Feb 10, 2017 04:29 PM

Competitive Video-Gaming Gets Attention of Major Entertainment Companies

Video gamers attend the Dreamhack 2017 festival on Jan. 14 in Leipzig, Germany. So-called eSports games generated $7.3 billion of revenue in China in 2016, and are expected to witness an explosive growth this year. Photo: Visual China
Video gamers attend the Dreamhack 2017 festival on Jan. 14 in Leipzig, Germany. So-called eSports games generated $7.3 billion of revenue in China in 2016, and are expected to witness an explosive growth this year. Photo: Visual China

No longer just the province of a few dedicated gamers, competitive video-gaming — also known as electronic sports or eSports — is gaining recognition from mainstream entertainment companies in China.

Big names like Tencent Holdings Ltd. and Alibaba Group Holding Ltd. are becoming more involved in the country’s growing eSports scene, which sees teams of video-game players compete for cash prizes at increasingly large-scale international competitions.

In January, Alibaba’s sports arm, Alisports, announced an agreement with Changzhou municipal authorities in Jiangsu province to host eSports events in the city for the next three years. The announcement came just as the e-commerce company’s first World Electronic Sports Games (WESG) finals were wrapping up in Changzhou.

Tencent, which owns the popular multifunctional social-media app WeChat, established its new Tencent E-Sports subsidiary in early December.

In mid-December, research firm IDC estimated that in 2016, total industry revenue was at least 50 billion yuan ($7.3 billion). That’s 52% more than 2015’s figure of 33 billion yuan, and about 5 billion yuan more than the total annual box office takings of the Chinese film industry last year.

A key factor in the Chinese eSports industry’s growth is the live-streaming boom of the past few years. Major eSports events depend on live streaming apps and sites for viewer numbers. In June, China’s population of live-stream users reached 325 million, or 45.8% of all internet users in the country, according to the China Internet Network Information Center.

Investors are taking note. In 2016’s third quarter alone, nine eSports companies raised a total of nearly 1 billion yuan from investors, according to a report by digital entertainment consultancy Beijing Entbrains. The biggest deal that quarter involved Tianjin Yingxiong Entertainment Entertainment Co. Ltd., whose mobile eSports arm, Yingxiong Sports, received 640 million yuan from angel investors within the first two months of its existence.

But some industry insiders are wary of the hype surrounding eSports, and what the increasing dominance of major players like Tencent could mean for the future of eSports.

Also, while investor interest and revenues are rising, eSports events, unlike the video games they depend on, still offer little in terms of profit. The World Electronic Sports Games, which cost Alisports around 100 million yuan to host in its first year, isn’t expected to become profitable for at least a few more years, Alisports executive Wang Jun told Caixin.

From publisher to organizer

Before Tencent announced its new eSports subsidiary, it spent years growing its influence in the video gaming industry. The company, founded in 1998, started offering free games on its QQ web-messaging platform in 2004, and gradually expanded its selection to include licensed games incorporating small in-game purchases.

But Tencent’s relationship with competitive gaming really began in February 2011, when it acquired a majority stake in U.S. game developer Riot Games for $400 million. Tencent went on to increase its stake in the game company until finally acquiring it completely in 2015.

Riot Games, a Los Angeles-based indie studio, released League of Legends, a multiplayer online battle arena game, in October 2009. Today, the free-to-play PC game is the most-played online videogame in the world, reaching over 100 million players monthly in September 2016.

Months after Tencent bought its stake in Riot, League of Legends became a full event for the first time at 2011’s World Cyber Games (WCG), held that year in Busan, South Korea. This was a major coup for the fantasy-themed game. The World Cyber Games, a tournament run by South Korean company World Cyber Games Inc. between 2000 and 2013, was hailed as the “Olympics of eSports.” The annual tournament saw as many as 800 participants from over 70 countries battle it out at regional and international competitions, watched by fans on internet streaming sites and at the actual venues.

By late 2013, when World Cyber Games Inc. announced it was canceling its games indefinitely, League of Legends had developed an eSports following in its own right. That year, Tencent introduced the League of Legends Professional League, China’s highest-level professional league for the game.

At first, Tencent saw eSports events mostly as a way to promote its video-game business, and delegated the running of the league between 2013 and 2015 to gaming platform PLU, one of the many specialized eSports operators that had sprung up in the 2000s. Tencent’s role in the League of Legends Professional League, as well as other international League of Legends competitions owned by Riot Games, was mainly as a game publisher, licensing and controlling the intellectual property involved in each competition.

Most of China’s eSports events work this way. In 2015, 90% of large-scale eSports competitions in China were run by companies that didn’t own the intellectual property of the games they used, according to Chinese market research firm iResearch.

Banana Plan, an entertainment company owned by internet personality Wang Sicong, took over PLU Entertainment’s organizing role for the 2016 League of Legends Professional League. Wang, whose father is Dalian Wanda founder Wang Jianling, started investing in competitive gaming in 2011, when he established the eSports club, Invictus Gaming. His ultimate goal was to acquire the World Cyber Games. Organizing the league seemed like a step in the right direction.

But Banana Plan’s partnership with Tencent was brief. By late 2016, Tencent had quietly recovered control of League of Legends Professional League operations, Banana Play Vice President Cao Di told Caixin. Tencent is now hosting the ongoing 2017 league through its own eSports division, and Cao believes many other game publishers will soon follow suit and become more involved in directly running tournaments and leagues.

Tencent’s domination

In June, Tencent acquired an 84% stake in Supercell, the Finnish mobile game developer responsible for titles like Clash of Clans and Hay Day. Tencent also holds minority stakes in U.S. interactive gaming company Activision Blizzard and developer Epic Games.

“Tencent’s move (into directly operating eSports events) will help boost the industry’s profile. But it also means competition will get more intense for other eSports companies,” Sina Games CEO Zhou Wei said at an eSports conference last year.

Even fellow tech giant Alibaba is feeling the heat from Tencent’s growing eSports presence. Unlike Tencent, Alibaba is trying to enter the eSports market as a tournament operator rather than a game publisher.

League of Legends, the world’s most-played video game, was conspicuously absent from the inaugural World Electronic Sports Games list of events. Alisports is still in talks with Tencent, and hopes to acquire the right to use the game in future sports games seasons, Alisports executive Wang Jun told Caixin.

Competition between live streaming platforms that specialize in eSports, like PandaTV, LeSports and Douyu, is helping to push up Tencent’s revenue from selling broadcasting rights. Unlike in previous years, live streamers hoping to acquire broadcasting rights for 2017’s League of Legends Professional League were required to submit closed bids, “a sign of intensifying competition,” PandaTV executive Yang Shaohua said.

This year’s league broadcasting rights cost live streaming companies between 20 million to 30 million yuan, significantly more than last year, a person close the bidding process told Caixin.

However, Du Hongpin, a partner at a Beijing-based digital media investment company, said he worries Tencent’s seemingly unstoppable eSports expansion might be exaggerated. Unlike traditional sporting events, eSports events rely on such a large variety of gaming content and attract so many different gamer demographics that it’s unlikely that even a giant like Tencent could control the entire industry, Du told Caixin.

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