Jun 7, 2019, 11:00 AM ETFireside Chat, Interview

What's Next for Esports Startups

Global esports viewership grew from 335 million in 2017 to nearly 400 million in 2018, surpassing 450 million in 2019.
Assuming a conservative 14% annual growth rate, global viewership is projected to reach 650 million by 2022.
Geographic distribution shows a 60% concentration in the Asia Pacific region, compared to only 12% in North America.
Top esports leagues already command audience sizes comparable to the average of the four major North American sports leagues (NFL, NBA, MLB, NHL).
The 2017 League of Legends Championship finals drew more total viewers than the MLB World Series, NBA Finals, and NHL Stanley Cup combined, ranking second only to the Super Bowl.
Global esports revenue surpassed $1 billion in the current year, up from under $500 million three years prior, representing a 30% CAGR.
Projected global revenue is expected to exceed $1.5 billion by 2021 under a 20% annual growth assumption, implying 3x industry growth over five years.

Revenue per fan in esports stands at approximately $4, which is roughly 7% of the $54 per fan average in top North American sports leagues.
Media rights and sponsorships account for 65% of total industry revenue, while advertising, merchandise, ticket sales, and publisher fees comprise the remaining 35%.
Media rights constitute 22% of total revenue, exemplified by Twitch paying Activision Blizzard $90 million in 2018 for Overwatch League broadcasting rights for the first two seasons.
Sponsorships represent 42% of total revenue and are growing at a 30% annual rate, driven by non-endemic brands like Mastercard, Coca-Cola, and the U.S. Air Force.
Traditional sports leagues are described as facing an "innovator's dilemma," whereas esports publishers benefit from a "blank slate" allowing for faster iteration and consumption pattern definition.

Gaming has transitioned from a niche activity to a core component of the cultural zeitgeist, functioning as a connective hub comparable to music, movies, and traditional sports.
The average age of traditional sports audiences is high (late 50s for MLB, ~42 for NFL/NBA), whereas esports captures a younger demographic that has been gaming for over a decade by age 18.
Esports has achieved a tipping point where it is no longer a niche group but part of the cultural mainstream, driven by a natural generational inflection point.
Qualitative shifts include the convergence of celebrities (e.g., Drake, Ninja) and traditional athletes using gaming and streaming to engage audiences.
Viewing behavior has evolved from single-player or local multiplayer to a mass spectator sport, with events drawing 100 million concurrent viewers compared to ~10 million for Wimbledon.

Game design is increasingly optimized for "streamability," prioritizing "fun to watch" mechanics like competition (PvP) and creativity (user-generated content) over purely "fun to play" experiences.
Esports infrastructure has rapidly professionalized, moving from grassroots "sneaker net" tournaments to publisher-sponsored leagues with collective bargaining and media rights deals.
Publishers hold significant leverage to define league rules, but a counter-argument suggests team owners may eventually gain leverage as the market fragments and new game launches require organized team partnerships.
Game designers are developing new core competencies, such as designing for engagement on streaming platforms and integrating audience participation directly into gameplay mechanics.
Unlike traditional sports where fan interaction is limited primarily to gambling, esports offers infinite digital avenues for audience participation, such as in-game item drops triggered by crowd sentiment.

A16Z identifies "picks and shovels" infrastructure plays as a primary investment thesis to avoid the risk of picking winning games or teams in a volatile market.
Key investment targets include streaming platforms (e.g., Caffeine), communication tools (e.g., Discord), analytics firms, and monetization platforms similar to Shopify or Patreon within the gaming sector.
Teams are adopting distinct business models, with some focusing on lifestyle branding and merchandise, while others prioritize live events and ticket sales.
The "Business to Developer to Consumer" (B2D2C) model is highlighted as a viable strategy, betting on platforms that empower developers to build content ecosystems that consumers adopt.
Publishers are currently capturing the most value in the ecosystem, but the industry is expected to evolve toward more distributed value accrual as team ownership groups organize and negotiate for new game launches.
Gaming is entering a phase of multi-generational persistence, similar to music and traditional sports, ensuring the resilience of the industry long-term.