Fans of the League of Legends computer game were packed around a jumbotron in a 20,000-seat arena in Paris in November to watch G2 Esports of Europe take on FunPlus Phoenix of China in the finals of a tournament that involved 24 teams from five continents.
FunPlus Phoenix swept the European favorites in three games. Online streams peaked at 44 million viewers watching simultaneously, and averaged 21.8 million viewers per minute of the broadcast. In comparison, game seven of last year’s Stanley Cup Finals peaked at just 10.4 million viewers, averaging a total audience of 8.9 million. And that was the most-watched National Hockey League game on record, according to NBC Sports. (Total audience accounts for TV and online viewers.)
It isn’t an apples-to-apples comparison, given the difference between paid TV and free online streams around the world. But it illustrates the staggering number of eyeballs around the world—many teens and young adults—that are fixed on the incredibly popular world of esports, or competitive videogaming.
Big tech companies, including Amazon.com (ticker: AMZN), Microsoft (MSFT), and Google parent Alphabet (GOOGL), are competing for a bigger slice of the esports live-streaming business, which could present an opportunity for investors. Esports global revenue surpassed $1 billion in 2019, according to analytics company Newzoo, a figure that is still small compared with the $149 billion videogame industry.
On Jan. 24, Activision Blizzard and Google announced a multi-year strategic relationship in which Google Cloud will be the provider for Activision Blizzard’s game hosting infrastructure and YouTube is its exclusive streaming partner worldwide, excluding China, for live broadcasts of esports leagues and events.
Esports events—where the best players compete in games like League of Legends, Activision Blizzard’s (ATVI) Overwatch, and Valve’s Dota 2 and Counter-Strike: Global Offensive—are attracting young people, much the way traditional sports had for generations.
“Kids who might have been going to baseball games when they were younger are now watching the Overwatch League, or they’re watching League of Legends,” says Ryan Morrison, CEO of Evolved Talent, an agency that represents professional gamers and online entertainers. “People like competition, whether you’re a jock or a nerd. This is letting everybody in the same school watch something that everyone understands and can go home and play and try to emulate.”
Amazon has a play on such a future. It acquired the leading Western live-streaming site Twitch for about $842 million in 2014. Wedbush analyst Michael Pachter estimated that Twitch had $400 million in revenue in 2018, a number he thinks may have risen to about $250 million in one quarter alone in 2019. Amazon doesn’t break out Twitch revenue.
More than just a big platform for esports broadcasting, Twitch is home to thousands of live streamers who built audiences by playing games, singing songs, and chatting about their lives. Streamers make a living through donations and subscriptions, with Twitch taking a cut. Competitors like Alphabet’s YouTube Gaming, Microsoft’s Mixer, and Facebook (FB) Gaming are trying to catch up by signing Twitch’s top talent to exclusive deals.
Tyler Blevins, the streamer known as Ninja, shattered Twitch live-stream records broadcasting Fortnite and eventually joined Mixer. Excluding nongaming content, Mixer’s December market share of hours watched grew to 2.6% in 2019 from 2% in 2018. In the same period, Facebook Gaming’s share rose to 8.5% from 3.1%, while Twitch fell to 61% from 67.1%, according to data and analysis from Arsenal and Stream Elements. Hours watched is a measure of volume of consumption, says Remer Rietkerk, Newzoo’s head of esports.
“They’re all picking up the crumbs,” Pachter says, referring to Twitch’s competitors.
Morrison likened Twitch to television. “Kids turn on Twitch the way you or I would have turned on the TV when we were younger,” he says. “Ninja might have been their favorite show, but when their favorite show gets canceled, they don’t throw out their TV—they find another channel. That’s what they’re doing.”
China, where Twitch is banned, makes up a huge chunk of the global esports audience. Chinese viewers watch games on sites like HUYA (HUYA) and DouYu (DOYU). Short-video platform Bilibili (BILI) paid 800 million yuan ($116.6 million) for three-year broadcast rights for League finals, according to state-run media. J.P. Morgan analyst Daniel Chen is bullish long term on HUYA, though he expects competition from Bilibili and others could hurt the bottom line in the next few months.