Tech: Video game business gets bigger as eSports grows from niche to mainstream

IN the 1990s, when the internet was seen as a means to improve business productivity, rather than for entertainment, the video game industry was dominated by gaming consoles.

But as network speeds increased and costs came down, online multiplayer games exploded in popularity, changing the way companies designed games and how players were able to interact. Even the business model of game developers changed, shifting towards in-game microtransactions.

Then came the smartphone, and gaming went from being a niche diversion to a mainstream pastime. Combining high-speed wireless networks with cheap and powerful devices in people’s hands, it is no wonder that mobile gaming has emerged as one of the most lucrative industries in the world.

Of the US$101.1 billion generated by the global gaming industry last year, mobile gaming accounted for a whopping 38%, according to market intelligence provider, Newzoo.

This is a huge figure, considering that most mobile games are free-to-play. But successful games are addictive and developers are always finding ways to cash in.

This trend is far from new. In 2011, US-based Valve Corp founder and CEO Gabe Newell made a bold claim — that his 250-employee company was more profitable than tech giants like Google and Apple, on a per employee basis. Chinese tech giant Tencent Holdings Ltd’s online gaming revenue, which usually accounts for half of the group’s total turnover, has seen double-digit growth over the last seven years.

There are similar success stories closer to home as well. Last month, Singapore-based video game platform and e-commerce site operator Sea Ltd (formerly known as Garena) filed a registration statement with the New York Stock Exchange for an initial public offering, aiming to raise US$1 billion.

Among the subsegments in the video game industry, Newzoo says, game revenue from smartphones will see substantial growth this year. Of the US$108.9 billion global game revenue projected by the firm this year, 42% is expected to come from the smartphone and tablet segment, up from 38% last year. In fact, it has begun to encroach on traditional gaming as players develop a taste for competitive mobile gaming.

Beyond the publishing of games or the monetisation of in-game microtransactions, there is an entire industry built around gamers. Take, eSports, for example, which spans content creation, advertising and marketing, sponsorship and gaming event management.

“Viewing professional or amateur game video content is bringing back millions of lapsed gamers who no longer have the time to play, but whose passion is reignited by viewing other players and worldwide championships,” Newzoo says.

Game publishers see eSports as a means of increasing the shelf-life of their own games and for marketers in a wide variety of industries, it is a medium to reach younger, digitally oriented consumers.

Market intelligence firm GfK’s senior director of Asia technology retail tracking, Gerard Tan, tells The Edge that the increasing number of eSports tournaments in Asia-Pacific has raised interest in the video game industry.

Naturally, sales of devices and hardware are another key element of the gaming industry.

Last month, GfK published the Point of Sales Tracking Report for Computers in Asia-Pacific, which shows that consumers are increasingly willing to spend on gaming computers — this was the major driver behind the 36% growth in computer sales in the first half of this year.

“Gaming PCs are gaining popularity in Southeast Asia. The number of eSports competitions held in Asia has increased, contributing to the visibility of gaming PCs. Gaming enthusiasts are increasingly willing to splurge on enhanced gaming devices to enjoy a better graphics experience and smoother runs,” Tan says.

“Brands are riding this popularity and launching more gaming models, in addition to setting up gaming sections in retail outlets to pique the interest of consumers.”

The growth potential of gaming PCs has been attracting more players to the market, which stands at 24 brands today, with a total offering of over 1,700 models, compared with only 810 three years ago.

In its 2017 Global eSports Market Report, Newzoo estimates that media rights, advertising, sponsorship, game publisher fees, merchandise and tickets will generate US$696 million in revenue, equivalent to 41.3% growth from last year.

With a compound annual growth rate of 35.6% from 2015 to 2020, the firm expects eSports revenue to expand to US$1.5 billion by the end of the decade.

 

The scene in Malaysia

The growth in eSports has boosted local hardware sales. In a recent interview with The Edge, Acer Inc’s Malaysia product manager, Jeffrey Lai, says the local gaming computer industry is getting “pretty exciting”.

“We started our venture in gaming hardware products two years ago and sales are tripling annually in Malaysia alone,” he says.  However, he declined to reveal the sales figures.

Lai says Acer, just like its competitors, is bringing the gaming concept to the mass market by offering an affordable entry point.

“We want to bring in more products that cater for gaming, which usually have a premium pricing from RM7,000 to RM12,000, but we recently brought in products at more affordable prices — RM3,000 to RM5,000 — to accommodate a different segment of customers,” he says.

It is worth noting that a Malaysian made the headlines last month for spending RM40,000 on a gaming laptop, which was manufactured by the Taiwanese computer maker.

Computer and smartphone distributor ECS ICT Bhd CEO Soong Jan Hsung tells The Edge that the gaming PC brands the group represents, such as Asus, HP and Lenovo, have all enjoyed good sales.

“The younger generation is buying gaming computers for leisure and schoolwork. The latest games also demand more power, which forces the user to upgrade their hardware,” he says, adding that gaming computers fetch a higher gross margin.

In addition to computer sales, other Malaysian businesses are taking notice. Most notably, Astro Malaysia Holdings Bhd has established eGG Network to broadcast eSports-related events. Vice-president of sports business Lee Choong Khay says there is a growing interest in eSports, not only in Malaysia but also all over Southeast Asia.

“We strive to … gather a fan base of passionate gamers in Southeast Asia and Oceania, not just through content but through … events, social media, talent and even merchandise,” he says.

Lee adds that the first time Astro broadcast an eSports event was in 2015, and the six-day competition saw a cumulative 1.5 million unique viewers. “We have never looked back since, and the channel was officially launched in June last year.”

So far this year, the channel has recorded 5.7 million cumulative unique viewers.

To date, eGG Network is available in seven countries — Malaysia, Brunei, Singapore, Australia, the Philippines, Indonesia and Myanmar.

DiGi.Com Bhd digital engagement and community manager Matthew Ho says the group’s allocation to sponsorship in eSports is growing every year.

“We can’t share specifics, but our eSports sponsorship has increased year on year as we hope to grow the industry and build local gaming talent and communities. eSports is a huge global phenomenon,” he says in an email reply to The Edge.

“Previously, we sponsored WarriorsGaming.Unity, one of the top Dota 2 teams in the country, who took part in the world championships. We are currently sponsoring Kuala Lumpur Hunters, one of Malaysia’s top League of Legends teams that will represent the country in upcoming regional tournaments,” he says. He did not reveal the quantum of the sponsorship.

Dota 2 and League of Legends are multiplayer online battle arena (MOBA) PC games. To the man in the street, these are just computer games, but for the players, it is their livelihood, and an increasingly lucrative one.

The prize pool for the 2017 Dota 2 world championship was US$24.79 million and the champion took home US$10.86 million. It is the highest prize pool of all eSports competitions so far. In Malaysia, the highest prize pool thus far was RM500,000 at a tournament sponsored by U Mobile Sdn Bhd.

U Mobile chief marketing officer Jasmine Lee says, “We noticed early on that there was high data usage for gaming among our customers and high traffic on Astro’s eGG via our video streaming package. Our customers have given us a lot of feedback, asking us to develop more gaming services.”

Globally, brand names like Coca-Cola and Monster Energy are spending on the video gaming industry via sponsorship as a means to court its millennial audiences.

If the gaming industry continues its current trajectory, it is not difficult to imagine a world where sponsors and eSports teams form enduring partnerships, perhaps something akin to the 25 years that Carlsberg has been the key sponsor of the English Premier League’s Liverpool FC.

 

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