Last week, I discussed the gap between popularity and profitability for new media formats. Voice platforms were my first example, since they have reached ~20% market penetration domestically, but are lacking strong monetization. This week, I’ll discuss another example of this phenomenon: eSports.
eSports — watching other people play video games competitively — might seem odd if you grew up watching “real” sports. Here’s the thing. Teenagers don’t watch TV anymore, and until recently the only place you could easily binge watch sports was on your TV. Disney-owned ESPN is the crown jewel of TV bundles and is thought to drive subscriptions and reduce churn. It’s a profitable tentpole for Disney to sell. 86% of the top 100 live telecasts in 2017 were sports-related. For that reason, Disney has been loathe to offer it on a standalone basis. Its recent ESPN Plus offering, which has been hyped for the last 2 years, falls short of a true unbundling, as this Recode article points out.
As a result, teenagers have faced a sports vacuum online for the last decade. They filled that vacuum with social networks, mobile games, and (you guessed it) eSports. Think of the timing. YouTube was purchased by Google in 2006. It launched a standalone app on iOS in 2012 and already had an Android app at that time. If you were 12 years old in 2012, you’re now 18 years old. Amazon bought Twitch when you were 14 years old. You’ve basically spent your teenage years on YouTube/Twitch and eschewed TV, so it should be no surprise that your desire for competitive play was satisfied by the former (where eSports reigns supreme), not the latter.
Moreover, eSports aren’t subject to the same cultural norms as conventional sports. Cricket doesn’t resonate in the U.S., and American football doesn’t translate well outside the states. To the contrary, League of Legends, Counter-Strike, DOTA 2, Overwatch, Fortnite, and other top eSports titles are international phenomena. Streams have been freely available all over the world in various formats thanks to ad-supported services like YouTube. Video game fandom is global. As such, the reach of eSports is truly unparalleled given its nascency.
That brings us to the numbers. Newzoo’s 2018 report on the state of eSports breaks down the market into “enthusiasts” (who watch eSports at least once a month) and everyone else. In 2018, it estimates 165 million eSports enthusiasts worldwide, out of a total audience of 380 million. North America represents about a quarter of that audience, so I’d estimate about 41 million monthly active eSports viewers today domestically. By comparison, America’s most popular sport is football, which draws 112 million Americans at peak viewership. It is followed by baseball (40 million), ice hockey (28 million), soccer (27 million), and basketball (24 million).
That makes eSports as a whole the second most popular sport in North America, about equivalent to baseball. ESPN’s entire Sportscenter audience is 115 million monthly viewers, roughly the size of the football audience, and as such it’s a good proxy for the entire domestic sports enthusiast market. Based on that total addressable market, eSports has reached just over a third penetration in the U.S.
Monetization currently lags adoption. Newzoo pegged global eSports revenues at $905 million in 2018, with North America capturing 38% of the total, or $343 million. Most of that revenue comes from sponsorships and advertising. On a per user basis, North American eSports enthusiasts are generating $8 of revenue each. In comparison, the annual sports rights revenues of the NFL, MLB, and NBA, respectively, are $7 billion, $1.6 billion, and $2.7 billion. Normalized by audience size, that corresponds to $63, $40, and $113, respectively.
eSports is therefore 5–14x undermonetized in the U.S. compared to traditional sports. The disparity is likely even greater, since this calculation only includes rights revenues for traditional sports and excludes event fees, merchandise, licensing, and other lucrative revenue streams. eSports could easily generate 10x the revenue per fan with the same audience in the U.S. today. Yet, at its current 15% annual growth rate, the eSports audience will double in just 5 years. If, at that point, eSports monetizes like the NFL, it would represent a $5.2 billion market in the U.S. alone and likely more than $10 billion globally.
As we discussed last week with voice platforms, eSports may seem like an early market. Its audience is predominately young and global. If you didn’t grow up with it, its cultural relevance may not be obvious. But for those in the mix (roughly 1/3rd of all Americans), eSports is a giant cultural phenomenon shaping the way we play and compete for fun and glory. Today, the game publishers (Riot, Blizzard, Epic, etc) mainly treat eSports as a marketing channel for their games, but in the future eSports could stand on its own as a multibillion dollar market opportunity.
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