Inside the eSports Business Model
While eSports involves video games, computers, and keyboards, the industry has much in common with the business model of traditional major league sports. Both industries earn significant revenues from sponsorships and advertising. Fortunately, Newzoo forecasts that sponsorship revenue will reach $584 million in 2020, assuming that some events successfully migrate to an online-only format. Overall, sponsorships account for an estimated 61% of the eSports industry revenue in 2020.
However, shifting eSports online poses challenges. With the closure of eSports venues, ticket sales have significantly fallen. In 2019, the industry earned approximately $75 million from event ticket sales and merchandise. Most event-related eSports are at risk or gone in 2020 unless companies can find a way to charge comparable prices for tickets and merchandise without the excitement of a live event.
Will Tournaments Make a Comeback in 2021?
The global COVID-19 pandemic is the elephant in the room for the eSports industry. As long as travel is discouraged and event venues are closed, these large gatherings are unlikely to recover anytime soon. A return to live events probably won’t occur for months due to the move to online events and travel advisories discouraging travel.
Canceled eSports Events and Those Moved Online in 2020
The onset of the pandemic crisis in March has led to many spring and summer events being canceled. Some events scheduled for later in the year have successfully moved to a virtual format.
- The Fortnight World Cup 2020 event was canceled. This cancellation was a significant blow to the industry because the 2019 event pulled in 100 teams to compete for $15 million in prizes.
- The International, an eSports event that attracted 18 teams to compete for $34 million in prizes, has been canceled in 2020.
- The 2020 Harrisburg University Esports Invitational moved to a virtual format in September 2020 with 64 teams.
- Some League of Legends events have been canceled while others have moved to an online format. The League of Legends World Championship 2020 event has been significantly reduced in scale when it started in September 2020. Instead of taking place in multiple locations across China, the event is now being held exclusively in Shanghai.
For live events that continue to run, COVID-19-related travel restrictions are likely to discourage travel. For example, the US state department has issued level 4 “do not travel” advisories for many countries, including Argentina, Brazil, India, and Indonesia. eSports events in China are likely to see fewer US participants due to the State Departments “Reconsider travel” advisory last updated on September 14.
Twitch’s Success Continues to Stand Out
Even as high profile tournaments and competitions struggle in 2020, Twitch has found success. Owned by Amazon, Twitch is one of the world’s most popular services to stream video gameplay. In Q2 2020, the company reported 5 billion hours of viewing time. With an estimated 67% market share of the video gaming streaming market, according to TechCrunch, Twitch enjoys a near-monopoly status.
As of early October, Twitch has approximately 2.2 million concurrent viewers compared to 1.2 million in October 2019. The increasing number of viewers also have more options than ever. By September 2020, Twitch had 7.4 million active channels compared to 2.9 million one year before.
If Twitch’s growth in active channels continues to exceed growth in viewership numbers, the company may have a problem. Increased competition for viewers may result in reduced earnings for each streamer. According to the Business of Apps, “expert streamers can make between $3,000 to $5,000 each month playing around 40 hours a week.” That figure may not hold up with millions of additional participants on the platform.
Twitch’s already robust market share is likely to grow further, thanks to Microsoft. In July 2020, Microsoft announced that it was shutting down its rival service, Mixer. Many of Mixer’s thirty million users are likely going to turn to Twitch.
The Long-Term Future of eSports Revenue Remains Bright
In contrast to traditional sports, which require players to be in the same location, eSports are inherently digital. That means the industry has fewer roadblocks to migrate to a digital format. The ability of teams to play together virtually and leverage streaming services gives eSports added flexibility to innovate.
About the Author
Bruce Harpham is an author and marketing consultant based in Canada. His first book "Project Managers At Work" shared real-world success lessons from NASA, Google, and other organizations. His articles have been published in CIO.com, InfoWorld, Canadian Business, and other organizations. Visit BruceHarpham.com for articles, interviews with tech leaders, and updates on future books.