Activision Blizzard's (NASDAQ:ATVI) Overwatch League kicked off in 2018 to much fanfare. It was the company's first big bet on a market that is expected to grow 27% this year to $1.1 billion, according to market researcher Newzoo.
Video game companies are increasingly looking for new ways to monetize and build deep connections between millions of players and the games they play. To accomplish this, game companies are starting to dive into the advertising business more and more.
The reason is that advertising is low risk and offers a high reward, and best of all, it doesn't cost gamers a dime. While in-game advertising could be a big opportunity down the road, launching professional esports competitions where potentially millions of fans watch online seems like the path of least resistance for game companies. Esports allows game companies to knock out two birds with one stone: build a lucrative stream of ad revenue and build a closer relationship between games and players that potentially increases player engagement.
Check out the latest earnings call transcript for Activision Blizzard.
Activision Blizzard's Overwatch League just kicked off its second season, and the early indicators are pointing to year-over-year growth in viewership. What's more, Coca-Cola (NYSE:KO) just signed up to be the next sponsor of the league, which shows Blizzard is making significant progress in attracting advertisers.
The eagle has landed
Coca-Cola is the latest brand to put its logo on the Overwatch League, which started its second season in February. Coke signed a multiyear deal to be the league's official global beverage sponsor across non-alcoholic beverage categories, as well as the official beverage sponsor for the entire Overwatch esports ecosystem, including Overwatch Contenders and the Overwatch World Cup. Coke joins Toyota Motor, T-Mobile, HP, State Farm, and Intel as sponsors for the second season of Overwatch League.
Overwatch League is not Coke's first rodeo in esports. Coke put its brand in Electronic Arts' FIFA 18 and has been a sponsor of the most-watched esports event in the world, Riot Games' League of Legends World Championship. Coke is considered a semi-endemic brand to gaming since many gamers are likely regular consumers of one of the beverage giant's brands.
All in all, landing one of the world's iconic brands is a good sign that Overwatch League has the audience that major brands find valuable in reaching coveted millennials. Most importantly, it's a sign of momentum for Activision's esports investments and could pave the way for more brands to hop aboard.
There have been hundreds of sponsorship deals made across all esports events in recent years. The world's biggest brands are seeing a golden opportunity to reach elusive millennial males that companies desperately want to connect with. Buffalo Wild Wings, Anheuser-Busch InBev, McDonald's, Red Bull, Gillette, Visa, and AT&T have all invested in esports.
Activision Blizzard may be anticipating an eventual deal with an alcoholic beverage company since the game maker specifically called out Coca-Cola as the official "non-alcoholic" sponsor. If you're wondering about the appropriateness of a Bud Light logo displayed during a broadcast of an esports event, keep in mind that the average age of esports fans is 26 -- right in the sweet spot of the 18- to 49-year-old demographic that brands target on television, for example.
The audience is growing
Activision Blizzard certainly helped its cause during the opening week of season two of Overwatch League, as total viewers reached 13 million, according to Blizzard. This represents a year-over-year increase of about 30% in viewership. The league expanded from 12 to 20 teams for the second season, with the eight new teams representing major cities around the world, including Paris, Atlanta, Chengdu, Guangzhou, Hangzhou, Toronto, Vancouver, and Washington, D.C. Blizzard wants to expand the league to 28 teams eventually.
Some reports suggested that viewership was down, while total viewed hours were up year over year during opening week in February. For example, on Amazon.com's Twitch, average concurrent viewers during the first week of season two peaked at less than 125,000. This is lower than the more-than-150,000 average concurrent viewers who watched the opening matches of season one in January 2018.
However, Twitch data doesn't paint a complete picture of viewership. Fans can watch Overwatch League matches across multiple channels, including the official Overwatch League site, Twitter, the ESPN app, and Walt Disney's Disney XD, in addition to Twitch. Additionally, matches can be viewed in China through major platforms, like Zhanqi.tv, NetEase, Bilibili, and Huya. France and Germany also have their platforms where fans in those countries can tune in.
Based on Activision Blizzard's data, the total average minute audience across all of these channels increased 14% year over year to 440,000.
Call of Duty League is next
With Overwatch League progressing well, Activision Blizzard is planning to launch a league based on Call of Duty that's similar in structure to Overwatch League, with teams representing cities.
The Call of Duty-based league could be even more successful than Overwatch League on the esports stage. A Nielsen survey in 2017 showed that Call of Duty was the most-played video game among esports fans. Of course, that survey was before the rise of Fortnite, which has emerged as one of the most popular games in the industry over the last year. Nonetheless, the introduction of a battle royale mode in Call of Duty: Black Ops 4 and the familiarity gamers have with the franchise means there is huge potential for a Call of Duty-based league to be enormously successful as an esport.
Management has been very bold in stating that esports is a multibillion-dollar growth opportunity for the company, similar to the scale of traditional sports leagues. Over a year ago, that seemed like a far-off dream. While it might take several years for esports to become a significant revenue driver for Activision Blizzard, the recent growth in viewership and the addition of Coca-Cola as an official sponsor shows that the dream is slowly being realized.