Special Edition: The 2017 Esports Ecosystem
The 2017 Esports Ecosystem (click to expand)
Trying to understand the inner workings of the esports industry can be a daunting task. In this week’s special edition of the Meta Report, we dissect looking the relationships between major stakeholders within the esports ecosystem. We also created an infographic to help people visualize how these relationships tie together. While the esports ecosystem is undoubtedly more complex than this infographic, this overview should provide a basic primer on the revenue and power dynamics within the industry.
PUBLISHERS: Game publishers create and distribute video games. Their main revenue sources are game sales and the sale of downloadable in-game content (DLC). Publishers range from large, publicly traded companies that develop a variety of games in different genres (EA, Activision-Blizzard) to privately held companies that create one or two key titles (Riot Games, Valve). Because publishers create and own game intellectual property, all other stakeholders are reliant on publisher approval (either directly or otherwise) to host competitions, broadcast streams, and even play. This is in contrast to traditional sports, where the NBA and NFL do not own the rights to the sports of basketball and football, respectively, but only those rights to their professional leagues. Through this all encompassing IP ownership, publishers control a significant portion of the power & money within the esports ecosystem.
Until relatively recently, esports were viewed simply as a marketing tool for these companies; creating and enabling competitive scenes around a game drives spending on the game itself and on DLC within the game. However, as the modern era of esports dawns, publishers are increasingly embracing the full revenue potential associated with esports as a standalone product. Both Riot Games and Activision-Blizzard are in the process of launching franchised leagues that are poised to capitalize on increased fees for media rights, sponsorships, and more.
Publishers have taken different approaches as to how involved they are with their games’ esports activities. Riot, for example, operates both their North American and European leagues (LCS) soup to nuts, while Valve is focused on its core mission as a game publisher and embraces a laissez-faire approach, opting to stay relatively hands off — other than selecting tournament organizers — for its Counter-Strike and Dota 2 Majors. This is why the infographic makes the crucial distinction between publisher-run and third party operated competitions.
COMPETITIONS: Tournaments and leagues created and hosted by event organizers. Competitions are run either directly by game publishers, such as Riot’s ‘League of Legends Championship Series’ (LCS) and Activision-Blizzard’s ‘Overwatch League’ (OWL), or by third parties, such as Turner’s ‘ELEAGUE’, and Electronic Sports League’s (ESL) ‘ESL One’. Third party tournament organizers (TO’s) are reliant on publisher permissions as TO’s must obtain a license to broadcast a competition featuring a publisher’s game.
Competitions make their income primarily through media rights fees, sponsorships, concessions, and ticket sales.
TEAMS: Esports teams are organizations which typically oversee multiple esports rosters/players under one unified brand. Imagine, for example, if the Dallas Cowboys competed in football, basketball, soccer, tennis, and rugby and also had content deals with retired sports stars– that’s the current state of most successful professional esports teams. The household esports team names include, among others, Cloud9, Fnatic, Team Liquid, and Team SoloMid (TSM) – these teams have accrued large fan followings and are able to impact all other stakeholders in the ecosystem, primarily through deciding which games their organization will compete in. This is one of the biggest differences between esports and traditional sports: an esports team can leverage its brand in a wide array of different esports, as opposed to being exclusively tied to a single game or league.
Big teams attract big players and big fan bases. This has historically given larger teams more leverage — and in turn sponsorship dollars — with brands, platforms, tournament organizers, and publishers.
While teams have traditionally made the majority of their money through sponsorships, the maturation of the industry is also diversifying their revenue streams – revenue sharing of media rights, gate and concession sales (in a regionalized model such as OWL), and exclusive content distribution fees from platforms such as Twitch and Facebook are becoming the new norm.
PLATFORMS: Streaming networks and social media platforms. Twitch has dominated this marketplace since it was founded, but for the first time in more than five years it is facing meaningful competition from the likes of YouTube Gaming, Facebook, and Mixer.
Platforms distribute both live and video on-demand (VOD) content. They often sponsor teams, players, and competitions (both publisher and third party run) in order to obtain exclusive broadcast rights to content. Through team sponsorships, platforms also have access to the streams of professional players – imagine Facebook live-streaming Lebron James while he lifts, shoots free throws, and plays pickup.
Platforms sell ads, custom content integrations, and premium subscription services. For example, Twitch and YouTube Gaming allow viewers to subscribe to individual channels for $5/month, revenues from which which are shared between Twitch and the streamer. The viewer receives an ad-free experience (on the subscribed channel only) and oftentimes, additional benefits courtesy of the streamer such as private chat access, special emotes to use on the channel’s chat, and even subscriber games where the streamer plays live with their fans.
PLAYERS: Professional esports athletes. Big names include TSM Bjergsen, C9 Sneaky, and Team Liquid’s JDM. Professional players maintain training schedules akin to professional athletes – their average practice time is more than ten hours per day and includes scrimmages, physical and mental training, and film study. Some players also stream in their free time.
Though their primary source of income is salaries from their teams, Players have a variety of income sources, including streaming ad/subscription revenues, prize money, individual sponsorships, fan donations, and merchandise sales.
BRANDS: Companies that sponsor within the esports ecosystem. These include Coca Cola, Razer, Intel, and T-Mobile. Brand activations vary dramatically – team sponsorships, platform ad runs, individual player partnerships, league/competition sponsorships, and others have all been utilized to reach the often difficult to find millennial male demographic.
Brands within the ecosystem are often separated into two categories: endemic & non-endemic. Endemic brands create products that gamers use in their competitive gaming endeavors: mice, keyboards, monitors, PC’s, headsets and others. Non-endemic brands produce products ancillary to esports and are using esports stakeholders to reach a target audience.
Brand investment in esports has significantly increased over the past few years. The esports market is young (55% of fans are between 21-35), valuable (average household income of $76,000), and experiencing explosive growth throughout the west (76% growth in the number of US esports fans from 2015 to 2016), so it’s not hard to see why more and more blue-chip brands are targeting the space. As the esports ecosystem continues to grow and viewership increases, brands will have more opportunities and vehicles through which they can invest.
FANS: People who watch esports – both live and online. The esports audience skews male, educated, and affluent. Fans typically play games, support teams (often multiple teams), consume ads on streaming platforms for both their favorite streamers and competitions, purchase merchandise and are exposed to sponsor’s products through brand’s marketing efforts.
Each game has its own unique community ecosystem with individual dynamics. The League of Legends community, for example, is known for its high expectations from Riot Games and competitive passion, often leading to toxic exchanges on Reddit and Twitter.
Fan communities can influence publisher, team, player and brand actions within the esports space. Unlike in traditional sports where fans are typically not engaged in regular, direct dialogue with team executives and league officials, esports’ culture of open access and dialogue has developed a multi-way conversation between game communities and the stakeholders within them.
The esports ecosystem in 2017 is excitingly intricate and ever-changing: we expect many of the dynamics to change with the professionalization and franchising of esports over the next few years. Our hope is that a rising tide lifts all ships.
We hope you enjoyed this week’s special version of The Meta Report. To stay updated on all our efforts at Catalyst, make sure to follow us on Twitter.