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FNATIC INSIGHTS: ESPORTS COVID REPORT FNATIC INSIGHTS: ESPORT COVID UPDATE INTRO As the human tragedy of COVID-19 continues to unfold, its harsh impact on business will have repercussions for years to come. Social distancing, border closure and self-isolation have damaged the entertainment, sports and leisure industries in particularly acute ways. Strict lockdown restrictions, and the need to keep adults and children alike busy and engaged, created an unprecedented scarcity of choice and availability of new entertainment. Esports has been perhaps the most substantial beneficiary of this shift in attention. As the vast majority of households globally now have access to an internet-connected entertainment device, the short tap to mobile gaming or app-based streaming made gaming and esports the most immediately-available distraction from the grim events dominating the news cycle. Viewers who found themselves “completing Netflix” increasingly turned instead to the world of live and VOD content, many for the very first time. What they discovered there was a level of interaction and engagement with creators and celebrities that outstrips traditional TV and OTT platforms. In this report, we will explore the effects of COVID-19 on esports events and their move to online broadcasting, the effects on publishers and game developers including revenues, the “drive to live” for esports content, and finally, the rapid embrace of esports by traditional sports. FNATIC INSIGHTS: ESPORT COVID UPDATE 01. EFFECTS ON ESPORTS FNATIC INSIGHTS: ESPORT COVID UPDATE OFFLINE EVENTS: AFK While COVID-19 was still in its early stages of development as a global pandemic, esports was one of the first industries to take decisive action to limit access to live events for supporters. Given the relative immaturity of esports to traditional sports, it’s interesting (and a positive indicator of overall industry maturity) that esports tournament organisers were arguably the more proactive operators in managing the initial risks of COVID-19. For example, several weeks prior to the ‘business as usual’ completion of the UK’s Cheltenham Festival racing event (10-13 March) and the UEFA Champions League fixture between Liverpool and Atlético Madrid (11 March), ESL’s IEM Katowice CS:GO ‘major’ took place behind closed doors; and thereafter almost all major esports competitions moved rapidly to a wholly online set-up. Even if the bulk of spectators are viewing online, closing the doors of a major esports event wasn’t a step to take lightly. As well as a platform to sell merchandise and activate the esports community, live esports events offer an opportunity for sponsors to speak directly to fans, and for teams to showcase the passion of their communities to those sponsors. For non-endemic sponsors, high-attendance esports arena events also provide a comfortable jumping- off point for a first investment into esports, given their similarity to live sporting or convention-style activations. intelextrememasters.com, IEM Katowice 2020 FNATIC INSIGHTS: ESPORT COVID UPDATE ONLINE IS BACK (AND BETTER THAN EVER) Following the changes to IEM Katowice, COVID-19 ESPORTS EVENTS RESPONSE forced other league and tournament organisers across all titles to change their events. Some 31.6% - shifted online 23.5% - cancelled cancelled or postponed their events - but most shifted them online, taking esports back to its early local network-based roots. The variations did not stop at the shift from physical to digital. We also saw: Restructuring of several tournament series into regional leagues (instead of standard qualifier- to-international-tournament pathways). For example, the CS:GO competition DreamHack Masters, which was scheduled to take place live in Jönköping, Sweden, transitioned to a regional 44.9% - postponed format. Increased focus on community activation by FOR THE PERIOD FROM JAN-MAY 2020, 98 developers, via community-based and ‘pro-am’ TOURNAMENTS OR EVENTS WERE CANCELLED tournaments. After cancelling the upcoming IN TOTAL[1] Rainbow Six Siege events, Ubisoft announced weekly, cross-platform, fully open online community tournaments. DreamHack Masters Spring 2020: Europe | Dot Esports [1] EsportsObserver , ESPN / Liquidpedia FNATIC INSIGHTS: ESPORT COVID UPDATE ECONOMIC IMPACT While physical esports events will return eventually, MODERN TIMES GROUP Q1 20 UPDATE (OWNER ESL/DREAMHACK) teams and developers have seen the scale benefits of well-organised online events. Contractual REVENUE IN OUR ESPORT VERTICAL IS restrictions applied by developers to online activations in the pre-COVID world (and particularly EXPECTED TO DECLINE BY 25-35 PERCENT to the use of team sponsor content in in-game IN 1H 2020, COMPARED WITH OUR inventory) have been temporarily disabled. This has CORRESPONDING PERIOD IN 2019[2]. led to a bigger inventory of online assets for teams to monetise online. As the organisations most reliant on the physical 2020 ESPORTS REVENUE STREAMS (GLOBAL) elements of esports, tournament and league - NEWZOO APRIL 2020 REFORECAST operators have taken the most substantial hit from $614.9M +13.1% offline event cancellations. For example, while YoY Modern Times Group (the parent company of both digital festival company DreamHack and esports events company ESL) announced a small (2% YoY) Q1-20 net sales decline, principally driven by a decline in esports segment of 11% (due to events properties being moved online or not happening altogether). $176.2M +11.5% YoY $120.2M Additionally it predicts its operations vertical to drop -2.5% $106.5M [2] YoY +0.8% 25-35% for H1-20 overall . YoY $21.5M $19.9M +60.9% +44.9% YoY YoY In line with this, esports consulting agency and data Sponsorship Media Merchandise Publisher Digital Streaming service Newzoo has revised its estimate of total Rights & Tickets Fees esports revenues for 2020 to $1.06B, down from its previous estimate of $1.1B (but still up YoY vs 2019). Newzoo’s re-forecast predicts the biggest percentage revenue drop off in the “merchandise and tickets” vertical (down 12.2% / US$15m), which is mainly connected to offline events, along with a decrease in “media rights” (down 4.8% / US$176M) and “sponsorship” ( down 3.4% / US$615M) categories. On the other end, they plan an increase in the “streaming” (up 9.3% US$19.9M) and “publisher fees” (up 3.3% / US$120.2M) categories (see graph for full picture). [2] MTG press release FNATIC INSIGHTS: ESPORT COVID UPDATE 02. EFFECTS ON PUBLISHERS FNATIC INSIGHTS: ESPORT COVID UPDATE MORE FREE TIME, MORE GAMING? Pre-COVID it was already the case that gaming’s NUMBER OF PLAYERS OF CALL OF DUTY: WARZONE share of time and wallet was increasing, particularly WORLDWIDE AS OF APRIL 2020 among young people - but COVID hyper-accelerated 60 50 that trend. 30 Per Nielsen, 4 out of 5 global consumers played video 30 games or watched video game content during the 15 height of the COVID-19 pandemic lockdowns. in millions Number of players 6 0 Mar 10, 2020 Mar 13, 2020 Mar 20, 2020 Apr 10, 2020 In general the industry saw a 46% daily active user increase in PC gaming and 17% increase in mobile THE FREE-TO-PLAY CS:GO SAW AN INCREDIBLE RISE IN gaming. This led to a growth in microtransactions, PLAYER BASE with In-App Purchase (IAP) Revenue for mobile 1400 games increasing by 24% since the pandemic was [3] declared . 1200 All in all Superdata[4], game spending reached $10.5B 1000 in April 2020 (+17% YoY), with earnings growing in PC 800 (+12% YoY), mobile (+14%) and console (+42%). 600 Predictably, social distancing measures also led to an in thousandsNumber of players increase in online play. Almost a third of of US-based gamers reported spending more time gaming with 400 Jan ‘16 Jul ‘16 Jan ‘17Mar ‘17 Jul ‘17 Nov ‘17Jan ‘18 Jul ‘18 Jan ‘19 Jul ‘19 friends online. Median playtime on Steam (a platform Mar ‘16May ‘16 Sept ‘16Nov ‘16 May ‘17 Sept ‘17 Mar ‘18May ‘18 Sept ‘18Nov ‘18 Mar ‘19May ‘19 Sept ‘19Nov ‘19Jan ‘20Mar ‘20May ‘20 for developers of all sizes to launch games) increased, as did peak concurrent play (20.31M in March 2020, roughly 2x April 2017). MONTHLY NUMBER OF PEAK CONCURRENT PLAYERS OF ROCKET LEAGUE ON STEAM WORLDWIDE FROM JANUARY 2016 TO MAY 2020 125 115 105 95 85 75 65 Number of players in thousandsNumber of players 55 45 35 Jul ‘17 Jul ‘19 Jul ‘18 Jul ‘16 Apr ‘17 Oct ‘17 Apr ‘19 Oct ‘19 Jun ‘17 Jan ‘17Jan Apr ‘18 Oct ‘18 Jun ‘19 Jan ‘19Jan Feb ‘17 Apr ‘16 Feb ‘19 Jun ‘18 Jan ‘18Jan Oct ‘16 Nov ‘17Nov Aug ‘17Aug Mar ‘17 Feb ‘18 Nov ‘19Nov Aug ‘19Aug Mar ‘19 Jun ‘16 Jan ‘16Jan Dec ‘17 Apr ‘20 Dec ‘19 Nov ‘18Nov Aug ‘18Aug Mar ‘18 Feb ‘16 May ‘17May Dec ‘18 May ‘19May Nov ‘16Nov Aug ‘16Aug Mar ‘16 Jan ‘20 Jan Dec ‘16 May ‘18May Feb ‘20 May ‘16May Mar ‘20 May ‘20 May Sept ‘17 Sept ‘19 Sept ‘18 Sept ‘16 [3] Unity Monetization report, data for March 8th to May 4th [4] Super data research FNATIC INSIGHTS: ESPORT COVID UPDATE DEVELOPERS FTW ELECTRONIC ARTS INC. Q1-20 saw further cementing of the central role of developers to the esports ecosystem. Nintendo’s 128.12 USD +2.39 (1.90%) ↑ soothing Animal Crossing: New Horizons helped 130 double sales of its Switch console, with overall [5] 120 console sales increasing YOY by 61% . More Animal Crossing: 110 recently Nintendo announced that New Horizons had sold 13.4 million copies since it 100 launched on 20 March 2020, making it the highest 90 selling game in the series’ history[6] and the best- 80 selling Switch title (by units and in-game revenue) of Feb 2020 Apr 2020 May 2020 Jun 2020 all time - quite a feat in two months.