Chapter 1 Industry Overview
Esports, also known as eSports or eSports, is a competitive activity of a video game where players play against other people or teams, usually on the web or on a specific venue.
The development of the esports industry is inseparable from the advancement of the Internet and computer technology, and is also driven by game developers, sponsors, game media, and many others. At present, e-sports has become a global entertainment industry, its scale has exceeded many traditional sports, and a large number of e-sports events are held every year, such as the Dota 2 International Invitational Tournament, League of Legends World Finals, etc.
The esports industry attracts not only a large number of players, but also a large number of viewers, and the live and recorded broadcast of many esports events will have a large number of viewers on the Internet. At the same time, the esports industry is also an industry full of opportunities and challenges, and many companies and institutions are looking for business opportunities in this field, such as esports event organizations, esports clubs, game developers, live streaming platforms, etc.
In addition to being an entertainment activity, the esports industry has commercial value. With the increase in the scale of the esports market, more and more companies have begun to pay attention to this industry and get involved in all aspects of the esports industry chain, such as game development, event organization, sponsorship, media coverage, e-sports training, etc.
In addition, the e-sports industry has also driven the development of related industries, such as e-sports anchors, e-sports commentators, e-sports formations, e-sports clothing, etc. Esports live streaming platforms have also become an important part of the industry, and many well-known esports events are broadcast live through these platforms to attract a large number of viewers.
Figure Schematic diagram of the e-sports industry
Source: Asset Information Network Qianji Investment Bank
In recent years, with the emergence of high-quality games such as "League of Legends" and "Dota 2", driven by policy, capital, society, technology and other factors, the domestic e-sports industry has developed rapidly. The government changed from curbing to supportive, the State General Administration of Sports officially approved e-sports as the 99th official sports competition, established an e-sports national team, and added e-sports majors to the Ministry of Education; The rich second generation represented by Tencent and Wang Sicong and venture capital have poured in; The prejudice against e-sports has changed, and the young generation who love e-sports has become the backbone of society and has strong spending power; PC hardware, rapid Internet speed, and mature video live streaming technology have laid the technical foundation for e-sports.
Figure History of e-sports
Source: Asset Information Network Qianji Investment Bank
The e-sports industry chain has been continuously refined, and the upstream and downstream structures including game R&D and operation, event operation, game anchor, program and content production, and live broadcast platform have been gradually formed. In the future, the e-sports market will show a trend of specialization and marketization, gradually approaching traditional sports; Multi-faceted cross-border in various fields, e-sports gradually become entertainment; The rise of competitive mobile games and the gradual mobility of e-sports; The popularization of traditional e-sports projects, the rise of mobile e-sports, and the possibility of open TV broadcasting have promoted the popularization of e-sports. The application of the VR industry promotes the virtualization of e-sports.
Figure Esports game classification
Source: Asset Information Network Qianji Investment Bank
With the slowdown in the growth rate of mobile competitive games and the peak of PC competitive games, the future growth of China's esports market will mainly come from the esports ecological market. The strong promotion of the commercialization of events will further enhance the expansion of the esports ecosystem and provide lasting endurance for the growth of the industry. As can be seen from the changes in the overall Chinese esports market, esports game revenue will continue to be the main source of revenue for the esports market for some time to come.
In 2022, the revenue of the mainland e-sports industry will be 144.503 billion yuan, a year-on-year decrease of 14.01%, the first decline in five years; In 2022, the number of esports users will be about 488 million, down 0.33% year-on-year. In 2022, the revenue of e-sports games will be 117.802 billion yuan, a year-on-year decrease of 15.96%. The overall market is sluggish, and the user's ability and willingness to pay are the main reasons. In 2027, the market size of the mainland e-sports industry is expected to exceed one trillion yuan, reaching about 1.4 trillion yuan.
Figure Size of the esports gaming market
Source: Qianji Investment Bank Asset Information Network iFinD
Chapter II: Business Model and Technology Development
2.1 E-sports industry chain
The upstream of e-sports is mainly content licensing, including e-sports game research and development and game operation; After the game developer and game operator authorize the event, enter the midstream link of the e-sports industry chain, event execution and content production, of which the event execution includes the e-sports integrated service platform, e-sports venues, etc., and the content production includes the content production of the event and derivative content; The downstream of e-sports is mainly content dissemination, including TV channels, e-sports media, online live broadcasting, etc. Since the follow-up work can only be carried out smoothly after e-sports developers and e-sports operators license the content of e-sports, content licensing has become the most important part of the e-sports industry chain.
Figure E-sports industry chain
Source: Qianji Investment Bank Asset Information Network iFinD
Figure E-sports industry monetization model
Source: Qianji Investment Bank Asset Information Network iFinD
upstream
The upstream of the e-sports industry chain mainly refers to video game developers and operators, and others also include regulatory authorities, software and hardware equipment, and provision departments. E-sports developers refer to companies, groups or individuals that develop and produce video games, and game operators refer to network companies that operate self-developed games or operate online games on behalf of other game developers. Game developers and operators often generate revenue by selling game agencies, game items, and providing related esports services.
Game developers and operators also belong to the upstream of the industry chain, and there are usually two models between the two, one is that the two are combined into a community of interests, and the other is that the two operate separately. The separate game development company and game agency model has its own drawbacks, making it difficult to capture market opportunities. For example, Blizzard focused on the OwL League, leading its OwPS Summer Championship team to move on to other sports. Valve's philosophy of "valuing players, despising clubs" is also detrimental to the rights of core clubs and inhibits the influence of the DPL.
The combination of game developers and game agents into a community of interests is conducive to the construction of the e-sports event system, solves the problem of event hosting rights, and can learn from excellent game resources and mechanisms to combine game development and promotion to improve the popularity of games.
The main upstream content licensing enterprises in the e-sports industry chain include Tencent Games, NetEase Games, Giant Network, Hero Interactive Entertainment, etc., among which Tencent Games and NetEase Games have developed into veritable leading enterprises in the field of e-sports content licensing after years of development.
middle reaches
The middle reaches of the e-sports industry chain include e-sports events and event executive clubs. E-sports events are the main content of the middle stream of the e-sports industry chain, and there are some new changes in e-sports events, first of all, the scale and level of e-sports events are constantly expanding, in 2018, e-sports appeared as a performance event for the first time in the Jakarta Asian Games, and in 2022 will become the official competition of the Hangzhou Asian Games: followed by the alliance and home development of e-sports events, close to the traditional sports league system: in addition, the pan-entertainment development around e-sports events is the main trend of future e-sports events. "Star players, Internet celebrity anchors, e-sports animation, e-sports movies, etc." have brought a large amount of traffic and fans to e-sports, becoming the main force promoting the development of e-sports.
Esports clubs are the executors of esports events and an important part of the middle reaches of the esports industry chain. At present, group operation has become one of the management methods for the club to expand new projects, and the club has delegated more authority to the leader of the new project division, and given basic logistical support: under this condition, it is not necessary to directly manage and control it while ensuring the layout of the new project. In addition, as the stardom of e-sports players has gradually matured, the club pays more attention to the image packaging of players, which also adds intangible brand equity to the club.
The events executed by e-sports midstream events mainly include KPL, LPL and other events, and e-sports clubs mainly include eStar team, RNG team, etc.; Content hosting mainly includes NEOTV, VSPN and other enterprises; E-sports derivative services include e-sports film and television production, e-sports education and other industries;
downstream
Esports education has become a hot topic, but the industry as a whole lacks professional talent, and it is our top priority to make up for the talent gap. At present, domestic e-sports qualifications are generally set up in junior colleges, and e-sports clubs are expanding cooperation with universities and some educational institutions in addition to having their own youth training reserves. In terms of content, the professional textbook writing team of colleges and universities and the experience sharing mode of professional players combine to create more professional and high-quality content. In terms of talent training, not only provide youth players for professional teams, but also expand the cultivation of talents to the entire e-sports industry, and the training of exclusive talents in various industries such as event operation, club management, anchor and player cultivation are all important contents of the online sports technology education system.
Game live streaming has always been an important area of the esports industry, and the transformation of the anchor economy is also considerable. It is reported that Hangzhou E-sports Digital Entertainment Town has introduced pan-entertainment enterprises such as anchor brokerage companies to settle in. Through the training of anchors, capital is injected into the anchor economy, so that this model can be quickly replicated.
The live broadcast platform is the most important channel for the dissemination of e-sports content, which greatly enhances the IP value of e-sports players and game streamers, and forms a good fan economy ecosystem. The fan effect brought by personal live streaming is the main business model of live streaming platforms through live streaming platform prop consumption and e-sports e-commerce monetization.
Compared with Twitch's business model of user payment and advertising as the core in the United States, AfreecaTV's business model based on advertising and value-added services in South Korea is more suitable for the domestic business environment, and advertising revenue is expected to become an important source of income for live streaming platforms. In the future, the competition for anchors and event copyrights will still be the focus of competition among live streaming platforms, and the current scattered competition pattern driven by capital is expected to become concentrated.
The content dissemination downstream of e-sports includes Huya Live, Douyu Live, Penguin E-sports, etc.
Figure E-sports industry chain map
Source: Qianji Investment Bank Asset Information Network
2.2 Business Model
The business model of e-sports is different in the upstream and downstream of the e-sports industry chain, the main profits of upstream game developers and game operators come from game sales, content licensing, etc., the profits of the middle stream of the e-sports industry chain come from advertising revenue, event revenue and derivatives and other sales revenues, and the downstream profits of the e-sports industry chain are mainly channel value and traffic income brought by fan economy.
upstream
Since the role positioning of game developers and game operators in the upstream of the e-sports industry chain is not very clear, sometimes there will be situations where they are both game developers and game operators, and according to the role positioning of the two, the business models in the upstream of the industry chain can be divided into agency models and self-operated models. There are big differences between these two business models due to different operating models.
The agency model refers to the game operator and the game developer is clearly separated, by their own different subjects, is also a more common form in the mainland, its typical representative is Shanda network company, the agency mode of the game developer's income mainly from the licensing fee and the authorized game operator in accordance with the license agreement agreed in the share ratio of the regular revenue sharing, which is also the largest source of income for game developers.
The revenue sources of game operators under the agency model include membership fees, cooperation sharing, advertising revenue, etc. Since professional game operators have strong channel sales capabilities and rich customer resources, the business model of the agency model has the characteristics of short cycle, fast return, direct operation and other short and fast times, and at the same time has high flexibility and can be quickly adjusted according to market conditions. However, this model also has obvious disadvantages, such as excessive copyright fees and high sharing requirements of game developers, which will increase the cost of game operators, so it will reduce the enthusiasm of game operators, which is not conducive to the promotion and sales of games, and it is difficult to develop game derivative markets.
The self-operated model means that the game developer and the game agent are the same entity, and the game developer is also the game operator. The self-operated model has gradually become a mainstream business model, and its typical representatives are Tencent, NetEase and other companies.
The biggest difference between the business model and the agency model in the self-operated model is the agency fee. Game operators generate revenue by acting for the game developer's products, which is reduced under the self-operated model, thus eliminating the associated agency costs. The advantage of this profit model is that it can develop and build a unified billing and customer service platform, strengthen the control of game IP, and help reduce the overall operating costs, but this model also has some shortcomings, because game developers are difficult to have professional operation capabilities, there may be problems such as a single customer base.
For platform companies that master the head content of e-sports, global game developers represented by Tencent, Valve, and Blizzard not only control the right to develop games, but also control the power of game operation in most regions, and build a strong moat to exclude competitors through the method of "platform + content", and the core engine of future growth will switch from game content monetization to ecological monetization.
middle reaches
In 2017, the scale of mainland e-sports players exceeded 260 million, and the huge e-sports player base and industrial scale made the influence of e-sports events continue to increase, gradually approaching traditional sports events, and the organizers of e-sports events focus on creating national super e-sports IP, such as WCA, League of Legends S series, etc., attracting a lot of attention, which makes e-sports event ticket revenue an important source of profit. It is also the most important business model in the middle of the e-sports industry chain.
Compared with traditional sports, the audience of e-sports is younger and has a higher willingness to pay. These characteristics determine that event user targeting can bring greater marketing potential. More and more e-commerce, video websites, car brands, and fast-moving consumer goods such as beer and beverages have increased their advertising investment in e-sports events, which has also become an important source of commercial profit in the middle of the e-sports industry chain.
E-sports clubs, like traditional sports clubs, have received a lot of sponsorship, especially from companies related to the e-sports industry chain, such as hardware manufacturers such as computers, mice, keyboards, monitors, etc., and Internet companies such as automobiles, FMCG and e-commerce video websites have become sponsors of e-sports clubs. From the club's point of view, sponsors are its main source of income, and e-sports clubs also have an income derived from the prize money of the event, some endorsement sharing of players, and sales of peripheral products. Of course, at present, the profit of e-sports clubs is still a minority, and according to incomplete understanding, the vast majority of e-sports clubs are currently unable to achieve profitability.
downstream
The downstream of the e-sports industry chain includes live streaming platforms, e-sports education, e-sports media, etc., and its main business model is traffic monetization from the fan economy. Esports content and media can be described as mutual achievements, and esports directly contributed to the first rapid development of live streaming platforms.
In 2012, with the popularity of e-sports games such as "League of Legends", game live streaming was separated from traditional live streaming into an independent piece of content, and independent game platforms such as Douyu and Huya were established one after another, and signing e-sports stars at a high price became a quick solution to accumulate the popularity of the platform at that time. On the other hand, the rise of live streaming has given e-sports content a channel for dissemination, which in turn promotes the stickiness of e-sports content. The popularity of e-sports live streaming has directly driven the fan economic effect of the live broadcast industry, and users have a strong dependence on anchors and a strong willingness to pay for their favorite streamers.
At the same time, the revenue sources of e-sports anchors are also very diversified, including platform signing fees, virtual prop sharing, advertising promotion expenses and e-commerce sales. After the platform deducts a part of the user's paid income, the anchor and the guild will share the remaining income, and the anchor can often share 75% of the remaining part of the revenue. In addition to these profit models, the sales revenue of e-sports derivatives has become a common monetization model, and the annual income of some anchor derivatives can reach 10 million yuan.
The income of professional players includes professional income, live broadcast platform income and other income, of which signing fees and daily wages are the main sources of income for players, and the signing fee of first-line players can reach 10 million yuan, and the rise of live streaming platforms has also driven the development of industries such as e-sports education and e-sports media. From the beginning of the 21st century to the present, e-sports has experienced a long period of growth, and first- and second-tier manufacturers focusing on monetizing game content will still follow the growth of the industry along the route of entertainment consumption upgrades.
2.3 Technological Development
According to the statistics of the number of patents of various patent applicants in the domestic e-sports industry, the top ten companies are: Rapoo Technology, Suning.com, Xinghui Entertainment, Contact Interactive, Holley Technology, Yuntu Holdings, Electric Soul Network, Oriental Pearl, Century Huatong, and Shunwang Technology.
Table Top 10 domestic patent companies
Source: Qianji Investment Bank Asset Information Network iFinD
2.4 Policy Supervision
The competent authorities of the consumer electronics industry include: the Ministry of Education, the National Development and Reform Commission, the State Administration of Press, Publication, Radio, Film and Television, the State General Administration of Sports, and the Cultural Administration. The NDRC is mainly responsible for the formulation of industrial policies, administrative guidance for product development and promotion, project approval and management of industrial support funds.
The rapid development of the mainland e-sports industry is inseparable from the strong support of national policies. At the national level, 2016 can be described as the year of policy welfare for the mainland e-sports industry, with the National Development and Reform Commission hosting national or international e-sports game and entertainment events in April; In July, the State General Administration of Sports completed the professionalization and regularization of e-sports from the policy level; In September, the Ministry of Culture opened to e-sports pan-entertainment, and the Ministry of Education added 13 majors, including "e-sports sports and management". In 2017, the "13th Five-Year Plan for the Development of Cultural Industry" issued by the state also clearly proposed to encourage the development of new forms of e-sports.
At the local level, in 2018, many provinces and cities in Xi'an, Hangzhou, Shanghai and Guangdong clearly proposed relevant policies for the development of the e-sports industry. Among them, Hangzhou's plan to build an e-sports digital entertainment town has attracted much attention. Since April 2017, when the Olympic Council of Asia and Alibaba Sports announced that e-sports will be an official competition at the 2022 Hangzhou Asian Games, the Hangzhou E-sports Digital Entertainment Town Plan has been in the planning. In 2018, in order to accelerate the construction of an e-sports digital entertainment town and promote the agglomeration and development of the e-sports digital entertainment industry, the Xiacheng District Government of Hangzhou issued a government document for the development of the e-sports industry in the town, which includes 16 e-sports industry support policies, which not only supports the overall development of the e-sports industry in the town, but also provides corresponding subsidies to enterprises, talents, clubs and training institutions in the town.
In order to attract e-sports-related enterprises, local governments actively promote the implementation of e-sports clubs and e-sports events, and promoting the construction of e-sports towns is also an important manifestation of the regionalization of e-sports. In the context of regionalization, the e-sports industry can stimulate the local demand for e-sports talents and benefit the regional economic development.
Chapter Three: Industry Valuation, Pricing Mechanism and Global Leading Enterprises
3.1 Comprehensive financial analysis of the industry
Chart Industry performance
Source: Qianji Investment Bank Asset Information Network iFinD
Figure: Industry valuation
Source: Qianji Investment Bank Asset Information Network iFinD
The valuation methods of the esports industry can choose from P/E ratio valuation method, PEG valuation method, price-to-book ratio valuation method, price-to-present ratio, P/S price-to-sales ratio valuation method, EV/Sales price-to-sales ratio valuation method, RNAV revaluation net asset valuation method, EV/EBITDA valuation method, DDM valuation method, DCF cash flow discount valuation method, NAV net asset value valuation method, etc.
Table Take Perfect World as an example to analyze the main business structure
Source: Qianji Investment Bank Asset Information Network iFinD
Table Take Donghai Group as an example to analyze the main business structure
Source: Qianji Investment Bank Asset Information Network iFinD
Table Valuation comparison of overseas e-sports enterprises
Source: Qianji Investment Bank Asset Information Network iFinD
Table Comparison of valuations of Chinese esports companies
Source: Qianji Investment Bank Asset Information Network iFinD
3.2 Industry Development
Events
E-sports events are the producers of e-sports content, the core part of the e-sports industry chain, and contain huge commercial value. In terms of attractiveness, esports events have surpassed the vast majority of sports in terms of viewership and event prize money.
From 2014 to the present, esports events have gone through a process from inception to prosperity. From the beginning of wCG (World Cyber Game), which is known as the "Olympic Games" of e-sports, to today's CPL, WCA and ESWC have become the world's three major e-sports events. Mainland e-sports events have developed rapidly in 2014-15, with the scale and prize money of various events rising all the way, and the level of producers and live commentary of events has skyrocketed, showing a professional tendency.
content
The content production of e-sports is carried out through events, and the e-sports content production platform, as the executor of the event, undertakes the task of organizing the event and producing the e-sports program. In the development of e-sports, e-sports content production platforms have experienced a long period of embryonic and stagnation.
- In its infancy (2003-2006), domestic esports content production platforms debuted, landing on digital and live streaming, while the broadcast ban and unexplored business models slowed the industry:
- During the period of stagnation (2007-2013), with the online gaming of e-sports games, e-sports content had more event support and attention, and some emerging e-sports content production platforms gradually emerged:
- Until the outbreak period (2014 to the present), the emergence of a large number of live streaming platforms and the influx of capital made e-sports content production platforms hot and completely activated the entire industry. Live streaming platforms have added a lot of content to esports, and then a large number of new esports content production platforms have emerged, even some professional production teams that have jumped out of traditional media.
With the advent of the pan-entertainment era, events are no longer the only producers of e-sports content, and new e-sports content production platforms work with e-sports stars to hold various e-sports-themed events and continuously expand new e-sports content.
live broadcast
The development of the e-sports industry has directly spawned a large number of e-sports-related industries, and live streaming is one of the most important representatives. The formalization of e-sports and the leagueization of clubs have given birth to a group of professional players with a large number of fans, which have increased their interaction with fans through live broadcasting, directly promoting the rapid development of the live broadcast market.
With the continuous influx of capital, live streaming platforms ushered in an explosive period in 2014, and these live streaming platforms gradually expanded other content production in addition to e-sports content, but games are still the most important part of it. In 2017, the size of the mainland live broadcast market has reached 23.9 billion yuan, of which the game live broadcast market reached 3.73 billion yuan, accounting for about 15.6%.
With the increase of users, the scale of the mainland game live broadcast market has also expanded, in 2020 the mainland game live broadcast market size reached 30.03 billion yuan, a year-on-year increase of 44.3%, the future will continue to maintain growth, it is expected that in 2022 China's game live broadcast market size will reach 53 billion yuan, game live broadcast platform has begun to find a new direction of development, in the live content and profit model on new exploration, in addition to the traditional game live content, the platform continues to explore the game live video content display form diversification, Short video, the development of diversified content including film and television, music, social networking, etc., the development of live membership services, game intermediation, cloud gaming and other diversified profit models.
At present, the commercialization model of the mainland game live broadcast market has initially taken shape, and the core competitive factors are funds, content and anchors. As the competition in the live streaming industry becomes increasingly fierce, the major live streaming platforms gradually show different emphases, the industry has also emerged, and mobile e-sports live streaming platforms have gradually occupied the market.
Figure Size of China's game live streaming market
Source: Qianji Investment Bank Asset Information Network iFinD
Figure Scale of live game streaming users in China
Source: Qianji Investment Bank Asset Information Network iFinD
Mobile esports
Mobile e-sports refers to the intellectual confrontation between people using mobile devices such as mobile phones, tablets and PSPs as carriers. China's mobile e-sports events are in a period of vigorous development, and the proportion of mobile e-sports market is increasing. According to relevant data, in 2017, the overall market size of China Mobile e-sports reached 46.2 billion yuan, the revenue of e-sports events reached nearly 1.3 billion yuan, and the income of clubs and live broadcast platforms reached 8.7 billion yuan, mobile e-sports accounted for a large proportion of it, and various mobile e-sports competitions have exceeded 50, and the prize money is rising. Among them, mobile e-sports developers represented by Tencent have launched large-scale mobile e-sports events, and live broadcast platforms such as Huya and Douyu have also opened mobile e-sports live broadcast channels.
With the increase in mobile e-sports players and the increasing investment of sponsors, the fan economic effect of e-sports will be further highlighted, the commercialization process will be further accelerated, and various fields of mobile e-sports are booming, with huge market potential and good future development prospects. In 2017, e-sports was officially included in the 2018 and 2022 Asian Games, of which e-sports at the 2018 Jakarta Asian Games as a performance event appeared on the world-class sports event for the first time, and e-sports at the 2022 Hangzhou Asian Games will officially become a competition for the first time, of which AOV, the international version of the Glory of Kings project, is a typical representative of mobile e-sports, representing mobile e-sports on the historical stage of traditional competitive sports.
3.3 Drivers
Capital-driven
After the financial crisis, many wealthy e-sports enthusiasts and venture capital bureaus brought a lot of capital, many listed companies such as JD.com and Suning took e-sports as a new investment direction, and with the holding of e-sports events and other events brought a lot of sponsors, advertising and endorsements also increased. Twitch, for example, was acquired for $970 million, sparking a boom in investment in the livestreaming industry. In particular, the League of Legends S Tournament, the most influential e-sports event in 2018, won the world championship by China's 1G team, which attracted the attention of many investment institutions.
Driven by new ideas
With the post-90s, post-00s and other young generations gradually growing into the main force of society, these young groups have a strong ability to accept new things, and with the rapid development of mobile e-sports, love e-sports has become a social trend. In the 2018 Asian Games, e-sports will be used as a performance event, and the Chinese team will win two golds and one silver, which has also greatly improved the public's understanding and enthusiasm for e-sports, and it is precisely because of the change of these concepts and the accumulation of time that the rapid development of the e-sports industry has been promoted.
Policy-driven
As early as 2003, the State General Administration of Sports listed e-sports as the 99th sport, and in recent years, some local governments have increased their investment in the e-sports industry in order to build local e-sports brands, such as the Shenzhen Municipal Government, which is currently considering building Shenzhen into an e-sports industry incubation base, training base and national competition base. With the good results of China's e-sports in the 2018 Asian Games and the world championship won by 1G, many authoritative official media in the country have made a lot of reports, and the 2022 Hangzhou Asian Games is approaching, which will surely usher in the spring of the e-sports industry.
Technology driven
The rapid improvement of Internet technology and PC and other hardware equipment production technology has laid an important foundation for the development of e-sports and the popularization of related games, especially the upgrading of mobile devices such as smartphones and the continuous innovation of Internet technology, which directly promotes the boom of mobile e-sports and live broadcasting, and also greatly increases the number of e-sports players and enterprises in the e-sports industry.
3.4 Industry Risk Analysis
Life cycle risk
Esports industry life cycle risk refers to the risks of the esports industry at all stages from the emergence of the industry to the complete withdrawal from social and economic activities. At present, the e-sports industry is in the transition stage from the growth stage to the mature stage, and the risks at this stage are mainly competition risks and industry entry barriers. With the rapid development of the emerging industry of e-sports, the market demand for mainland e-sports has grown rapidly, the market prospects are good, various capital has flowed in, new enterprises and manufacturers continue to appear, and the number of e-sports products has risen rapidly, which has caused the saturation of market demand.
It can be seen from the "2018 China Game Industry Report" released by the China Sound and Mathematics Association that the growth rate of the e-sports market in the past decade has gradually slowed down, showing the characteristics of "S" growth. At present, the expansion of the production volume of e-sports products is no longer an advantage in the competition of enterprises, and enterprises have turned to improve product quality, develop innovative new products, use high and new technologies, and reduce costs to enhance their competitiveness, which makes the entry barriers of e-sports related industries continue to increase, and new enterprises entering the market are facing higher operating costs and product competition pressure.
The lack of capital and technology, the contradiction between products and market demand, etc., make new entrants to the market face the risk of being eliminated or merged. In addition to new entrants to the e-sports market, existing companies are also facing the same risks, many of them are market followers, their products in terms of content, theme, mode of serious homogeneity, insufficient innovation ability, and some enterprises for short-term profit, rapid monetization for the purpose of purchasing program code to quickly change skins, steal advertising materials, malicious competition. According to relevant data, affected by some illegal enterprise factors, the number of game products launched and operated has declined, and the number of products with only advertisements has decreased by 20% compared with the same period of the previous year.
Technological innovation risks
As one of the representatives of the high-tech industry, the e-sports industry fully reflects the great influence of science and technology on productivity. The risk of technological innovation in the e-sports industry is mainly reflected in the speed of technological innovation and the breadth and depth of technological innovation. The development of the e-sports industry is accompanied by the advancement of network communications, hardware software and cloud computing and other technologies, the emergence and application of new technologies to the e-sports industry is an impactful impact, such as the advancement of software and hardware technology to enrich the dimension and way of expression of e-sports products, directly improve the quality of e-sports products, thereby significantly enhancing market competitiveness.
Technological innovation related to e-sports will be quickly applied to different industries, and with the subdivision of the e-sports industry chain and further integration with other industries, the application of new technologies will be more mature, for example, the rapid development of mobile communication technology in recent years has also promoted the explosive growth of the mainland e-sports industry on the mobile end. According to statistics, in 2020, mainland mobile games accounted for 75.2% of the market, while in 2014 the market accounted for only 21%, the explosive growth of mobile terminal benefited from the industrial revolution brought by Internet technology, mobile communication technology, etc., which shows that technological innovation is an important driving force for industrial development.
Looking back on the past decade, the technological innovation speed of e-sports is very fast, such as the continuous improvement of computer hardware level, making e-sports products more expressive, the emergence and application of 5G network technology has laid a technical foundation for the mobile market, and cloud computing technology has made no small contribution to stabilizing the quality of e-sports products and improving user experience. Under the background of rapid development of technological innovation and technology running through all aspects of the industry, enterprises that do not upgrade technology in time will face the risk of declining competitiveness, backward productivity or even elimination.
Industrial policy risks
Industrial policy risk refers to the risk brought to relevant enterprises due to major changes in government policies or the introduction of important measures and regulations. At present, the policy risks of the e-sports industry are mainly externalities, compensation risks, and market environment risks. Externality compensation risk refers to the government's policy risk in terms of externalities that are difficult for enterprises to overcome and the coordination of corresponding software and hardware infrastructure.
The mainland e-sports industry is an emerging industry, and the development of emerging industries requires not only the efforts of enterprises, but also the government's introduction of policies to help enterprises solve insurmountable externalities and coordination problems. Since 2016, the mainland has put forward policy guidance for the development of e-sports, and has launched several policy documents to encourage the development of the e-sports industry, such as the National Development and Reform Commission's Action Plan on Promoting Consumption-led Transformation and Upgrading, the Ministry of Culture's Opinions on Promoting the Transformation and Upgrading of the Cultural and Entertainment Industry, and the General Office of the State Council's Guiding Opinions on Accelerating the Development of the Fitness and Leisure Industry. However, these policies are only guided, the introduction and implementation of specific local policies in the same region differ significantly, the mainland directly introduced e-sports policies and plans in few provinces, in Jiangsu, Sichuan and other places, e-sports is currently only slightly mentioned in the planning of the sports industry, as a new industry relying on basic scientific research and technological innovation, the mainland government lacks corresponding financial support, and the allocation of resources is less reasonable.
Market environment risk
Market environment risk refers to the risk arising from the government's policy changes in the regulation of the price system and the market competition environment. The mainland's insufficient protection of e-sports intellectual property rights and lagging relevant policies are one of the core issues that need to be solved in the e-sports industry, which is dominated by intangible assets. In addition, the normative policies, restraint mechanisms, and supervision systems of the e-sports market are insufficient, and the existing policies have not yet created a good market competition environment.
3.5 Competitive Analysis
E-sports originated from the computer games that swept the world in the early 90s of the last century, with high-intensity confrontation, in recent years, affected by the further relaxation of relevant national policies, the general attention of gamers, and the promotion and improvement of the system, so that the development of China's e-sports has entered a stage of rapid development. From 2016 to 2019, the actual sales revenue of the mainland e-sports game market showed adjusted growth, and in 2020, due to the impact of the epidemic, the sales revenue decreased by 13.63% to 136.557 billion yuan.
The bargaining power of suppliers
The suppliers of the esports industry are mainly developers, operators/publishers and other game developers and other related enterprises, whose role is to provide high-quality boutique games to the market to form a user base, and then promote the design of top-level esports events. The issuance of game version numbers is the most important strategic reserve resource for developers and operators/publishers, who has a large number of game version numbers issued, who has stronger bargaining power, and vice versa.
The bargaining power of the purchaser
Generally speaking, buyers who meet the following conditions may have strong bargaining power: first, the total number of buyers is small, while the purchase volume of individual buyers is large, accounting for a large proportion of sellers' sales; Second, the seller's industry is composed of a large number of relatively small enterprises; Third, what the purchaser is buying is basically a standardized product, and it is completely economically feasible to purchase the product from multiple sellers at the same time; Fourth, buyers have the ability to achieve backward integration, while sellers cannot integrate forward. Esports customers are mainly electric entertainment, sports competition, mass consumer and other applications. The downstream market has strict requirements for product quality, and the bargaining power is medium.
The threat of new entrants
For esports manufacturers, it is still difficult to enter the esports market. In addition to having relatively abundant funds, entering the e-sports industry is also affected by multiple factors such as relevant national policy regulation, market supply and demand, and market prices, so the barriers to entry are relatively high.
The threat of alternatives
As a digital entertainment method, e-sports has a certain alternative relationship with entertainment products such as the game industry, but the e-sports industry itself has the superior information technology of the Internet and can overcome spatial obstacles, and it has the competitiveness and interaction of traditional sports, which makes other alternative industries unable to completely replace.
The degree of competition among competitors in the same industry
With the frequent occurrence of e-sports events and the inclusion of e-sports in the employment statistics of college graduates by the Ministry of Education, the scale of China's e-sports market will continue to expand, and the number of e-sports-related enterprise registrations will increase rapidly, from 159 in 2010 to 7,110 in 2020, and the industry competition will become increasingly fierce.
3.6 Important participants of Chinese enterprises
Chart: Ranking of A-share and Hong Kong e-sports listed companies
Source: Qianji Investment Bank Asset Information Network iFinD
Perfect World[002624.SZ]
Perfect World is an internet technology company headquartered in Beijing, China, founded in 2004. The company is one of the well-known online game developers and operators in China and one of the world's leading game developers.
Perfect World's main business includes game research and development, game operation, film production, etc. The company has many well-known game products, such as "Fantasy Westward Journey", "Blood Rivers and Lakes", "Shenwu", etc., and has a wide range of user groups in China and even around the world. In addition to the game business, Perfect World is also involved in the field of film and television production, and has subsidiaries such as Perfect Film and Television.
Perfect World not only has a wide range of business layout in the field of games and film and television, but also actively participates in public welfare charity and social responsibility activities. The company's "Perfect Charity Foundation" is one of the first public welfare foundations in China initiated by an online game company, aiming to contribute to social welfare and philanthropy.
Nomad Network[002174.SZ]
The main business of Youzu Network Co., Ltd. is the research and development, distribution and operation of mobile games and web games. The company's main products are web games and mobile games. In March 2020, the "Three Kingdoms for Young Youth" series won the Forbes World Record certification of "Most Popular Three Kingdoms Card Game Brand". In December 2020, Gamma Data and Newzoo selected the "Top 20 Chinese Enterprises in the Global Mobile Game Market", and Youzu Network ranked ninth. In February 2021, App Annie released the list of "2021 Top 52 Global Publishers", and Youzu Network was shortlisted for the third time and became one of the 15 Chinese companies on the list.
Century Huatong[002602.SZ]
Zhejiang Century Huatong Group Co., Ltd. (stock code: 002602 hereinafter referred to as "Century Huatong") was established in 2005 and successfully listed on the Shenzhen Stock Exchange in July 2011. The company started with auto parts business, began to transform into the Internet game industry in 2014, and completed the acquisition of Shengqu Games (formerly Shanda Games) with 29.8 billion yuan in 2019, and is currently a listed company in the A-share top cultural and media sector, with Tencent and OCT as important shareholders.
The company has a wealth of independent IP reserves, including but not limited to "Blood Legend", "Dragon Valley", "Legendary World", "Rainbow Island", "Heroic Age", "Fengyun", "Shen Wuyue", "Light Warrior", "Journey of the Forgotten", etc., and its products have a long life cycle, high user stickiness, and sustainable and stable contributions to the company.
3.7 Significant Global Competitors
Chart: Global ranking of listed esports companies
Source: Qianji Investment Bank Asset Information Network iFinD
Activision Blizzard [ATVI.0]
Activision Blizzard is a global game development and publishing company headquartered in California, USA, founded in 2008. The company, formed by the merger of two game companies, Activision and Blizzard Entertainment, is one of the largest gaming companies in the world.
Activision Blizzard's gaming offerings cover multiple game genres such as shooting, role-playing, music, racing, sports, cards, and more. The company's game brands include Call of Duty, World of Warcraft, Blizzard Heroes, Hearthstone, StarCraft, League of Legends, etc., which not only have a large number of users worldwide, but also have a wide influence and popularity in the game industry.
In addition to game development and publishing, Activision Blizzard is also involved in esports, digital content, virtual item trading, and more. With multiple studios and development teams around the world, the company is committed to delivering high-quality gaming and entertainment experiences, and is constantly innovating and exploring in game development and technology.
Electronic Arts [EA.0]
Electronic Arts (EA) is a global game development and publishing company headquartered in California, USA, founded in 1982. The company is one of the largest gaming companies in the world, and its business covers multiple game genres such as sports, action, shooting, role-playing, simulation, etc.
Electronic Arts' game products include a number of well-known game brands, such as FIFA, Madden NFL, Star Wars, Need for Speed, The Sims, Battlefield and so on. Not only do these games have a wide user base worldwide, but they often receive critical acclaim and awards in the industry.
Electronic Arts' game business is not limited to game development and distribution, but also includes online services, game platforms, virtual item trading, e-sports and other fields. The company has multiple studios and development teams around the world, involved in all aspects of the game industry chain.
In addition to the game business, Electronic Arts is also involved in film and TV series production. The company's film and TV production business revolves around its well-known game brands, such as making movies and TV series from game brands such as Star Wars.
SciPlay[SCPL.0]
SciPlay Corporation is a US-based mobile game development and publishing company founded in 2018 and listed on NASDAQ in May of the same year under the ticker symbol "SCPL".
SciPlay's business mainly revolves around the development and distribution of mobile games, and the company's games cover multiple genres, such as card games, slot machines, racing games, etc. The company's games have a large number of users worldwide and rank highly in app stores in multiple countries. SciPlay's main markets are North America, Europe and Asia, with the United States being one of its largest markets.
In addition to developing games in-house, SciPlay also works with several game developers to co-develop and publish games. The company is also constantly exploring new business models and marketing strategies in promotion, such as partnering with globally renowned brands to launch brand co-op games.
SciPlay is committed to providing a high-quality gaming experience and providing a variety of entertainment options for a wide range of players. As an emerging game development and publishing company, SciPlay is expanding its product line and market share to become a leading game company.
Chapter IV Future Outlook
The future of the esports industry is full of opportunities and challenges. As awareness and acceptance of esports grows, the esports market will continue to expand. At the same time, the e-sports industry is also facing some challenges, such as game copyright protection, standardization and specialization of the e-sports industry. However, it is foreseeable that the esports industry will continue to grow and become a highly influential industry in the future.
The alliance of the event has become a trend, and the professional development system of players has been established
Following the example of the sports professional league system, e-sports has also embarked on the road of professionalism and league. Since 2017, the LPL of the League of Legends Pro League China Division has adopted alliance management, that is, the event organizer and each club share the interests and risks, so that the overall commercial value of the league is improved, and the income of professional players is also guaranteed.
E-sports will be further integrated into the pan-entertainment ecosystem, and the value of content will continue to be highlighted
At present, the integration of e-sports and pan-entertainment ecology is still in the initial stage of few products and low quality, with the continuous enrichment and maturity of e-sports events, the story content value of e-sports IP will begin to be highlighted, with the influence of e-sports in the young group and strong community effect, the industry will further integrate into the pan-entertainment ecology and form a broader impact effect.
E-sports for all, integration and innovation
With the further penetration of people's concept of e-sports, the e-sports industry will usher in a national pattern. In addition, the landing of 5G technology has also accelerated technological progress in the gaming field and opened up new scenarios for the e-sports industry. iMedia Consulting analysts believe that in line with the popularization trend of the e-sports industry, all online and offline sub-industry institutions should cooperate to build a new e-sports ecology for all people through the use of innovative technologies and the optimization and integration of resources.
Cover Photo by Alex Haney on Unsplash