E3 2019: An investor’s takeaways
I was lucky enough to attend E3 last week in LA for probably the largest gaming conference in the world. My attendance at E3 was a last minute decision as we at leAD Sports and the Advantage Fund look to gain a better understanding of the space and market as a whole.
Spurred on by the suggestion from one of our founders Roderick Alemania that E3 was the best place to accomplish this I hopped on a flight to LA to see the opportunity in the space firsthand. (Roderick is CEO of ReadyUp, a portfolio company of leAD looking to become epicenter of the esports community giving players a place to meet, great and compete with other gamers. )
To say I was excited was an understatement. As an avid gamer growing up there was a time this conference was a childhood dream. Until 2 years ago the conference was solely for trade visitors but the demand from fans was too much and it now features a harmonious mix of industry experts and fans.
My first takeaway was seeing the demographics I have read on paper displayed through downtown LA. I quickly realised the reality of this nascent industry; the experts are the fans and fans are the experts. Very rarely did you see someone in a shirt… and suits were non existent bar the overactive security guards coasting the conference halls. Further the vast majority of the people on and around the industry floor couldn’t be above 35 let alone 45.. and by people I mean men on what had to be a 80% plus male audience.
Much like in traditional sports the vast majority of people working in the space were at one point avid gamers or fans themselves. Whether it be developers, announcers, team owners, or tournament organisers everyone in the space is deeply passionate about eSports. It makes sense when you look at when the first eSports athletes came about.
The first eSports athletes signed professional contracts in the late 90s/ early 2000’s and are now moving on to the next stage in their careers. That first generation of gamers is now reaching an economic and social level where they can transition to a different role within the eSports ecosystem or move into the industry after building social and economic leverage in other industries.
This passion has made the inclusion of eSports into the leAD sportstech investment focus so simple. Our current focus within Sportstech is around connected athletes, fan engagement and eSports. The commonality these areas share is targeting a large growing market seeing consistent growth in population, market value, innovation and on a more altruistic view each seen as “good” for an individual and/ or society.
Back to E3…
My second takeaway is the bolstering of my conviction in OTT streaming and advertising tech. We have had the tech to stream live sporting matches for years but only illegally because of the strict content distribution laws surrounding traditional sport media. Esports hasn’t had these limitations on live streaming and this has led to many startups innovating the space. Early entrants to this space are:
Genvid Technologies — Genvid technologies enables its customers to build an interactive streaming engine letting viewers quickly shift between athletes views and helping their customers monetise their livestreams.
4D Sight — 4D Sight is a deep advertising platform helping streamers and content creators place ads directly into their content. 4D sight’s technology embeds advertisements into games in a way that feels natural and intended.
The exciting thing about eSports is the audience is already there and it is just a question of monetising it. This has been the biggest question for investors in the space. Looking at the chart below I think it becomes clear streaming tech has the potential to go after multiple revenue streams within the eSports space. Further the chart below does not include betting revenues which will be tied into broadcasts in the coming future.
The other players in the eSports space I see particularly primed to capture value are the Tournaments/ League organisers and Game Developers.
When I think of football I think of the top players, the top teams but then quickly I think of the Champions League and the FIFA World Cup. Likewise when I turn to basketball I don’t think about the Euro league, instead I think about the NBA.
The early eSports leagues have the chance to create this same valuable brand in a space where the lifespan of a professional eSports athletes is shorter yet than the already brief careers of athletes in general. Teams have also came and fallen in just a couple years compared to the earliest leagues that have been running for almost 10 years now.
To draw a comparison to Poker I see the leagues building a brand with a similar value proposition to Pokerstars and Partypoker, the largest online poker clients. Ultimately you can play the same game on other poker sites but Pokerstars and PartyPoker have built established brands that not only bring prestige to playing and winning but also provide the player with a sense of trust that the competition is safe and secure.
Building an established brand, bringing trust to the industry, and providing athletes and brands with a way to connect with their wider audience is why tournaments and leagues are uniquely positioned to capture value across sponsorship, ad revenue, merchandise and ticket sales.
Moving on to game developers…To date games have been made with one thing in mind, Playability. Now though, the next generation of game developers are building games with Watchability and Streamability at the forefront. Undoubtedly the next generation of games will be far more engaging not just for the player but for the audience as well. As games have transitioned to a recurring revenue model in place of a large upfront purchase we will only see games capturing more of their audiences value.
My final takeaway from E3 is the potential blockchain technology has to completely evolve game development and the eSports space as a whole. I expect blockchain technology to lead to parallel gaming universes where items can be transferred and hold value across different gaming universes.
This will increase the value of virtual goods and bring entire marketplaces and business around the transactions of these goods. To date digital items have existed in games but the value has been suppressed by rampant fraud that blockchain technology will be able to remove. Blockchain technology can also help to democratise the future outlook for eSports competition and make micro-transactions the go to monetisation route for game developers.
To Summarise, E3 provided a first hand look at a market some have compared to the cryptocurrency industry, likely to be a bubble. I see neither industry as a bubble though… rather cryptocurrency markets saw rapid growth at the end of 2017 by the speculative value utility tokens will hold in the future. It became apparent in 2018 the value of these tokens has not yet been realised. eSports has the opposite but easier and quicker problem to solve. Esports fans unlike Utility tokens already hold value… the question now is how and more importantly who will capture that value.
Thanks for reading, please reach out if you would like to discuss any points further.