While there has always been an audience for esports and competitive video games, several trends have come together in the last decade to push this industry over the edge, resulting in an explosion of popularity.

In this segment from Industry Focus: Consumer Goods, Vincent Shen is joined by Motley Fool contributor John Ballard as they field a listener question that leads them to review the history of esports and how faster internet speeds, social media, and major game releases are fueling the growth in this space.

A full transcript follows the video.

This video was recorded on May 22, 2018.

Vincent Shen:

I myself am not a gamer, but I do think esports is only going to get more and more mainstream. I'd like to put together a basket of esports stocks and would be interested to know what you all recommend. It seems there's a few obvious players, but there must be other ancillary companies that are benefiting from the sport's growing popularity.

I first heard of esports a few years ago when a younger colleague of mine went to New York City for a weekend tournament. He and his girlfriend spent considerable money to sit in Madison Square Garden for a day or two and watch their favorite players. At the time, I thought they were a little nuts. Now, I think they were on the leading edge of something big.

John, I think you and I are both inclined to agree with the last part of David's message, that esports is on the verge of really taking off. Depending on who you ask, some would say it already has.

We're going to take the time to walk through some of the history of esports and the drivers that have lifted the industry to its current status and popularity. Then, we'll dig into the main companies targeting esports before talking about important recent developments, getting a handle on some of the actual financial opportunity, and then, what investors can expect going forward.

John, you've been closely covering the video game business. You have personal experience with some popular esports titles, too. Competitive gaming has been around for a long time in different forms. Would you agree that esports in their current form are really the product of a gradual evolution, rather than something really new to the world?

John Ballard: Yeah. You could trace it all the way back to the 1970s with small tournaments and arcade competitions. Gradually, with the faster internet speeds, it started coming on. It started to take off, really, in the last 20 years, and then the momentum just kept building with social media and Twitch. The first big esport game was probably StarCraft in the late 90s. It was really the first game that emphasized talent and skill and de-emphasized the button-smashing of the arcade days. It was a very, very thoughtful game that required players to make a lot of decisions and strategize.

Shen: Something with the arcade games, too, that I'd like to jump in with, it's a kind of fun story. It's important to keep in mind that just because there weren't these multi-million dollar contracts and city-based teams five, ten, or even 30 years ago, doesn't mean there weren't already a lot of video gamers looking for ways to compete against each other.

I remember seeing a documentary from 2007 called The King of Kong, a really awesome movie. The documentary follows a rivalry, essentially, between these two experts who are fighting, angling for the world record high score in the 1980s arcade version of Donkey Kong. For something as harmless sounding as an arcade game competition, there's a surprising amount of intrigue and controversy there. A great movie I recommend to any Fools who have yet to see it.

From my personal experience, too, around 2002, 2003, I was playing a ton of Counter-Strike. That's a first-person shooter game that's popular to this day. My friends had a clan and everything, we'd set up low-level matches against other teams, but there were leagues, rankings. Even then, the best players were already competing in pretty big tournaments with cash prizes and [sponsorships], so this has been building up over years and years.

But the big thing you mentioned, with faster internet speeds, more and more robust multiplayer experiences, and larger and larger player bases, it's raising the bar for competition and turning into something that people are really interested in seeing, in terms of a spectator event.

Ballard: Yeah. It's Twitch, it's social media, YouTube, all those elements have come together in the last ten years, and it's made esports make headlines. Companies are seeing a game like League of Legends -- that started getting popular around five to seven years ago. There's tens of millions of people tuning in to watch that annual championship event. Companies are recognizing that. They're seeing, "Hey, we can take our popular franchises, launch that into esports, too, and sell advertising." Companies are starting to invest their own money into this, and that's something that's never really happened before. That's really why this is starting to take off.

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