Interactive games and e-sports

Executive summary

In-game microtransactions, continued adoption of new technology such as 5G, and cloud-based gaming and e-sports will fuel strong growth in the gaming industry over the next five years. While it is hard to predict if another game will dominate culture and generate as much revenue as Fortnite: Battle Royale, its success has been a huge contributor to increasing non-traditional gaming audiences and continuing the community focused gaming trend.

The free-to-play model has proven successful with significant in-game microtransactions driving revenue, however the pay to play model is still growing and will not disappear in the forecast period.

More money is also entering the gaming ecosystem as Australian gamers are professionalised into athletes and e-sports enter the mainstream. The presence of Fortnite: Battle Royale at the 2019 Australian Open and partnerships between the AFL and Riot Games demonstrates that many sporting bodies are trying to capitalise on e-sports younger audience. E-sports has increased its sponsorships, prize money pools, and has the opportunity for marketers to access hard to reach audiences, all while creating a generation of professional gamers who are able to monetise their skill through content distributed on Twitch and YouTube.

loading-player

Playback of this video is not currently available

Growth Drivers

1. The transition from individual gaming to mainstream family entertainment
2. In-game microtransactions
3. Gaming and e-sports content development, distribution, and infrastructure
4. Improvements in audience measurement in e-sports

 

Forecasts at a glance

Digital sell-through revenue is now the growth driver of console gaming revenues

Digital PC sales continue to dominate as physical PC revenue expected to halve by 2023

The Fortnite effect

Fortnite: Battle Royale has had 125 million new players globally registered between June 2018 and March 2019,1 doing more to push gaming into the mainstream than any other title in recent years. Ron Curry, CEO of IGEA describes the game as 'the new playground where kids gather to play and hangout'.Increasingly, there is a trend toward families gaming together, or watching gaming content on either YouTube or Switch.3

With games occupying an average of 89 minutes per day,4 gaming is establishing itself as a competitor to free-to-air television and video-on-demand services.5

Content creators and are in-demand as audiences expect interactive, high quality experiences

In line with the broader entertainment industry, audiences are demanding higher quality content. This extends across the entire ecosystem, from big budget games, small developers, to influencers who stream their gameplay. Despite limited opportunities in our domestic market, Australia exports skilled games developers, streamers and content creators to the world.6

Non-traditional game development opportunities are increasing in adjacent industries. ‘Applied’ games in the B2B market which normally have an education focus, and globally is expected to rise from A$4.5 billion in 2017 to over A$24 billion in 2023,7 as well as the film industry, as demonstrated by Netflix’s hiring of game designers to produce more interactive films such as Bandersnatch.8

Microtransactions that meet the definition of gambling will be regulated as gambling

The growth of gaming also invites increased scrutiny from governments and regulatory bodies, the latest hot topic being in-game transactions. For example, FIFA 19,9 Star Wars Battlefront 2 and Jedi: Fallen Order producers, among other upcoming titles, halted in-game sale of loot boxes because it is said to encourage gambling.10

In Australia, an initial review into loot boxes was conducted by the Senate Environment and Communications References Committee with a recommendation of a more thorough review be performed. The Australian Government has noted this recommendation but deferred the review until the research into the potential impacts of loot boxes is more developed.11

5G will boost cloud gaming

The roll out of the 5G network infrastructure coupled with advancement in cloud technologies is set to make gaming on a mobile device become ubiquitous. A recent survey put smartphones and tablets as the second most important gaming platform after PCs, with 38 percent of game developers surveyed saying they are currently developing for the mobile platforms.12 Google Stadia, scheduled to launch in 2019, promises gaming at up to 8K resolution from any internet-enabled device without the need for additional hardware.13  Apple Arcade also offers subscription based streaming from the cloud.14 The challenge for these new gaming subscription services will be the availability and reliability of high speed internet connectivity.

Professional Gamers are reaching rock star status

The professionalisation of gaming into e-sports has seen a lucrative ecosystem develop for gamers with large international prize money pools, streaming revenue, one to one sponsorship or in-kind gifting/ tipping all supported by behemoth platforms YouTube, Twitch and Patreon.

Gaming influencers and e-sports athletes in Australia are well and truly benefiting from the rise in influencer culture, and continue to have platforms on which to monetise their skills. Like any other influencer, from beauty to fitness, the three core elements of success are an authentic connection with the audience, timeliness of content, and high quality video and skill. Grace Watkins, Director of Click Management explains, ‘Australia has 3 of the top 10 Fortnite: Battle Royale content creators in the world.’15

‘The International’ is the biggest and most prestigious event on the Major Championship DOTA2 circuit and in 2018, Australia got its first champion: OG’s Anathan ‘Ana’ Pham. Ana helped OG secure first place with an attached purse of ~US$11.3 million. His personal total prize pool over his career is ~US$2.8 million.16
 

Securing e-sports’ streaming rights deals will drive sustainability

E-sports is open for business, with buying teams, hosting events, selling tickets, partnerships or sponsorships all driving revenue in the sector. It has enjoyed enormous growth in recent years, with multiple professional tournaments and stadium-level events being held, like the Intel Extreme Masters and Melbourne E-sports Open.

Mirroring other more traditional sporting codes, the industry believes the key to unlocking long term sustainability will be the sale and distribution of streaming rights. CEO of Gfinity Australia, Dominic Remond believes that ‘the reliance on sponsorship revenue is still too high in Australia [where it is upward of 80 percent for some operators] compared to traditional sports [that take a lot more from media rights]’.17

E-sports are becoming more attractive for mainstream advertisers

Advertising revenue in the gaming industry has traditionally been limited. With the growth of e-sports audiences and influencers, the mainstreaming of gaming culture has made sponsorship and event advertising a much more attractive proposition.

Audiences too are ‘supportive of brand sponsors that relate closely to their passion of e-sports’,18 especially where the activation is authentic. For advertisers simply looking for mass reach at a low investment cost, esports will still be a fringe event, however, where there is a natural brand fit with the context of play and gaming culture, a deeper, bespoke sponsorship package would be attractive. Gaming hardware and software and other entertainment products including films and food and beverage products are industries that are benefiting from this alignment.

Addressing consistent metrics for success, and continuing to demonstrate mass reach is integral, as ‘growth won’t come until eyeballs are proven’.19

‘Understand where you fit in and how your fit adds value if you want to see a return in e-sports.’²⁰

Scott Russell, Former General Manager E-sports, The HOYTS Group

Breaking news: Sony and Microsoft have recently announced a ground-breaking alliance to jointly develop a cloud-based gaming solution for consumers enabling them to compete with Google, Amazon and Apple’s solution.
 

Follow PwC Australia