Electronic Arts & Activision Blizzard Ready To Enter eSports Market
Electronic Arts and Activision Blizzard, among many others, are now on their way to enter into the lucrative and exciting competitive gaming market. What does this move bring for both these game developers?
On December 10, 2015, Electronic Arts (NASDAQ:EA) announced a new competitive gaming division (CGD) as a part of the competitive gaming market: eSports. [1] Peter Moore, EA’s Chief Operating Officer (COO), will head this division, with Todd Sitrin in the role of Senior Vice President and General Manager of CGD. On the other hand, in October 2015, Activision Blizzard’s (NASDAQ: ATVI) announced its own new division for competitive gaming, with Steve Bornstein, former CEO of ESPN, as the division’s chairman. [2]
What Is eSports?
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ESports, or electronic sports, is the term used for competitive multiplayer online gaming, usually between professionals. To define it more clearly, it is a type of organized multiplayer video game competition, played at a rather huge level, with live broadcasts of the competitions. In some of the tournaments, the competitors are even rewarded with lucrative money prizes and salaries. These tournaments include League of Legends World Championship, Evolution Championship Series, The International and Battle.net World Championship Series, and most of the genres include action, shooter, and multi-player battle arena (MOBA).
Why Did EA & Activision Enter This Market?
The gaming industry has been shifting towards more digitalization and online gaming. Initially Electronic Arts and Activision Blizzard used to make games just for the console platforms. Over the last 8-9 years, the game developers realized the users’ demand for easy access and more competition, and subsequently have launched the online platforms for their respective games. Not only did these online platforms and digital content gain success and popularity, but they also reaped benefits for these companies in terms of margin expansions, since online and digital content of gaming is a high margin segment.
Although the competitive video gaming sector has been there for a long time, it is just recently that the viewership and participation has picked up in the last 5 years. Moreover, the prize money and lucrative awards are attracting more professionals to this sector. Since, FPS (First-Person Shooter) games are gradually becoming a part of the online competitive gaming landscape, it was the right time for these two big brand names to enter this market. Activision’s Call of Duty online community is already one of the biggest in the industry. Therefore, Activision might want to expand this dominance to a greater level. On the other hand, Electronic Arts is trying to gain market share in the FPS genre with its Battlefield and Titanfall franchise. This platform is a huge opportunity for the company to attract gamers.
According to Superdata Research, roughly 13% of the live-stream viewers watch these eSports competitions online, and nearly half of the U.S. viewers use Twitch.tv for live streaming of game content. [3] This platform not only provides an additional revenue stream, but most importantly is a marketing tool for these companies to improve the awareness about their games and gain user attention.
How Can They Benefit From This?
The popularity of the eSports market has been increasing with increased viewership and participation, especially in North America and Europe. Games like DotA 2 and League of Legends have been witnessing huge audience and participants lately. Although shooter games do not enjoy as much spectatorship as the other role-playing games, the increasing demand of shooter games in these tournaments can be seen as a new trend setter.
For both the companies, it’s a huge platform to extend the user experience and to provide their existing users a new avenue to interact and enjoy the experience at a different level. According to Superdata Research, eSports enjoyed close to 134 million viewers worldwide in 2015, and is a $612 million market. [4] The way these eSports competitions generate revenues is through ticket sales, entry fees, sponsorships, and merchandise sales.
Activision’s Call of Duty is an example of the company’s capability to develop shooter games that can be distinguished from others. For Activision, it is a huge opportunity to develop shooter games that can be a part of this highly lucrative market, as well as to attract gamers from countries, such as Korea and China, who continue to dominate this market. Apart from attracting a new user base, it can improve the company’s other platform revenues.
Electronic Arts’ Battlefield 4 is already a part of global competitions. However, to extend the reach and expand the user base, this division might prove to be a huge driver in the coming years. According to Trefis estimates, EA’s service revenues per unit sold might rise at a CAGR of 8% for the next three years to $80. However, with additional revenues from the eSports gaming division, it might jump to $90 per unit sold, representing a 9% upside to the Trefis price estimate for EA.
Nonetheless, it would be interesting to see how these two companies set themselves apart in this market in the coming years.
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