The next iteration of esports

During a discussion on esports last week one brand rep kept repeating himself: we want programmatic content; not live events.

That’s a big difference from conventional sports. Watching sports events in real-time is the best way to watch and that is what gets advertisers excited in that universe. It has also long been one of the key reasons why traditional television could persist as online viewing continued to grow.

But as brands slowly start to open their wallets, they do so only on the obvious condition that they have a say on the content format to which they attach their name. That is not new. Advertising has a rich history of directly influencing the format, timing, and general nature of content. This pushes esports into two directions. There’s (1) attending live events and getting to meet the players on the one hand and (2) watching esports programming (both through linear media and online) on the other.

The recent $38 million investment by Rick Fox and friends speaks the same language. Beyond just having a logo on the shirt of a team, or having a player tweet something positive about your brand, there’s more mileage in sponsoring shoulder content — the pre- and post-programming around live events. A growing number of game publishers are now ‘doing esports’ (whatever that means) which, unsurprisingly, creates a very confusing market for newly arriving brand managers. So it is no wonder then that advertisers are looking for a format they already know and makes them feel safe enough to take a bet on esports.

If we are all in this for the long haul, sustainability is going to become a key topic this year. Much less relevant will be having the biggest prize pool or most sophisticated game mechanics (yes, I’m talking about Dota2). As esports begins to professionalize, it is inevitably going to change. It will outgrow its organic beginnings and evolve into a type of content that better serves the needs of its ultimate masters: the audience.

Bet on that.

MONEY, MONEY, NUMBERS

Capcom and Square Enix shares up on esports expectations
One of the biggest hedge funds in Japan, Oasis Management, is betting big on esports as a driver for the success of domestic publishers Capcom and Square Enix. Japan has been slower to jump on the bandwagon because of regulatory reasons: for years anti-gambling laws prevented paid competitors. This changed last month when Japan started legalizing paid esports tournaments. Considering the both the monetary size and cultural gravitas of the Japanese games market, this is a big deal. Sony and Nintendo have already placed a few bets on the phenomenon, but a loosening of the regulatory framework can drive significant growth. Japanese publishers are looking to follow their western counterparts and may just beat them at it. Oasis seems to thin so. Link

Rovio takes a big hit from angry investors
After its IPO last September, Rovio now keeps slinging profit warnings, much to the dismay of its investors. Today Rovio’s market value is now roughly half of what it was at the time of its filing. After initially predicting it would grow its business faster than the overall market, the firm has changed its tune and now expects 2018 revenues to be flat y/y, around $370MM. Biggest culprit is the explosive cost of user acquisition, which doubled to 28% of revenue from last year and will no doubt continue to go up. Undoubtedly to offset some of the marketing expenses, Rovio entered into an agreement with GSN to host Angry Birds Champions on its WorldWinner platform allowing players can compete against each other for cash prizes. Following the success of the Angry Bird movie last year which generated $350MM in revenues, the investment community felt Rovio held a strong enough IP to stay ahead of growing marketing costs. But alas. Increasingly, the economics of mobile gaming has started to resemble that of traditional product-based publishing where companies spend upward of 50% of their total budget to market their game. Remarkably, investors did not see this coming. Link

Gamers help Acer recover
Hardware manufacturer Acer saw its fortunes reversed (somewhat). After a decade of revenue decline, it finally reported a slither of hope with anticipated +0.8% of y/y revenue growth. According to management especially high-end gaming was a key driver in 2017. Link

Red Dead Battle Royale, 17M units
Following earnings season and the delayed release of RDR2, here’s a reading of the stars: RDR2 will have a battle royale mode (which is likely why they delayed it in the first place) and this will consequently lead to greater unit sales than its predecessor (16M lifetime). After Evolve and Battleborn — neither of which really broke any records — Take-Two is likely to double down on online multi-player game play. RDR2 should be able to sell around 17M by end of 2019, provided that Take-Two doesn’t suffer the same online hiccups as it did with GTA V Online. Link

Augmented reality is the toy industry’s next big bet
Now that Google finally released ARCore from beta and Apple’s ARKit is slated for some worthwhile updates, another technological arms race presents itself. I’ve written previously on how the toy business is looking at AR as a way to stay relevant and innovative. And this year’s toy fair in NY echoed much the same. Here’s a good write-up.

Selfless game promotion: Mama Hawk, Membrane
Here’s two games you should check out that colleagues of mine have worked on: (1) Mama Hawk for mobile on which SuperData senior analyst Elena Fedina was a programmer, and (2) Membrane from the NYU Game Center Incubator on the Nintendo Switch where I’m an advisor.

Visit Egypt, stab no one
As politicians treat us to a re-run of “video game cause violence”, I’d like to point out that no other form of entertainment has been able to offer such an immersive, in-depth experience when it comes to, for instance, visiting ancient Egypt. It’s a nice touch from Ubisoft to provide a version of its latest edition of Assassin’s Creed minus all the stabbing so that you can leisurely visit the Library of Alexandria. Link

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