14m in 2021.
Even IBM signed its first esports deal with Overwatch League™, the world’s first global esports league with 20 city-based teams. In October, it announced its first-of-a-kind multi-year agreement to bring IBM’s cloud computing and artificial intelligence technology to e-sports.
And just this week, Microsoft continued its gaming-focused acquisition spree and acquired esports events firm Smash.gg. Smash is a platform that provides a self-service, functionality to host online, and live esports events.
While 2019 was its spotlight year, with Newzoo estimating global esports revenue at $957m, up 23%, from 2018, esports went through its share of CoVID induced upheavals in 2020. This was not just in India with the app bans, but also globally, with live stadium events canceled. Revenue estimates for the industry fell (albeit marginally) by 0.8% to $950m. Forbes has recently made a note of toned down valuations and tamed investor expectations in 2020. The article puts esports’ most valuable companies in the $300–400m valuation range indicating its early-stage nature and upside potential.
So, in this pandemic state of mind, we ask if we are past the peak with esports, or is there another wave to catch? A rapidly evolving sector that normal itself has not been defined, so what is a new normal then? Newzoo, the industry’s well-recognized research house, started tracking esports as recently as 2015 and made significant changes to their market sizing methodologies in 2020 to reflect the fast-evolving space. How are commercial models shaping? We explore these themes, and more right here!
Esports and live streaming has shown us the entertainment value of gaming by engaging audiences beyond the gamer, extending lifetime values and creating new monetization opportunities for game titles.
How large is the audience pool? Like to Like, viewership numbers are rarely reported as metrics vary between esports and traditional sports. Esports streaming numbers often also exclude China and are registered in peak, unique user terms. TV broadcasting numbers are reported as total viewers during the event. One could argue that in 2020, The League of Legends World Finals’ peak viewer base was reported at 3.8m versus the Superbowl 2020 final of 100m total viewers. Viewership benchmarks aside, esports attract a truly global audience and has grown 12% YoY for the last two years to reach nearly 500m in 2020 and is estimated to grow at 9% CAGR to touch an audience base of 646m in 2023.
It can cater to a diverse set of audience needs through multiple game titles and tournament formats. The fact remains that due to its digital-native nature and lack of geographic constraints, its reach is therefore much larger than any traditional offline sports league.
What is driving the engagement of fans and gamers? Fans view esports as an entertainment avenue where they can (digitally) hang out, engage with friends, and watch others play competitively. Attention is mainly on gameplay, and constraints either in terms of player attributes (fitness, physique, gender, age, etc.) or in terms of environment (weather, sport-specific infrastructure) do not exist. This makes it amiable to diverse audiences, has round the year appeal, and a potentially infinite player participation ability. Add to this, the power of streaming platforms that can inherently create far more engaged audiences than TV, and even OTT have with traditional sports leagues.
AAA title behemoths like Activision, Epic Games, and Riot Games produce celebrity, and music-infused, mega-events that engage millions of audiences simultaneously across streaming platforms and give gamers an entertainment experience.
Meaningful prize pools make esports a commercially viable professional opportunity for amateur gamers. Dota 2’s flagship event, The International, had a prize pool of $34m in 2020. Fortnite’s World Cup had a final event prize pool of $30 million, with the biggest, single-player, pay-out of all time at $3m for the first prize winner.
How do you broaden the appeal beyond gaming enthusiasts? While the standalone audience numbers are staggering, esports and streaming platforms are yet to appeal to non-gamers. To widen its allure and truly become an alternate entertainment avenue or social hangout, live streaming platforms need to create channels and content that introduce and soft launch games with these potential fans. The Superbowl or NBA is watched by diverse audiences who do not necessarily know the game rules or how to play the sport but are driven by the adrenalin and excitement of the stadium experience and team rivalries, together with ease of understanding gameplay and following progress. Fornite and Animal Crossing have done this brilliantly by creating virtual spaces that appeal to and seek-out non-players, where they can chat, hangout with friends, and socialize virtually without the pressure to play. This experience is yet to manifest with esports fully. For someone who doesn’t play Dota2, watching the live stream makes little sense and feels alien and un-engaging. With the pandemic showing us that we all crave alternate social and virtual spaces, streaming and esports platforms are primed to win these audiences fatigued with traditional social media. Streaming platforms can serve as personalization and localization layers to welcome wider audiences into gaming by providing accessibility and engagement without needing to play the game. Similar to how the IPL challenged traditional cricket rules and introduced a new format by creating local teams, mandating local talent for mass appeal, and shortened gameplay, thereby creating cricket’s most popular league, the potential exists for game developers and/or streaming platforms to create something innovative and extraordinary with esports.
Where is the value accruing, though? Since the industry is nascent and space is exploding, the fact remains that a lot of the value creation is currently concentrated around a few leagues around games like DOTA 2, PUBG, and League of Legends. These developers have built the most prominent player and fan bases and hence the largest esports leagues (with over 33m hours watched in Q320 alone). Since they are the IP creators, similar to the entertainment business, they take the largest share of the profit pool. Esports has enabled these AAA titles to extend shelf life and open new monetization avenues via not just gamers but audiences, too, creating brands and franchises with global appeal and allure. And because esports is so unique, these companies are already reaping first-mover advantages and swallowing market share.
How are commercial models evolving? In terms of monetization, the delta is indisputably significant between traditional sports leagues and esports. There is a 13.5x lag in revenue per fan between North American Sports League and e-sports. Commercial models are still evolving. Like most digital native, market-creating, burgeoning businesses, monetization is expected to catch up with the fast-growing viewer base and take global esports revenue to $1.6b in 2023, growing at a CAGR of 20% from 2020 per Newzoo.
Revenue streams are still mainly from sponsorships, depending on brands and marketers’ budgets and spending powers. The ecosystem around media rights, ticketing, merchandise, team, player, and fan engagement is yet to scale and build-out. This signals the massive headroom available for these new revenue streams that will also drive and augment the fan engagement and viewership experience.
Commercial models are still getting discovered. Currently, developers command the bulk of the revenue in esports, with take-rates for esports platforms remaining under 15%.
As the ecosystem matures, the economics should get re-distributed away from developers into the hands of other emerging ecosystem players. Earlier this year, in South Korea, often hailed as the birthplace of e-sports, the Ministry of Sports and Culture has officially published standard contracts for esports organizations to protect player interests.
E-sports’s global popularity has also influenced Indian gaming especially considering India’s young, mobile native, demographic, which is the ideal target audience for e-sports
E-sports numbers in India, even in user/player terms of ~17m, dwarf global numbers. While India contributes to 15–17% of global, mobile, casual gaming downloads, with esports, India is only at 3% of the ~500m global esports user base.
Live-streaming, which is integral to scale esports and the typical starting point for talent discovery and fan base building for serious gamers, is also gaining pace in India. Data released by YouTube indicates 24 gaming channels with more than 1m subscribers registering a 75% growth YoY in India. Live Streaming on YouTube has grown 10x in the last three years across PUBG Mobile and Garena Free Fire formats. Tips and tricks videos around these titles are becoming popular. Further, the first generation of esports superstars has come into the spotlight.
Early movers like Sequoia investee, Loco, and Nazara owned Nodwin Gaming are straddling across the esports value chain and gaining market traction through a combination of partnerships as well as original content and IP creation largely around the globally popular e-sports titles. But the ecosystem is still nascent, and if we are to take a cue from the developed markets, there is ample room for companies to emerge across the value chain from teams, talent, and leagues to streaming platforms and tournament organizers who can localize events, create content specific to Indian audiences. Twitch, in the US, is already rivaling traditional media outlets on daily concurrent viewers. Closer home, Galaxy Racer Esports, a Dubai-based Esports organization, recently acquired India’s Team Celtz and team SynerGE, one of the first transactions in the Indian esports talent space, to form a single Galaxy Racer Team in India.
Globally, while YouTube, Facebook, and Amazon (via Twitch) are participating in the esports ecosystem and remain active and prominent in India, we know from Microsoft’s failed attempt with Mixer that there is no one-size-fits-all approach, and capital alone does not guarantee reach, scale and success and opportunities remain for independent companies to emerge. Twitch, for example, is largely a desktop driven application, while Indian gamers are mobile-first, signaling an opportunity. Most global esports leagues are also desktop driven. Mobile-first leagues, while on the rise, have huge potential to scale and grow with India being the dominant market. PUBG Mobile’s recent India ban opened up that race to find alternate leagues and tournaments and promote other titles.
To conclude, esports is primed to take the best of both the traditional offline sports and the entertainment business and merge their traits to create a burgeoning, new, digital sporting and entertainment business. It has the potential not only to define how GenZ socializes and consumes content but also cast the net wide to include diverse and global audiences and redefine entertainment for the 30+ age group of enthusiasts (paying users are still predominantly 30+ on most platforms) engaging with this new gaming genre via mobile.
At WaterBridge Ventures, we are excited about this space and its unraveling potential and seek out missionary founders building the next digital native, sports, and entertainment business. If you’ve enjoyed reading this, head to our LinkedIn page, visit our website for more sector insights or drop us an email.
A note of thanks to KPMG India, PGA Labs, RoundHill Investments, and Konvoy Ventures for their market-leading insights.
