Category: market

How COVID-19 is taking gaming and esports to the next level

This post was originally published on World Economic Forum, written by Stefan Hall. It is used in accordance to Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with WEF’s Terms of Use.

Summary:

  • The COVID-19 lockdowns have boosted user engagement with video games and esports.
  • Revenues for many gaming companies and platforms have increased during the pandemic.
  • The pandemic is accelerating existing trends within the gaming industry – here’s a guide.

The global video game industry is thriving, despite the widespread economic disruption caused by the coronavirus. With the practice of social distancing reducing consumer and business activity to a minimum, gaming offers an engaging distraction for people at home looking for social interaction, and initial data shows huge growth in playing time and sales since the lockdowns began.

The gaming business model

The global video game market is forecast to be worth $159 billion in 2020, around four times box office revenues ($43 billion in 2019) and almost three times music industry revenues ($57 billion in 2019). The biggest market by revenue is Asia-Pacific with almost 50% of the games market by value. North America accounts for a quarter of revenue.

The gaming industry's revenues far outstrip other entertainment sectors
The gaming industry’s revenues far outstrip other entertainment sectors.
Image: Newzoo Global Games Market Report

Gaming revenues are almost entirely driven by consumer spending, but the business model has evolved significantly in recent years. Consumers today buy fewer games than previous decades, but spend more time with those games, shifting the business model from single-unit to recurring revenue generated from a base of active users.

As a result, the industry is laser-focused on increasing engagement per user. Aside from making video games as compelling as possible, the strategy for doing so has been the adoption of in-game monetization opportunities. This additional downloadable content (DLC) can include expansion packs, new features, tools and characters, and “loot boxes”, which are effectively a lottery of virtual items.

This business model has come in tandem with improvements to gaming hardware, bandwidth and mobile internet, which have made high-quality games more accessible across devices and platforms. Indeed, close to half (48%) of the industry’s revenue now comes from mobile gaming.

A separate part of gaming is esports, which refers to organized, multiplayer video game competitions. This sector is forecast to grow to just over $1 billion in 2020. Business models in esports closely follow professional sports – though competitions are far more fragmented – with the majority of revenue coming from advertising and broadcasting. Although relatively small in comparison with the overall gaming market, esports is relevant here because it appears connected to the continued growth of gaming.

COVID-19 has boosted engagement with video games, but has complicated hardware and software development

Like many companies, the gaming industry is supporting community initiatives to mitigate the effects of COVID-19. These include charitable pledges worth millions of dollars, the donation of surplus computational power to help researchers better understand the coronavirus, and solidarity response funds to help medical workers, children at risk and employees who have been adversely affected.

Social actions aside, the consequence of COVID-19 on gaming has been a massive enlargement of the audience available to publishers. Gaming is typically an at-home activity, and a steady stream of headlines has shows that it is flourishing during the pandemic.

Asian gaming giants Nintendo and Tencent both saw sales increases during the first quarter. The former sold almost half of its games digitally, a record that helped increase profits by 41%, while Tencent’s year-on-year online games revenue increased by 31%. Analysis from GamesIndustry.biz shows that sales across 50 key markets rose by 63%. Even games released during the pandemic are performing well, with titles as varied as Doom Eternal (a first-person shooter) and Animal Crossing (a world-building simulation) both breaking sales records after launching. This is reflective of data from Comcast that shows how new game downloads have increased by 80%, compared to a rise of ‘only’ 50% in total gaming downloads.

Looking at downloads and sales in isolation does not paint a complete picture, since many games are now available for free (and then monetize in-game). But other metrics for engagement tell the same story. Verizon has reported an increase in gaming traffic during peak hours of 75%, compared to increases of 12% increase in digital video traffic and 20% in web traffic. Meanwhile, data from Streamlabs shows that platforms like Twitch, YouTube Gaming, and Facebook Gaming have also experienced a surge in growth, with around a 20% increase in usage hours reported across services.

“Unique to gaming is that it has both interactive and linear consumption models, and the activity of watching gaming video streams and video on-demand has become nearly as big as gaming itself,” says Mike Sepso, co-founder and CEO of Vindex, an esports infrastructure platform. “In the COVID-19 era, all of this activity has increased dramatically because of both the new time available to people and their need for social interaction, which gaming provides.”

The popularity of online streaming platforms has shot up during the pandemic
The popularity of online streaming platforms has shot up during the pandemic
Image: Streamlabs

This said, gaming is not immune to the coronavirus. Esports, with its reliance on live events, has been one of the first parts of the industry to be affected. Most esports events have been cancelled or postponed, though some are taking place without audiences.

“We have directors, producers, broadcast engineers and professional gamers all working remotely to recreate the excitement and quality of a live event,” says Sepso. “Esports has been able to continue while traditional sport has not because the playing field is virtual and can be replicated online; however, nothing can truly replace the social richness of the live experience.”

The short-term impact on esports is expected to be limited. Although close to 75% of esports revenue comes from advertising and broadcasting, most of these deals were agreed before the outbreak. If restrictions on mass gatherings continue, esports-related income would certainly fall. But considering that esports accounts for less than 1% of the gaming market, this would not represent an existential threat to the wider industry.

Despite this, esports may be growing in prominence as a result of COVID-19. Sports leagues around the world have turned to the sector to find new ways of engaging with fans. Several esports competitions are being shown on live TV, as broadcasters look to fill hours of scheduled sports content that were cancelled in the wake of the pandemic. NASCAR has been one of the most successful sports to augment cancelled events with its iRacing Series, with one event attracting a peak of 1.3 million viewers. Although esports revenues may have declined, the value of the sector more broadly has risen as a result of the low-cost marketing it has benefited from during the crisis.

For the wider gaming industry, coronavirus makes temporary delays in the production of gaming hardware more likely as factories around the world face supply chain interruptions. Furthermore, game developers are preparing for a loss in efficiency as more employees work remotely. Nintendo has issued a warning that a situation of prolonged remote working will impact its processes, and the New York Times reports that developers as large as Sony, Amazon and Square Enix are facing difficulties. Others appear to have adapted quickly, with Epic Games (the makers of Fortnite) still providing regular updates and patches to games.

Long-term transformation

Looking to the long-term, there are several takeaways from the recent spike in gaming that indicate future transformations in the industry.

The greater interest in gaming may accelerate a shift – already underway – towards the delivery of games via mobile and cloud-based platforms. Increasingly, even blockbuster titles are available on mobile devices. Cloud gaming, meanwhile, enables consumers to play streamed games across devices, often without the need for expensive hardware.

The industry clearly now sees potential in this distribution model. Activision Blizzard reported earnings 50% above analyst expectations, largely based on the mobile edition of its popular Call of Duty title. Google recently removed a $130 sign-up fee for its cloud gaming service, Stadia, hoping that the value offered will convince consumers to stay for the long-term. Challenges – particularly to bandwidth – remain, but there is great promise.

The second long-term trend is the widening of monetization avenues through subscription and free-to-play models. Subscriptions provide a reliable path to monetization for smaller, quality games that otherwise lack the marketing or monetization nous to break into the mainstream. Demand for ultra-high-end gaming is likely to remain popular, but services such as Arcade (Apple) and Game Pass (Microsoft) provide gamers with a large library of video games – often without the need for advanced hardware. Meanwhile, free-to-play games allow developers to monetize without needing to convince consumers to make up-front purchases. Instead, they offer in-game upsell opportunities such as upgrades and expansion packs.

Such buffet models may even encourage consumption. Microsoft has reported that subscription gamers increase play time by up to 40%. With evidence showing that cheaper entertainment tends to prosper during recessions, these low-cost, high-value offerings are a serious way for the gaming industry to expand.

Thirdly, we should expect to see the gaming industry increase its partnerships with other entertainment sectors. Some video games become so popular that they spill over into cultural discourse. The most obvious recent example is Fortnite, which has made its mark on music, sports and television. The game has hosted live concerts, premiered new albums by major artists, and featured content from movie directors. During the pandemic, Fortnite hosted a live rap concert that attracted almost 30 million live viewers.

Other exceptionally popular games, such as Roblox and Grand Theft Auto, have adopted similar strategies in the past. The pulling power of the 120 million active users and 1.5 billion hours of playtime they generate each month are hard for other entertainment sectors to ignore. Going forward, there will be more partnerships with the wider entertainment industry, as media companies seek to take advantage of the momentum gaming has produced. Reports have surfaced in the past weeks that Sony is building an immersive media team to work at the intersection of music and gaming. These in turn create opportunities for supporting industries, such as technology companies that supply the infrastructure for such experiences.

Finally, the pandemic may lead to the normalization of esportsAnalysts have described esports as being “popularized and legitimized in an unpredictable and profound way”, thanks to the unprecedented (and accidental) adoption of esports by broadcasters, leagues and athletes seeking to engage fans. “Among younger demographic groups, a prolonged shutdown for traditional sports leagues may drive more fans to esports on a regular basis – which globally would represent tens of millions of new consumers for the industry”, says Sepso.

At the very least, the pandemic has reminded media companies and brands that there remains an addressable market of highly engaged consumers. Recent developments will likely inch esports towards the mainstream. The earliest proof point is the state of Nevada, which legalized betting on competitive gaming just two weeks into confinement measures in the US.

Mobile + IoT + Cloud + VR: The Next Gaming Revolution?

Recently, a whole slew of interesting gaming-related exits has boosted the profile of gaming in the venture capital space. Zenimax has been acquired by Microsoft for over US$7.5bn while Unity has made its debut on the NYSE with a US$22+bn market capitalization.

The rapidly growing community of online gamers has found ways to use the technology available via social media and live streaming platforms to attract a large audience. Whereas gamers used to be a specific group of nerds, eSports is evolving to take in literally any person from any background. As technology advances from the spectrum of connectivity, it helps in spreading eSports to traditional communities.

We are seeing a boom in mobile gaming thanks to the power of the Internet-of-Things (IoT) and the cloud. IoT has enhanced the growth and development of mobile games in the market. Modern smartphones come with advanced hardware and software capabilities that developers can make use of to make gaming on these devices enjoyable and seamless. Consumers can have easier and better access to the games, and many of them are free. Even the premium games come with less costs and enthusiastic gamers are willing to spend on them. Before the internet, access to mobile games was a bit limited.

Developers did not have any platform to plug their new games, so the gaming industry was a stagnant one. Now, things are different and the rapid increase in the number of individuals playing mobile games all over the world gives a clear picture of how mobile gaming has grown greatly in popularity. This has bridged the gap between developers and consumers, thereby creating more ancillary revenues for the developers and the community alike.

The demand for immersive gaming by eSports enthusiasts is insatiable. Even though virtual reality (VR) will be one of the ways to satisfy this demand, 3D technology will also come in handy. You might be surprised to learn that 3D films have been around for centuries. The only impeding factor that made them not to pick up was the high costs of development and adoption. However, recent times have seen the technology revived in films such as Avatar and also in gaming screens. We can expect that video games will have better quality graphics to the extent that it will be impossible to differentiate them from real-world scenes.

The eSports industry is gradually adopting virtual reality. There are dozens of VR only leagues that are being launched on a yearly basis. Even though most eSports enthusiasts are yet to adopt VR as widely as it would be expected, it is quite interesting to see how far the technology can take eSports.

VR in sports involves a player putting on some headset and holding some kind of controller to play a video game. Since the headset cover the players’ eyes and ears, they are completely removed from the physical world and immersed into the video game world.

The essence of VR is to be immersive so that the player has a deeper connection to the video game. It is every serious developer’s wish to make their games feel more real and have little differences with the real life. By including virtual reality features in their games, the developers are a step ahead in achieving this objective.

The fact that virtual reality has already proven to be useful in other sectors does not imply that its adoption in eSports is smooth. As a matter of fact, the technology feels like a glorified niche among its best athletes. Even some of the leading games are yet to incorporate VR components in their design.

The VR League is one of the most prominent virtual reality eSports leagues and is a part of ESL. Evidently, ESL is of the opinion that technology has a place in eSports, hence the decision to create a product solely dedicated to it. Some of the games that are currently being played in VR include Onward, Echo Arena, Space Junkies, and Echo Combat. Developers will need to continue developing games that the general public enjoys in order for their games to grow beyond their current standing.

We would expect the growth of eSports in a much more immersive ecosystem, where competitors can engage themselves into the virtual environment and have a 3D feel of the entire game. Audience can also expect much better graphics with the power of streaming and better computing power.

If you are a gaming founder or an investor who is looking to tap on this massive opportunity for growth, feel free to drop us an email here.

This article is created based on references to the following articles:
1. IoT Gives the Mobile Gaming Industry a Facelift, 15 June 2020, The Katy News (accessed October 5, 2020). Archived Link: Main | HTML | JPEG
2. Investing in Esports Startup Ventures (research by Gamerforce Ventures), 2nd ed. (23 June 2020).

[a16z Podcast] What’s Next in Gaming

Recently, I was listening to this podcast by a16z, a top tier venture capital / investment advisory firm in Silicon Valley. Quite interesting insights.

How to Find a Sponsor for Gaming

Recently, Giordarno, a good friend of mine has been discussing the monetization of esports. With our recent investment in Resurgence, some people are asking us on our investment thesis into the company. The bulk of revenues from esports organizations come from sponsorships. The large non-endemic brands have already moved into esports by sponsoring esports organizations and athletes to market themselves to the younger audience. In order to help esports grow, we would like to share that the three main ways to attract more revenues as esports athletes and organizations: Proactiveness in seeking out the sponsors, marketing the athletes and working with an agent or manager (such as Resurgence). Without further ado, I present the article:

Gaming has come a long way over the past few years. Before it used to be a hobby frowned upon by parents, and the opposite sex, but now one can make a lucrative career out of it. It’s grown so much large companies are even realizing the marketing potential, and have began sponsoring tournaments, events and individual gamers.

It’s best to keep in mind, companies don’t just hand out money, like candy on Halloween. Companies need to feel like they’re getting something in return for sponsoring you. You need to approach companies that have some sort of relation to the video-gaming industry, or more specifically, whose target market is the gaming industry. But also on a more positive note, companies can be very interested in sponsoring gamers, and there are ones that are actually looking to sponsor you, which may seem hard to believe, so that shows how important it is to stand out from the rest.

There are a couple routes you can take when considering sponsorship.

1) Proactively attracting a sponsor is the route where one uses their sales skills to convince a company to sponsor them. This way can be easy or hard, depending on the individual’s persistence and ability to convince a company that they’re worthy of sponsorship. Typically this route consists of either writing and mailing sponsorship letters directly to the company, or contacting the Marketing department of a company and making the pitch.

2) Marketing one’s self is another method, which usually has the company approaching you, to represent them. This way is the easiest route because one doesn’t have to do any work, but it takes a long time to build-up the notoriety and popularity in the industry for a company to approach someone. This can be done for example by making it to the top of the industry by being the best at a particular game title, or this can be done by paying a fee. Some relatively new management agencies in the video gaming community such as United Gamer Management, are offering promoting and marketing services to teams and gamers. This can help save time and used as supporting evidence to “wow” a sponsor.

3) Another method of obtaining sponsors is by working with an agent or manager. Similar to how a professional sports agent or manager obtains sponsors for their clients, the gaming industry is starting to see growth in this area too. If your fortunate enough to have an agent or manager to represent you and do the work for you, this is probably the best and easiest way to obtain sponsors. In return, the agent or manager takes roughly a 15-20% commission fee for their service. These sorts of agencies can easily be found by a good search for terms such as “professional gamer agency” or “eSports agency”.

References: http://www.unitedgamermanagement.com

Article Source: https://EzineArticles.com/expert/Giordano_H/899560

If you would like to explore opportunities to work together with our portfolio company, Resurgence, either as a sponsor or as an esports athlete, please feel free to check out their website at www.rsg.gg. If you would like us to make an introduction to the founder, please email us at portfolio_support@gamerforce.ventures.

Hope this gives you a better understanding of the monetization potential for esports. Cheers!

The Reasons for Esports Developing So Fast

Recently, Emily, a good friend of mine has been discussing on the esports scene globally, and the reason why it is developing so fast. With the large numbers of people flocking towards Esports, I think is a very interesting way for brands to market themselves to the younger audience. The key in such growth, as pointed out in the article, relates to 3 parts: Technological improvements, Commercial applications for brands to leverage on, and the ecosystem itself. So here it is:

Form 1958 Tennis for two to nowadays League of Legends and DOTA2, we have to admit that Esports is growing rapidly. It has affected every aspects of our life unconsciously and created a flock of Esports stars. But you may wonder: when did it come into focus? How did it change unexpectedly? Here are the three reasons for this question.

1. Technology
Esports is a sports game conducted by Internet and local area network, based on computer and video games. The development of information and technology and improvement of network infrastructure all lay the material foundation of Esports. Basic guarantee provided to Esports by the development of high-end computer application platform. More and more popular Internet makes it possible for big, complicated and continuous online games. Conditions for large number of players online at the same time are mature enough to support such a big game. Information technology, network foundation and computer application platform have created excellent chances for the competition and rebroadcast of the Esports.

2. Commerce
Undoubtedly, skyrocketing Esports has close relations with its commercial values. Esports has magic power to attract public, especially the young. Besides, advertising is also a hidden business opportunity. For example, in-game advertisement is very popular among gaming industry for its updating speed, novel format and high pertinence. Esports is a dreaming platform for game factories to raise popularity of their brand. For this reason, game producers spare no efforts to support it. The organization and operation of this competition restrained by the profits of the gaming industry. This kind of restriction seems have negative impact, but actually it is beneficial to the conduction of Esports from the capital aspect.

3. Esports itself
In recent years, with the expansion of Internet coverage area and the diversity of application platform, playing online games has no restriction from the place or time. At the same time, quality and quantity have largely improved. University has been attached to the requirements and flexibility of the players. Interaction is very important to an electronic game, which is a key to be popular. At present, electronic games tend to pay much attention to the blend of virtuality and reality, which is in order to enforce the interaction of electronic games. It attracts so many people because players can treat themselves as the roles in the game and explore that virtual world and adventure on their own. It is the inner cause for the rapid development of Esports.

It is irreversible that Esports is maintaining this development impetus. We are playing it, discussing it and thinking about it. As a consequence of modern technology, it is also an opportunity to inspire global economy and enrich lives.

Article Source: http://EzineArticles.com/9607395

If you would like to join us in taking on the opportunities in this new esports and gaming market, please feel free to contact us and join the current funds we are raising (Terms and Conditions Apply). We will get back to you as soon as possible.

Why Games As A Service Will Kill Video Games

Recently, the power of cloud computing has allowed for video games to be purchased on a subscription model. My friend Alexander Criscione would like to offer some insight into this innovative business model:

Video games have been around for quite some time now. They are many peoples favorite past time, and even a way to make money. Playing video games turned from a hobby to a job very quickly, especially when video and live streaming platforms like YouTube and Twitch came to rise. With these platforms, many people picked up their controllers hoping that they would become the next gamer who makes millions doing what they love. With more people playing games the developers for the games need to dish out better and more up to date products. Even if these products are not the best, they do it all for the money in the end, because it is a business.

When video games were first released they were an incredible feat and all were unique in their own way. Even though they did not look that great back in the 80’s and 90’s they offered something that even a lot of games today don’t offer. And that something is quality. Within the last 5 years or so video games started to become more of a service than an actual piece of entertainment. Slowly top Triple A developers started to incorporate microtransactions in their games, very different from DLC (Downloadable Content). DLC was always an expansion or more added content to make the game have more playability, in turn making the gamers more entertained and wanting more. The problem lies within video games that try to sell pieces of their game that should have been for free or unlocked by actually playing the game instead of just putting in a credit card number to unlocked said heroes or items. This is a common practice recently and it has raised a lot of issues, and even many countries consider “loot boxes” gambling, which in reality it is. A loot box in video games is when a player either uses in-game currency or real currency to get a random item or a random set of items. Now the value of these items is based on a scale, some players will receive rare or higher quality items compared to others simply based on odds. This is mainly aimed at the younger gamers who are more naive and are willing to spend whatever money they have on a game to make themselves look cooler or play better. All just to get ahead of the curve.

Photo by Sean Do on Unsplash

This practice is extremely dangerous not only because it promotes gambling to children, but it can be extremely addictive. There are many cases in which people spend thousands of dollars just to get a single item or to buff up their character or team. Clearly, the developers do not care, because it is just more money for them, but they never look at what this can do to a person’s livelihood and even their families.

The main reason these practices are implemented is for the developers to keep generating money even after the game is released. Based on the statistics microtransactions make more overall than the game itself, and those types of game series are released on a yearly basis with little to no changes in the actual video game itself. It is extremely rare to find a completed game at any store or marketplace that doesn’t offer micro transactions, even if they do not impact gameplay it still is a major issue.

If developers want to keep gamers entertained and invested in their video games then they should develop quality games instead of creating games that are barely finished loaded with micro transactions. The games as a service trend are slowly killing the quality of video games. Sooner or later people will not even be allowed to fully own the game, everything will just be a rental, but the player still needs to buy a code to play the rental and then pay the rental to play the game which is not even theirs. Look how crazy that sounds!? The only way this all will change is if the player chooses to change.

If you would like to contact me please feel free to email me at acriscione27@gmail.com. I would be happy to chat with anyone!

Article Source: Criscione, A. (2018, May 18). Why Games As A Service Will Kill Video Games. Retrieved November 8, 2019, from http://ezinearticles.com/?Why-­Games-­As-­A-­Service-­Will-­Kill-­Video-­Games&id=9943729

eSports Scene in Singapore

Recently, the Straits Times reported that the inaugural Esports Festival Asia (EFA) was launched on July 18, 2019 during the Comex Technology show. The prize pool for Comex EFA 2019 is $35,000 over 4 tournaments and 6 game titles, with close to 200 participants this round. The organizer, Sphere Exhibits (under SPH) is investing $1 million into eSports and gaming.

The Singapore Esports Association has been formed in November 2018, and now, the association has nominated a team for the SEA Games (Mobile Legends) competition to the Singapore National Olympics Council. It has also been recognized as an official sport in the Asian Games (from 2022) and on track to gain world recognition. Singapore has also launched its first diploma course in eSports and game design.

Looking at the eSports startup scene, we see a couple of unicorns that have emerged from Singapore. Garena (NYSE:SE), founded by Forrest Li in 2009, has raised up more than $700 million in venture funding (angel round to Series E). Another big name from Singapore is Razer (HKSE:1337), which has raised $175 million in venture funding. Both companies went onto the stock exchanges valued as unicorns. On a global level, Niantic (the company behind Pokemon Go), was valued at $3.7 billion during their Series C. Based on all these statistics and news, I would say that there is a rise in eSports in both Singapore and the global level.

According to Tracxn, we see an exponential increase in venture funding coming into this space, with big names such as KKR, Kleiner Perkins and Sequoia Capital betting huge on this area.

Also, we start to see new VCs that are quite focused on this industry. For example, one of the newer VCs that came out in Singapore focuses mainly on 4 sectors, with eSports being one of them (the others being blockchain, AI and Fintech).

South East Asia is 2nd in terms of eSports VC funding ($552 million), with most of it coming from Singapore.

I think the time is ripe for us to enter the market at this time. If you are a startup in the eSports and gaming scene and think that we might be of value, feel free to drop us your pitch deck via email (pitch@gamerforce.ventures).

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