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Wednesday, April 20, 2016

Will e-Sport Succeed?

Available on Netflix now at no additional cost is the e-Sport documentary "All Work All Play." I watched it last night. It was interesting and enlightening, giving me insight into the difficulty involved in getting e-Sports off the ground as an industry. It was also exciting if you didn't already know the outcome of last year's Extreme Masters tournament in Katowice, Poland for League of Legends, with which the show mostly concerned itself. It's worth watching if for no other reason than to see the passion, and stress, e-Sport teams go through.

As I watched the show last night, there was one fact flipped up onto the screen that really surprised me.
"More people watched these guys play a video game than watched the highest-rated games of the NBA finals, the NHL finals or Sunday Night Football."
My inner cynic immediately asked, "Really?" I had to verify the numbers of course. My first stop was the ESL News web site to dig up the story on last year's Counter Strike tournament. There's a lengthy infographic provided at the link, but the gist of what it says is, "860,992 fans watched the finals on March the 15th" and there were a total of, "8,785,740 unique visitors and 16 million hours watched." That seems to be for all games played. Here's what Google had to say about the 2015 NBA finals.

I think ESL is exaggerating the numbers just a bit when it comes to their comparison with the NBA finals. I'm not sure if you can really equate "unique visitors" to viewership in the traditional television sense. Even if you could, the ESL number is still less than half the viewership given above. Even more people, a record setting 23.57 million on average, watched Sunday Night Football last fall according to The IEM tournament just doesn't compare.

Nevertheless, the numbers are impressive without the comparison. And they were even better this year, coming in at 2 million concurrent viewers. Now you need to remember, this is not a single company running a tournament to promote their game like Blizzard does with the Starcraft II World Championship Series or Riot does with their League of Legends Championship Series. There is a fundamental difference between self-promotion and the promotion of others. It is the difference between Blizzard/Riot and ESL. The game producers really only care about the games they sell. ESL runs e-Sport tournaments for a wide variety of games, and their revenue stream has nothing to do with selling games, but rather the playing of the games as a means unto an end itself . So while Blizzard or Riot could survive if one of their tournaments lost money, ESL does not have that luxury. The show makes that point several times.

That is why I ask, "Will e-Sport Succeed?" I am certain Blizzard and Riot will continue promoting their games until no one plays them any longer. I am more concerned with companies like ESL, who are independents. I do not think e-Sport as an industry can happen until it undergoes the sort of transformation the space industry in the United States is attempting and adopts a business model more like other sports.

So you're asking, "how is e-Sports like the space industry?" NASA is a governmental agency. It's priorities are not set by science as much as they are set by politics. When it comes to e-Sports, they are dominated by companies like Blizzard and Riot. Their priorities are set by their business and that is the business of game development. Though there is a symbiotic relationship between game development and e-Sport, they are not the same industry. It is perhaps true you could say e-Sport grew out of game development like SpaceX and Blue Origin grew out of the U.S. space agency, but it needs to be a distinctly different industry from game development. Just as commercial space flight needs to be free of rancorous political meddling, e-Sports needs to be free of game developers. And just as SpaceX and Blue Origin will only be truly successful if they can exist without NASA launch facilities and contracts, e-Sport will only truly succeed if it can exist without the need for game developer funded tournaments. That is not a call to end game developer tournaments. That would be dumb IMO. But there is a need to end the e-Sport industry's dependency on them.

That will likely only happen when game publishers no longer call the shots in e-Sports. put out an e-Sports Market Report in January that explores the overall potential of the emerging e-Sport industry. They predict e-Sports will be a billion dollar industry by 2020. I really liked this report because it did one thing many other reports did not. It threw out income from e-Sport gambling. Gambling revenue is not reported in traditional sports market reports, and should not be reported for e-Sports. You can bet on anything, and gamblers do. Their concern is not to support the events they bet on. It is simply to bet. The money is not directly tied to the industry of the event they are betting on. They are just making bets. But getting back to e-Sports, Peter Warman, the CEO of Newzoo, had this to say about the future of e-Sport,
"2016 will be pivotal for esports. The initial buzz will settle down and the way forward on several key factors, such as regulations, content rights and involvement of traditional media, will become more clear. The collapse of MLG was a reminder that this market still has a long road to maturity and we need to be realistic about the opportunities it provides."
I have highlighted what I saw as most important in that statement. For those who don't know, Blizzard acquired MLG in January of this year. Specifically Blizzard wanted, MLG's streaming service. So what happened? Basically, MLG never made any money. Yes, they were the leader in independent e-Sports streaming, but you don't stay in business by losing money. After more than a decade of red, their only options were to close shop or sell. They sold, and by doing so confirmed to many that e-Sports could not make it without a publisher. But frankly MLG never really had a chance.

I won't pretend to be an expert on MLG and what it did or didn't do right, but I will say their task was made a lot harder because there were no clear cut rules on how to play the game. In any video game we play, we know exactly what a champion, or a unit, or a ship or a tank is capable of doing. It is constrained by concrete rules we can rely on to plan our strategy and tactics. It is an understatement to simply say it is important for the game to have rules. The rules ARE the game. You can't play the game without them, and that is what MLG tried to do. It doesn't work.

Also, the games MLG focused on did not really interest me. People don't watch what doesn't interest them. That is why there are much smaller audiences for Curling than Hockey. To make it big, the sport needs to appeal to a lot of people. That's why League of Legends tournaments set simultaneous view records and EVE Online tournaments do not. I'm not assigning blame here. It's no one's fault if a company can't generate enough interest in their product to make a go at it. But to make it as an e-Sport broadcaster, you have to broadcast what is popular before you branch off into less popular games. Unfortunately Riot owns the rights to all things League of Legends. They get final say, and if they say no there is no recourse. No one owns football. No one owns basketball. But in our current gaming environment, these games are most certainly owned by those playing them as with other sports. That's big a problem. If your business is predicated on using games others can sue you for using in a way they don't like, you will fail.

There is another issue at play here too, though not as big an issue in my mind. It seems to me e-Sport fans are a bit cheap. They want to watch for free without commercial interruptions and are loath to pay for the stream. They will pay to go into an arena, but generating funds from the stream is still a hard thing. In the key facts listed in the Newzoo report was the fact that e-Sports generate only a quarter of the money per fan as traditional sports. That right there illustrates why MLG did not succeed as much as picking the wrong game. But then again, a more mature industry could generate more money per fan simply by dint of having a broader reach and better defined rules and regulations. If you can reach more potential fans, and have a well structured profit sharing structure, you'll make money, and as the hype grows your revenue per fan will increase. But without revenue, you can't afford the cost of reaching more fans, or the infrastructure to establish and oversee fair and equitable regulations. It's a classic Catch-22.

So how do traditional sports do it? Looking at a standard NBA broadcast, the advertisers don't pay for the athletes and the teams. The advertisers only pay for the broadcasting company, which employs the broadcasters, which is done by a different company then owns the team. In other sports, stadiums and arenas are provided by the "home" team under a separate business arrangement with the hosting municipalities. The teams themselves are individually owned, with their own licensing rights, etc., and aren't represented by the broadcaster or the municipalities, but rather an association unaffiliated with either. The athletes and the teams, as well as the association, make their money from licensing, which includes the fees the broadcaster pays for the right to broadcast the teams. It is a much more segregated and regulated industry.

What I am seeing with ESL in the documentary is they contract for the arena. ESL provides the broadcasters. ESL invites the teams. ESL arranges everything. They are on the hook for everything. ESPN is not responsible, nor do they take the blame, if the power goes out in an arena, as happened to ESL in the movie. ESL takes the fall if anything goes wrong. In short, ESL does everything and is responsible for everything. That's untenable. I don't think that's ever going to work as a business model, and it concerns me greatly. Does it concern you? Can this model ever work? Am I just mumbling about things of no import? Let's have a discussion in the comments.

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