Facebook’s E-Sports Ambition Has More Potential Than You Might Guess – Seeking Alpha
It was relatively big news. Not only does it further blur the line between Internet and television, but it also positions Facebook as one of the fixtures in the next-generation of sports broadcasting.
The noise of the MLB news, however, largely overshadowed something else Facebook announced almost in conjunction with the streaming baseball news. That is, it’s also hooked up with e-sports event company ESL to stream over 5,000 hours of video gamers performing their craft – tournament style – as a profession.
Answers to the first two questions that arise are: (1) Yes, professional video-gaming is a real thing, and (2) yes, there’s a surprising amount of money up for grabs here. Thing is, the kind of money e-sports will be pulling in three years from now is significantly more than it saw last year, as 2017 looks like it’s going to be a breakout year for the “sport.”
Yes, Professional Video Gaming
The short explanation: E-sports, or professional video-gaming, is exactly what it sounds like… geeks and gamers squaring off, playing some of the world’s most loved video games for cold hard cash. Dota 2, League of Legends and Starcraft are among the most popular battleground games, though dozens of titles are used in competitions. Contest money is well into the millions for one game in any given year, and many players earn in excess of six figures just following the gaming circuit as events travel from one city to the next.
It’s not actually a brand new concept; e-sports has been around for a few years with a fair amount of followers who actually pay to see their favorite gamers compete. What is new is the crowd mindset. Attendees are now coming out in droves and paying shockingly high ticket prices to watch video game contests the same way they used to be rabid about professional baseball or professional football. The ones who can’t come to a live event are finding more of these events on the web and even on broadcast television.
The numbers involved here are shocking, too. For instance, last year, e-sports generated just a little less than $500 million in revenue, according to technology outfit Newzoo. Roughly two-thirds of that tally came from advertising rights and sponsorships while the other third was driven by merchandise and ticket sales.
Not bad, but not necessarily at Facebook-caliber levels yet. It will be soon, though, if Newzoo’s outlook is anywhere on target. The company believes e-sports will generate just a little less than $700 million in revenue this year, with that figure ballooning to $1.5 billion by 2020.
Perhaps this might put it in perspective. Last year, the Philadelphia 76ers bought an e-sports team. And why not? Some of the top e-sports events attract more viewers than NBA finals games do.
That being said, even a healthy cut of a $1.5 billion market isn’t necessarily game-changing for Facebook, which did $27.6 billion worth of business last year. It’s not just what Facebook can do with e-sports events broadcasting though. It’s what else Facebook could do with an audience that has clearly identified itself as interested in video gaming.
More Than Just Video Gaming Tournaments
When Amazon.com (NASDAQ:AMZN) acquired Twitch to the tune of just under $1 billion back in 2014, some eyebrows were raised. The website is dedicated solely to letting a lot of people watch a few top gamers play certain games, with those players collecting a monthly subscription fee for their service.
Perhaps it wasn’t so crazy after all. While Amazon is mum about the kind of revenue contribution Twitch makes to the top line, Piper Jaffray analyst Gene Munster reckons the website does about $1 billion worth of subscription and advertising revenue per year.
That figure jibes with something SuperData Research published in mid-2015, claiming Twitch garnered 43% of the game-content industry’s $3.8 billion in annual revenue. SuperData Research’s tally includes e-sports but adds things like simple streaming of non-competition games, game trailers, etc.
That was a figure established, however, before video game voyeurism really gelled as a thing. With e-sports presumably about to explode, related video content and other forms of revenue could be on the table as well, perhaps totaling as much as $5 billion now and even reaching something on the order of $8 billion by 2020.
All of a sudden, Facebook’s move into the seemingly strange market doesn’t seem so strange.
Facebook may even have something of a secret weapon to further monetize the rise of streaming video games… virtual reality.
While it’s still in its infancy as an industry, there’s no denying Facebook – Facebook’s Oculus Rift VR goggles to be specific – is one of the shapers of the virtual reality movement to date. Though it’s not surprisingly off to a slow start, as the cost of the viewing devices falls and the content library for them grows, the market will expand.
Image from Pixabay
E-sports could make for an amazing virtual reality experience, putting the observer visually right where the professional player is, and perhaps even in the game itself. Oculus already facilitates the streaming of casual user’s game-play, and it’s working on an undersea cable from the U.S. to Asia that can deliver the massive amount of data required to power immersive virtual reality experiences. Adding video game competitions to the mix would be a relatively easy feat. That could add another couple billion dollars to the potential market size.
In and of itself, it’s still not a reason to buy Facebook. But, for investors who may have been thinking FB was reaching something of a saturation point with its straight-forward social networking shtick, the advent of e-sports and gaming content in general is a multi-billion opportunity for the company… even if it just captures a fraction of the market at stake. Better still (though this is admittedly a more limited net upside) the growth of e-sports could facilitate the sale of more Oculus virtual reality hardware, opening the door to the sale of more non-gaming virtual reality experiences.
Whatever the case, though the news was largely dismissed by a market that’s still more interested in splashier headlines, this is news that merits a little more credence than the market gave it.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.