How the Esports Industry Continues to EvolveLearn more about this firm
How Esports Fits Into the Gaming Industry
Over the last few years, media coverage of esports, has reached a fever pitch. News of sold-out stadiums, multi-million dollar franchise fees for professional teams and big-brand sponsorship deals have driven the esports mania narrative. However, comparing esports revenues to the broader video game industry can help keep things in perspective.
According to Newzoo, out of the $159 billion in revenue that the global video gaming industry is expected to generate in 2020, roughly $1.1 billion will be generated by esports. In other words, the global video gaming industry should generate around 144 times the revenue of the global esports industry in 2020.
But what about all the front-page articles about the esports boom? It’s easy to conflate the two industries. At VanEck, we view the esports industry as a sub-industry within the broader video game segment. Video game companies, in turn, are a convergence of technology and communication services. The video gaming and esports industries encompass a wide range of companies, from video game publishers (Activision) to semiconductor companies (Nvidia) to media companies (HUYA).
Evolving Business Models to Maximize Revenue Lifespan
Game publishers are also embracing new business models for games to maximize revenue potential for titles. The “game as a service” model encapsulates this phenomenon. Rather than a one-time transaction, publishers are moving towards an ongoing subscription-based model with a much longer time horizon of purchases from a single user.
In the traditional business model, known as “game as a product”, a game publisher develops a game and then sells it to the consumer for a single, revenue-generating fee. After the consumer buys the game, the video game publisher has to develop another video game or add-on to generate additional revenues from that consumer.
In the mid-2000s, this changed when video game publishers began testing the “game as a service model”, allowing consumers to bypass the initial payment for the game in exchange for an ongoing fee allowing continual access. There are a number of different ways the game publisher can generate revenues under this model, including game subscriptions, micro-transactions and season passes.
Insert Coin to Play: Publishers Become League Operators
Over the past few years, video game publishers have invested millions of dollars in developing, launching and running professional esports leagues. Previously, esports leagues were run by independent third parties separate from the publishers who make the games. We believe the end result of this development is that video game publishers are now primed to gain the most from the esports phenomenon.
Publishers own the rights to the games played in competition, as well as the broadcasting rights, which are sold to media and communication services companies (like Twitch and Facebook). According to Goldman Sachs, media rights are expected to grow from representing around 20% of all esports revenues to 40% by 2022.1 This means that, after factoring in other revenue sources like sponsorship and game publisher fees, video game publishers are in a position to potentially own the majority of revenues coming from esports.
An Index-Based Approach to Investing in Video Gaming and Esports
Source. VanEck as of 7/30/20.
1Goldman Sachs, “The World of Games: eSports: From Wild West to Mainstream,” 2018
Performance data quoted represents past performance which is no guarantee of future results and which may be lower or higher than current performance.
Please note that Van Eck Securities Corporation (an affiliated broker-dealer of Van Eck Associates Corporation) may offer investments products that invest in the asset class(es) or industries included in this blog.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
Esports: Competitive gaming at a professional level and in an organized format (a tournament or league) with a specific goal (i.e., winning a championship title or prize money) and a clear distinction between players and teams that are competing against each other.
MVIS Global Video Gaming and eSports Index is the exclusive property of MV Index Solutions GmbH (a wholly owned subsidiary of the Adviser), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MV Index Solutions GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. The VanEck Vectors Video Gaming and eSports ETF is not sponsored, endorsed, sold or promoted by MV Index Solutions GmbH and MV Index Solutions GmbH makes no representation regarding the advisability of investing in the Fund.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.