An updated version of this article was released on The Business Times. 

Key Takeaways:

1. Successful non-endemic partnerships and franchise leagues around the world will open the door for similar models to drive esports adoption and returns in the region.
2. Following the pattern of institutional intervention in more developed markets, governments will be more involved in esports in the region, but the focus will be less regulation and more investment.
3. Games will be more focused on developing the gamer’s experience, and SEA will be proving ground for many of these developments. Specific trends include data collection, mobile-focused features, and games that can support multiplayer modes in various settings. Gaming organizations will be paying more attention to their players’ welfare.

Global esports ecosystem reaps the rewards of 2018

2018 was the year esports broke out of its comfort zone. The world of competitive, organized video gaming saw the entry of competitions into primetime TV with the inaugural championship of Blizzard’s Overwatch League on Disney’s ESPN last July and the Asian Games in Indonesia where six title games were demonstrated.

It was also a year of landmark deals with big brands and sports organizations. Last October, Riot Games, the company behind the MMORPG League of Legends (LoL), partnered with Mastercard, their biggest global sponsor to date. These developments contributed to the industry’s $1B in revenues last year, following an upward trend that projects $1.5B in 2020.

The reach of esports scaled the way it did largely due to online streaming, which continued its growth throughout 2018. Twitch and Youtube Gaming are at the helm of a competition with Valve’s Steam Broadcasting, Microsoft’s Mixer, Facebook, and China’s Douyu / HUYA. Though Youtube had first mover advantage in 2017, Twitch caught up last year with its more than 55 million users and 43% share of all live video streaming traffic.

Southeast Asia taking the limelight this year with the 2019 SEA Games

With all the momentum created in 2018, there seems to be no way but up for esports this year, especially with esport’s medal event debut at the 2019 SEA Games in the Philippines. Esports is also booked to be a competitive sport in the 2022 Asian Games in Hangzhou. As one of the most active regions in the industry, Southeast Asia is projected to expand its esports audience to over 31.9M this year, and with two competitive events on its calendar, the region is pushed further into the limelight. More brands, teams, gaming companies, developers, and spectators around the world will be looking to cash in on the region’s fast growth. What are the top three trends that will characterize this growth in 2019?

Successful non-endemic partnerships will ramp up franchising model adoption

Esports owes a large part of its revenue growth to sponsorships and partnerships. 2018 saw a lot of successful non-endemic (i.e. outside the world of esports) brands and companies sealing deals with gaming companies, teams, and organizations. These crossovers paved the way for esports to go mainstream, and 2019 will see more completely non-endemic partners coming on board. In fact, the year kicked off with global partnerships like sportswear brand Puma becoming the official gameday apparel partner of the world’s most valuable gaming organization, Cloud9 and Shell becoming a sponsor of the LoL European Championship (LEC) for the 2019 season.

More non-endemic partnerships in 2019 like Puma’s and Shell’s will drive the transition of gaming leagues into franchise models, allowing investors (i.e. brands, companies, individuals) to buy team slots within a league, similar to more traditional sports. Last year saw the transition of the North American leagues of NBA 2K, LoL, and Overwatch, and this year opened with LEC’s franchise league launch. More game publishers are expected to follow suit, with the potential to scale fanbases and returns while sharing responsibility and risk.

This trend spells more growth for esports in Southeast Asian, a region that thrives on localization. Publishers from developed markets like Riot and Tencent will want to branch out into the region, setting up their own homegrown infrastructure and teams. Success stories will also encourage local players like Mineski to branch out within the region.

Institutional intervention will shape the esports ecosystem

As non-endemic partnerships and franchises dominate the revenue model of esports organizations and esports as an industry goes beyond the competitions, institutions like schools, health organizations, and governments have more space to influence the growth of the industry.

In North America, educational institutions are investing in the future pipeline of professional players, with more than 50 college varsity esports programs supported by the National Association of Collegiate Esports (NACE) in the US and more than 100 North American Esports Federation (NAEF) clubs in high schools across the region. While the million-dollar prize pools are definitely a draw, esports is also a career option, and that does not mean having to go pro, with all the products and services that go into the ecosystem.

Alongside student-level esports organizations, esports betting, the fastest-growing betting trend in sports gambling, will also continue to proliferate in North America this 2019, projected to hit $12.9B by 2020. With many European and Asian sports-betting providers seeking entry into the region, especially in the US, stateside legislatures are expected to respond actively this year through the authorization of legal sports betting.

Government also reared its regulatory head in China when the approval of new game licences in the world’s largest gaming market was halted last March. The policy came in the wake of government restructuring and state response to the WHO’s ruling on “gaming disorder” and the perceived undesirable values (e.g. sex and graphic violence) promoted by games. Local heavyweights Tencent and NetEase bore brunt of the impact that also saw a plunge in stock price for foreign gaming companies like Nexon, Konami, and Capcom. After the freeze ended last December, China’s gaming market is getting back on track this year to reach the long-term projections of $200B revenue by 2030.

As the ecosystem of esports continues to develop, from student-level programs to sports betting, intervention is inevitable, and it will not always be restrictive, as will be the case in Southeast Asia’s fast-growing market. In November 2018, Malaysia’s Minister of Youth and Sports negotiated $2.4M from the country’s annual budget to be allocated to esports, which was matched by 2019 SEA Games official esports partner Razer and other tech enterprises.

Gaming technologies will focus more on the gamer’s experience

At the cornerstone of the esports ecosystem is the gamer’s experience. With more investments pouring into the ecosystem in 2019, there’s more fuel for companies to develop and introduce new features and infrastructure.

As esports’ audience continues to scale, data will become more valuable to the space, and so the focus will be on interactive data collection features. The Electronic Sports League-led Weavr Consortium recently landed a two-year £4B UK government grant to develop and collect data from cross-viewing technology viewers can use to stay on top of stats and updates. Another focus for developers will be mobile. With mobile’s consumer spending dominating other platforms in the market last year, especially in Asia, developments in 2019 will focus on improving the mobile playing experience and creating more complex, multiplayer games for mobile.  

The gamer’s experience also goes beyond gaming. More professional gaming facilities are being built to house major league teams. A departure from the “gaming house” model, where players lived and worked in the same place, it is one of the many adjustments gaming organizations are making to cater to the welfare of their players beyond their game stats.

In Southeast Asia, the fast growth and diverse needs of the region entail developments that can keep up with the pace. When Fortnite launched in Southeast Asia last year and was faced with multiple languages and high ping, Epic Games quickly adapted to their audience’s needs and introduced sub-region matchmaking, which they plan to roll out globally in the future. What is interesting is how these iterations of gaming companies in the region will improve the gaming experience of players around the world. While the region can push a game to its limits, it can also result in innovation that would not have been realized anywhere else.

Disclosure: This article was co-authored by Teng Jen Ang and Paulo Joquino