Why did e-sports encounter ＂Waterloo＂ when revenue and users fell for the first time？
Author | Yang Yang
Editor | Xia Yijun
Going back to five years ago, the popularity of e-sports seems to be comparable to that of the meta-universe in these two years. In 2017, in the primary market, the number of e-sports industry financing reached 77. What level is this? In the meta-universe of last year’s fire, the number of financing in 2021 was 81.
The market’s attention to e-sports is not a flash in the pan. Since then, although the amount of investment and financing in e-sports has decreased, it still attracts the attention of more industrial institutions and governments. Not only Tencent and Ali have successively laid out e-sports business, but also many local governments have clearly issued documents to support the development of e-sports. Shanghai has also proposed a plan to build a global e-sports capital.
With the help of many parties, most people from all walks of life in China think that e-sports has begun the golden age of layout and development. It seems that this is indeed the case. The e-sports industry has become one of the few industries that can still maintain rapid growth in the past few years. From 2019 to 2021, the compound growth rate of the domestic e-sports market reached 21%.
But this year, the development of the e-sports industry has turned sharply. In the first half of this year, the scale of the e-sports market and the number of users both declined, and the number of industry participants including teams and operating companies decreased significantly. According to the statistics of sports e-sports in 2019, there were 330 clubs in various events in the country at that time. Two years have passed, and the e-sports team has lost nearly half.
Behind the bottleneck of industry development is the weakness of e-sports at the commercialization level. At present, sponsorship is the main mode of realizing the e-sports industry. Tencent’s "2022 Asian E-sports Industry Development Report" shows that in 2022, sponsors contributed more than 60% of the operating income of global e-sports events.
Compared with other events with mature commercial development, the gap is obvious. Take the football club as an example. Manchester United is the club with the highest sponsor income in the world, and its sponsor income accounts for only 37%.
From this perspective, the e-sports industry still has a long way to go before it is truly mature.
/ 01 /
E-sports encounters a "roller coaster"
In recent years, e-sports has been an industry that has attracted much attention from all parties. It has not only received investment from many head industry institutions and funds, but also received strong support from the government. Many cities have invested billions in e-sports industrial parks, and Shanghai even proposed a plan to build a global e-sports capital.
With the support of many parties, the e-sports market has ushered in a golden age in the past few years, and its market scale has maintained rapid growth. According to iResearch data, from 2019 to 2021, the compound growth rate of the domestic e-sports market reached 21%.
However, by 2022, the performance of the domestic e-sports industry has turned sharply. First of all, the scale of the e-sports market has declined. According to the E-sports Industry Report of China from January to June 2022 by the E-sports Committee of China Music and Digital Association, the revenue of the e-sports industry declined for the first time, with a year-on-year decrease of 10.12% to 76.497 billion yuan. The report believes that the decline in market size is caused by the decline in e-sports popularity and changes in user income and willingness to pay.
From the data point of view, the popularity of e-sports does have a downward trend. The most intuitive performance is that there are fewer users. In the first half of this year, the number of domestic e-sports users was about 487 million, down 0.41% year-on-year. This is the first time that the number of domestic e-sports users has declined for many years.
Compared with the decrease in the number of C-end users, the number of B-end participants who promote the development of the e-sports market has dropped more seriously. From the e-sports live broadcast platform, e-sports event operators to e-sports teams and other industrial chain participants, a large number of withdrawals have begun.
Among them, the deepest user perception is the reduction in the number of e-sports live broadcast platforms. For example, not long ago, Tencent e-sports "optimized" its game live broadcast platform-Penguin e-sports. Prior to this, the national live broadcast, Netease mint, panda live broadcast, etc. have already been shut down.
In addition to the e-sports live broadcast platform, other industry participants are also withdrawing in large numbers. Not long ago, Zhang Yijun, the first vice chairman of China Audio-Digital Association, announced at the meeting that "164 clubs have maintained normal operation this year". According to the statistics of sports e-sports in 2019, there were 330 clubs in various events in the country at that time. Two years have passed, and the e-sports team has lost nearly half.
E-sports clubs have disappeared by half, and the living conditions of the operating companies that provide services for them are even more difficult. A practitioner said that half of many startups that do e-sports content marketing around them have closed down, and the other half have 50% fewer customers.
Then why did the e-sports industry, which all parties had high hopes for, suddenly start to decline?
/ 02 /
The game can’t be played, and the ecology can’t run.
The decline in the market size of the e-sports industry is due to a series of changes in the external environment, which have had a greater impact on various businesses in the e-sports industry.
From the income composition of the e-sports industry, there are two major businesses: e-sports games and e-sports ecology. Among them, e-sports games refer to electronic games in which users enter the same screen through devices for simultaneous real-time multi-player confrontation. Typical examples are the glory of the king, League of Legends and other games. E-sports ecology refers to live broadcasts, events, clubs and other income.
Both of the above two businesses are facing development bottlenecks. In the first half of the year, the revenue of e-sports games fell by 10.2%, which even exceeded the decline of the overall game market (4.5%). E-sports game revenue declined more because e-sports games first faced the same dilemma as the game market: the version number was once stopped, which affected the release of new games, and the scale of game users peaked and the game was used as an optional consumption, and the ARPU of users decreased, which jointly led to the decline of game revenue.
More importantly, compared with the whole game market, the life cycle of explosive e-sports games has shown a declining trend. For example, the Internet giant mentioned in its semi-annual report that the glory of the king and League of Legends both experienced a decline in revenue in the first half of the year. These two games are also one of the most representative e-sports games with the highest revenue in China.
As the upstream of the industrial chain, the potential of e-sports games is weak, which may affect the operation of subsequent e-sports events and clubs in the future, which is not conducive to the development of the entire e-sports ecology.
Today, such an impact has already appeared. In the first half of the year, domestic e-sports ecological income fell by 2%. The reason is that the business value of e-commerce ecosystem has decreased, which has affected advertisers’ advertising investment in sports events and clubs.
According to the CEO of an e-sports marketing company, advertisers in various fields can be seen in the past, but now advertisers focus on car companies and some big-name beauty products. In addition, the sponsorship price of advertisers has also declined. Even for LPL with the largest number of sponsors, more than 70% of sponsors choose the lowest two price rights.
For advertisers, it is not difficult to understand that the value of e-sports is getting lower. In the case of cold consumption, most advertisers pursue brand exposure to the integration of quality and efficiency. E-sports can’t directly bring benefits to advertisers, and the budget is naturally cut. This is also the reason why advertisers are now more car companies and big-name beauty products. Because these advertisers have a better budget and enjoy a certain degree of brand premium, they have more incentive to spend money to maintain their brands.
In addition, the scale of e-sports users has peaked and even showed a downward trend. For e-sports, which is difficult to form a closed-loop purchase, the core appeal of advertisers is brand exposure. Now that users are at the peak, advertisers will not bring new user exposure even if they maintain their delivery, and the effectiveness of advertising delivery will also be reduced.
A series of "external troubles" are the primary reasons for the decline in the scale of the e-sports industry in the first half of the year, but in the long run, the "internal worries" of weak commercialization ability are obstacles to the greater growth of the industry.
/ 03 /
The commercialization ability of e-sports still needs to be proved.
The single way of realizing cash and the difficulty of corporate profits have always been problems in the e-sports industry. In the past, when users and industries were still growing at a high speed, the problem of weak commercialization seemed to be less intractable. But now, with the peak of industry users, it is urgent to improve the commercialization ability.
The lack of commercialization ability is first reflected in the single realization mode. At present, e-sports eco-participants, both e-sports events and e-sports clubs, are heavily dependent on sponsors. Tencent’s 2022 Asian E-sports Industry Development Report shows that in 2022, sponsors contributed more than 60% of the operating income of global e-sports events. According to sniffing statistics, even the top e-sports clubs in the world account for nearly 60% of sponsors’ income.
Referring to the sports industry with mature commercial operation, its dependence on sponsors is not as serious as that of e-sports industry. Take the football club as an example. Manchester United is the club with the highest sponsor income in the world, but its sponsor income accounts for only 37%. It should be noted that Manchester United’s competitive performance in 2021 declined, bonuses and broadcast income declined, and sponsorship income began to exceed broadcast income, otherwise its sponsorship income would be lower.
The e-sports industry relies on sponsors because the e-sports copyright business has not yet formed a sufficient commercial scale and has not opened up more monetization business. From the perspective of copyright business, according to the data of Sniffer, LPL is the most commercialized event, and the participating clubs can get tens of millions of RMB (excluding bonuses) on average, while the Premier League clubs can get 100 million pounds on average.
The copyright value is relatively low. On the one hand, it is because the buyers of the copyright of e-sports events are mainly live broadcast platforms, and the live broadcast platforms still don’t make money, so the price naturally won’t go up. On the other hand, there is also a gap between the influence of e-sports and the commercial operation system and mainstream events. In the future, with the further development of the industry, the copyright value will increase with great probability.
But for e-sports participants, it is more important to improve their own commercialization ability than to wait for the promotion of copyright value. Referring to other industries, Manchester United jerseys, souvenirs, tickets and other commodities can account for more than 15% of revenue. According to the olfactory statistics, the merchandise income of the head e-sports club is below 1%. It can be seen that there is still much room for improvement in the commercialization of e-sports clubs.
At present, the improvement of commercialization ability is imperative. Due to the poor commercialization ability, e-sports companies generally make ends meet. According to public information, the well-known team A, excluding other expenses, only the staff cost has been equal to the revenue. This is not a case. According to the statistics of Meta, an e-sports business organization, as of 2021, there are 23 e-sports concept companies in the world, and only two companies are profitable, one of which is an e-sports betting company.
It is also because of the poor commercialization ability that e-sports participants have shown a decreasing trend. As mentioned above, e-sports clubs will be halved in two years, and e-sports marketing companies will be halved in one year. The massive withdrawal of industry participants is obviously not conducive to the positive development of the e-sports industry.
From this point of view, improving the commercialization ability has become a necessary problem for the e-sports industry to continue to develop.
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