"We are transitioning from the Overwatch League and evolving competitive Overwatch in a new direction" - 「Activision Blizzard」, Nov. 2023
In the preceding discussion, I mentioned about the apparent downturn in the e-sports industry (link provided below)
▶ [Game On or Game Over: Unveiling the Critical Challenges Facing the E-Sports Industry]
Nevertheless, according to Newzoo, the year 2022 witnessed the staging of more than 400,000 e-sports tournaments, indicating a continued level of activity within the e-sports landscape.
So, the question arises:
What do companies wish to achieve through E-Sports?
A notable disparity between e-sports and conventional sports lies in their respective revenue structures.
Based on the graph provided by 「ROCKWATER」, In traditional sports, a substantial portion of revenue is derived from media rights and ticket sales. In contrast, e-sports predominantly relies on sponsorship for its financial sustenance. This observation suggests that game companies, developers and publishers, within the e-sports domain seldom generate direct profits, such as those from ticket sales.
Then, why do these companies invest millions in organizing tournaments and allocate significant budgets for total prize pools?
The singular, yet plausible, explanation lies in:
▶ Loss Leader Strategy
To understand the full picture, we first need to understand the games that make it into e-sports industry.
A primary characteristic of these games is their adherence to a ① non-pay-to-win, ② free-to-play model
[Free-To-Play Model]
While the prevalence of free-to-play games is widespread today, this was not the norm in the past. An illustrative case is 「League of Legends」. In its initial stages, the game faced challenges in attracting investors due to its decision to adopt a free-to-play model, a strategy that ultimately contributed to its unparalleled success since 2009.
This success can be attributed to the historical barrier presented by pricing. For example, the traditional model required players to purchase 「Warcraft III」 to play 「Dota」, a *mod, incurring a substantial cost of approximately $60. This financial hurdle restricted access for individuals with lower incomes, creating a barrier to participation in the gaming experience. By eliminating this "entry fee", 「League of Legends」 successfully garnered a vast player base from its inception.
*mod : modification, a term used in the gaming community to describe new in-game content that players create as opposed to the developers
Ok, but why does the total number of gamers matter?
[Non-Pay-To-Win Model]
In the realm of free-to-play games adhering to a non-pay-to-win model, a substantial portion of revenue is derived from the sale of items such as the 'battle pass' and 'character skins.' Notably, these items contribute no tangible advantages to the gameplay outcome; instead, they are exclusively dedicated to aesthetic customization, without enhancing the strength of characters.
This distinction is crucial, as it implies that in the context of non-pay-to-win games, these individual cosmetic items are not subject to repeated purchases, in contrast to the conventional pay-to-win model. Consequently, the emphasis shifts towards amassing a broad user base, as the primary mechanism for revenue generation hinges on attracting a diverse pool of potential buyers.
[Approx. revenue earned in 2022, USD]
PUBG Mobile : $1.7 Billion
Fortnite : $4.4 Billion
League of Legends : $1.8 Billion
Apex Legends : $1 Billion
Despite the highest number of players 「PUBG Mobile」 acquired, a substantial portion of its player base is situated in regions such as India and Southeast Asian countries like Indonesia, where the average purchasing power of gamers may be comparatively lower than in other regions
In essence, the significance of a large player base is underscored by the fact that, despite individual spending capacity variations, the cumulative effect of a vast and diverse user population contributes significantly to the overall revenue generated by the game. This underscores the strategic importance of catering to a broad demographic to ensure sustained financial success in regions characterized by varying levels of economic capacity among gamers.
Then, why do some games fall short?
An analysis reveals that despite its extensive history, the e-sports market remains in an emerging phase. 「League of Legends」 achieved prominence by orchestrating the viral-ity of their games, indicating a strategic approach that set them apart. In contrast, some games enter this highly competitive landscape with the perception of the e-sports industry as a new revenue stream. However, as illustrated earlier in the graph, this assumption does not hold true.
The pronounced dependence on sponsorship in e-sports implies a lack of a robust ecosystem that can independently sustain the industry. Hence, companies should prioritize the development of exceptional games and devise effective marketing strategies to foster their growth. This approach involves capitalizing on the expanding market while refraining from attempts to artificially accelerate the development of the e-sports industry itself.
During its initial seasons, the 「Overwatch League」 primarily operated from the 「Blizzard Arena」 in Los Angeles, with occasional forays into the "homestead" format where teams experimented with home-and-away games. Some ambitious teams even planned multi-million-dollar arenas, exemplified by the 「Philadelphia Fusion」's proposed $50 million Fusion Arena (though, as of now, the lot remains undeveloped, with 「Comcast Spectacor」 expressing its commitment to constructing a multi-use arena in the future). However, the home-and-away structure lost traction as the Overwatch League pivoted to exclusive online play amidst the challenges posed by the COVID-19 pandemic.
The 「Overwatch League」 faced a significant setback when prominent sponsors withdrew their support for 「Activision Blizzard」 in the wake of the California Civil Rights department's lawsuit. Although in-person events resumed in 2022, interest in the league, alongside the highly anticipated 「Overwatch 2」, continued to wane throughout 2023.
In Summary,
prioritizing products is essential for the success of any enterprise, and the e-sports industry is no exception.
Viewing the e-sports industry as a unified enterprise and considering each participating company and their respective title as a distinct product can be a strategic approach for fostering growth and prosperity in the industry.
