If the idea of video games becoming popular spectator events that rival leading professional sports leagues in terms of viewership seems like a pipe dream, it shouldn't. Competitive video games, or esports as they're often called, are already among the fastest-growing forms of entertainment today, and most signs suggest that the category's explosive popularity is just getting started.
1. Major events already reach huge audiences
Right now, the biggest title in esports is Riot Games and Tencent Holdings' (NASDAQOTH:TCEHY) League of Legends, which is putting up massive viewership numbers. Last year, 43 million people tuned in to the League of Legends championship, with peak concurrent viewers coming in at 14.7 million. To put that latter figure in perspective, peak concurrent viewers for the record-setting Game 7 of last year's NBA Finals were 44.5 million. That's an impressive comparison, considering that League of Legends viewership is still growing rapidly and production costs for its events are much lower than for traditional sports content.
2. Millennials love watching video games
Amazon's (NASDAQ:AMZN) Twitch reports that roughly half of millennial-aged American males watch video game content on its streaming platform. Although that figure includes noncompetitive broadcasts, millennial interest in professional gaming events is also quite high. According to Newzoo, a provider of esports market data, 22% of male millennials in the U.S. watch competitive esports -- putting the category on roughly equal footing with baseball and hockey for the demographic.
3. Viewer retention is fantastic
According to PricewaterhouseCoopers, the average view duration for an esports broadcast is 84 minutes. That's stellar audience retention given how competitive the digital-content space is, and it points to huge advertising opportunities. Even more promising, since most esports viewers are consuming content digitally, targeting should make ad delivery much more effective (and valuable) than it is for standard television-based broadcasts.
4. The audience is very receptive to ads
According to a report published by ad agency GMR, 43% of surveyed esports viewers indicated that they always appreciate when brands reach out through the gaming world -- and another 42% indicated that they usually appreciate brand marketing through gaming channels. Authenticity is important in advertising and even more so with the often-selective video game-playing audience. The fact that esports enthusiasts are receptive to marketing suggests big opportunities for brands and should help the category grow quickly.
5. Competition makes players more engaged
Competitive players in Electronic Arts' (NASDAQ:EA) Madden and FIFA series are up to three times more engaged with the games' network than those who are not playing competitively, according to the company's CEO. With publishers increasingly relying on in-game purchases to drive fiscal performance, engagement is emerging as a metric that rivals unit sales in terms of importance. Featuring competitive leagues is a great way to keep users coming back to a title.
Like other sports championships, video game leagues will feature stratified skill levels, but the potential for monetizing non-elite competitions is much higher thanks to the global nature of online gaming and the fact that almost anyone can be a broadcaster.
6. Professional sports owners are getting on board
Activision Blizzard (NASDAQ:ATVI) sold the rights to the first seven professional teams in its recently formed Overwatch league for $20 million each. Buyers included New England Patriots owner Robert Kraft and New York Mets COO Jeff Wilpon. Here's Kraft explaining his company's decision to get into the competitive-gaming space:
We have been exploring the esports market for a number of years and have been waiting for the right opportunity to enter. The incredible global success of Overwatch since its launch, coupled with the league's meticulous focus on a structure and strategy that clearly represents the future of esports made this the obvious entry point for the Kraft Group.
The Overwatch league will generate revenue through advertising and ticket sales, and Activision plans to share 50% of league revenues with owners and teams. The publisher also expect to announce more teams for the league in the near future.
7. Growth is happening at a rapid clip
Newzoo projects that the esports industry will generate roughly $700 million in revenue this year and be worth $1.5 billion in 2020 -- good for an average annual growth rate of roughly 29%. It's also worth noting that Newzoo's figures do not include money made from esports-related gambling. With those revenue streams included, media and technology consulting firm Activate estimates that the esports market will be worth $5 billion in 2020.
Keith Noonan owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard and Amazon. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.