Esports viewing shoots up but ad revenues have yet to ignite

The amount of time people around the world watch competitive video games as a spectator sport continues to rise at a rapid pace, up 19 per cent last year to more than 6bn hours, according to a new report from analysts at IHS Markit.

However, the study suggests it will take several years for professional “esports” to become a sizeable advertising business, given global audience fragmentation.

This is pushing the nascent esports industry towards a diversified revenue stream that includes ecommerce and rights sales, in addition to advertising. 

Esports has seen significant investment in recent years from games publishers and online retailers, including Activision Blizzard, Tencent, Alibaba and Amazon, the latter paying $1bn to acquire video game-streaming site Twitch in 2014. 

In its report to be published on Tuesday, IHS found that more than half of the global esports audience is in China, accounting for 57 per cent of all viewing in 2016.

Games were watched more than 11bn times online in China last year, more than four times as many as in North America, the second-largest market. IHS analysts expect annual esports viewing to exceed 9bn hours by 2021. 

The biggest esports tournaments, such as the League of Legends world championship, hosted by Tencent-owned Riot Games, and the Dota 2 international, held by US games group Valve, attract multimillion-dollar prize funds, often contributed by fans through crowdfunding campaigns.

For esports broadcasters both online and on traditional TV, advertising and sponsorship are the primary drivers of revenues today. Top advertisers include PC equipment makers such as Intel, AMD and Samsung, as well as lifestyle brands including Coca-Cola and Red Bull. 

As audiences grow, professional gaming is pushing into the sporting mainstream.

Last month, the Olympic Council of Asia gave the go-ahead for esports to be a medal event in the 2022 Asia Games in Hangzhou, China. Analysts at Macquarie said in a recent note to clients that the move “may potentially pave the path for esports to gain Olympic status by 2024”. 

“One of our big priorities is to unlock the full potential of professional esports by opening the sale of teams and media rights of our leagues,” said Bobby Kotick, chief executive of Activision Blizzard, on a call with investors last week.

The publisher of the Call of Duty franchise last year acquired esports network Major League Gaming and plans to launch Overwatch League, based on its game, later this year. It has been meeting with potential team owners in recent months, as part of its bid to “professionalise” esports. 

“The esports audience includes some of the hardest to reach and most sought-after demographics for marketers and advertisers, with the share of millennials two to three times higher than any of the big four US sports,” Mr Kotick said. 

In August, Activision will host the CWL Championship in Orlando, where 32 teams will compete in playing Call of Duty for a $1.5m prize pool. Mr Kotick said that esports in the “long term” could reach a “similar scale” to the US National Football League’s annual $12bn in revenues, including $6bn from media rights. 

However, the industry’s income from advertising remains well short of that target today. 

[Esports] is definitely still at an early stage, it is unquestionably taking time

IHS estimates that $280m was spent on esports advertising last year, and forecasts that figure to rise to $1bn by 2021. That sum is just a small fraction of the overall digital advertising market, which eMarketer predicts will reach $113bn by the end of the decade. 

“It is definitely still at an early stage, it is unquestionably taking time,” says Dan Cryan, analyst at IHS and one of the report’s authors. 

“The audience might be small, but within its demographic, it is overindexing versus traditional sports on TV.” 

The vast majority of viewing happens on PC and mobile devices, streamed on sites such as Twitch, with traditional TV broadcasts of esports gaining only a small audience share.

Despite claims by some esports proponents that its audiences are now as large as traditional sports, IHS found that on a country-by-country basis, viewership remains relatively small. For instance, 7m viewers might watch a big tournament final in the US, compared with 100m for the NFL Super Bowl. 

In the UK, Ginx, an esports channel backed by Sky and ITV saw its share of the total TV audience peak at just 0.01 per cent in 2016, according to ratings tracker Barb.

In the US, esports broadcasts attract audiences numbered in the low hundreds of thousands, rather than the millions that usually attract big-brand advertising. 

Nonetheless, competitive gaming is succeeding in attracting younger audiences that may be hard to find on other platforms. 

Says Mr Cryan of IHS: “Demographic changes always take time.”