Scroll to the bottom for Part Three of our Special Feature examining the key role of government regulation in the growth and direction of China's esports industry, focusing on municipalities other than Shanghai. If you missed the earlier parts, please take a look at Vols 3.05 and 3.06 in the Archived Issues section of our website.
TOP STORIES
COVID-19 Impact Update
As of February 18, the total number of confirmed cases has risen above 70,000, with a total of more than 2,000 deaths, in both cases largely in Hubei Province. On a positive note, the rate of new confirmed and suspected infections has slowed considerably, in a sign that the outbreak phase may be coming under control. Industrial centers are slowly resuming production, encouraged by officials seeking to mitigate damage to the Chinese economy. The city of Foshan in Guangdong just became the first to remove emergency approval requirements to resume operations.
Businesses connected to the esports ecosystem should resume operations as well in the coming weeks, but the sector faces a unique challenge due to continued restrictions on mass gatherings and travel. Esports matches in China continue to be postponed and even new esports athlete registrations have been delayed. At least Chinese Overwatch League (OWL) teams will get a chance to get back to work, with make up matches for the suspended February and March Chinese team homestand games being relocated to a studio in Seoul, and possibly being combined with Seoul Dynasty's homestand in Dongdaemun March 7-8. As noted last week, the LCK, Korea's League of Legends (LOL) pro league, has continued to play matches in South Korea. The games are played without an audience, but some LCK teams have connected with fans by moving their postmatch fan meets online.
While core esports businesses like teams, operators, and leagues face a common set of challenges, there will be varying ripple effects on the esports segments of related industries such as adjacent media and entertainment (for example films, TV, manga), real estate development (for example venue and industrial cluster construction), and tourism. Of the three, media and entertainment is likely to be in the best position to bounce back, while esports tourism will likely be frozen for some time. For real estate development projects, there is a looming risk that firms will abandon projects currently in planning or suspend construction, and also that provincial and municipal subsidy programs, many of which were created last year, will be unfulfilled or close (for an overview of those programs, see last week's and today's Special Feature).
▶️ We recommend that foreign organizations connected with esports in China read the Mailman Group's recent interviews linked below with Rowan Simons, Chairman of China ClubFootball FC, on lessons from the 2003 SARS outbreak, and with Simon Chadwick, Director of Eurasian Sport/Professor of the Eurasian Sport Industry. Both strongly recommend immediately showing public support for the Chinese people while they are experiencing difficulty, and Mr. Simons makes the point that the time to begin planning a return to China as soon as practical is now.
LINKS: ESPN, TEO, ECO氪体, Mailman Group
WanPlus Esports Industry Report
WanPlus, a Chinese esports platform, B2B service provider and think tank, released an review of the esports industry in 2019, focusing mainly on China and incorporating some global data for context and comparison. The report pulls from a variety of sources within and outside of China, and is a comprehensive and rare pre-COVID-19 snapshot of the industry. Some highlights:
Esports users make up ~10% of the global online population. While North America remains dominant for esports revenue with ~40% of the world's market, China has the largest esports user market with ~400M in 2019, estimated to reach ~430M in 2020, or approximately one in four of China's online population. China's esports user base has grown dramatically since 2016 when it was ~130M, but is now growing at a steadier pace.
The report notes various parallels between sports and traditional sports fan bases in China, and suggests that the total number of esports followers online is poised to exceed followers of traditional sports online.
WanPlus puts China's total esports market in 2019 at $16B USD / ¥113B RMB, broadly defined as including revenue from PC esports games, mobile esports games, and the "esports event ecosystem", which includes everything from tickets and sponsorship to broadcast revenue. While PC esports game revenue is currently the largest segment, followed by mobile game revenue, the esports event segment is growing the fastest and is set to exceed PC game revenue, such that it was forecasted to become the main revenue driver in 2020 (again, this is a pre-COVID-19 analysis)
The scale of commercialization in China is beginning to pull even with traditional sports. China attracts ~19% of the world's esports sponsorship dollars, the second largest global market behind the U.S.
Investment and sponsorship appear to have rationalized and the ecosystem has matured. Some evidence is that the total number of large investments came down from 2018 to 2019, but individual investments have significantly grown as buyers go from "testing the waters" to becoming bedrock support.
Esports has penetrated deeply into Chinese popular culture and entertainment, including films, TV, music, etc. One interesting result from WanPlus' user survey is that fans of different esports titles primarily consume different categories of esports merchandise and content.
A review of the crossover of esports into land development predicts that the "esports towns" that have cropped up in recent years will fall away as esports activity becomes more concentrated in major market entertainment industrial clusters (a point also made in today's installment of our latest Special Feature).
"Esports tourism" is also reviewed, revealing a thriving industry that packages esports events with travel, lodging, local attractions, etc., and has a relatively high female attendance rate at 41%.
The Report concludes with a series of interesting insights about the future of China's esports industry. Translation below:
Opportunities
The esports industry has great growth potential. The number of esports players in China and the global market will further increase, and its influence will further increase.
The upstream and downstream industrial chain of the esports industry is improving. The commercial value of the industry is constantly developing, and the gap between esports and the sports and entertainment industry has narrowed.
Government policy is favorable. At present, the industry has received support from local governments, not limited to including policy and financial support, and has been included in some cities' future development plans.
In recent years, Chinese teams have achieved top finishes in major international events. China is already an esports power from the perspective of both the number of users and the strength of its esports.
The establishment and rise of a number of official esports third-party organizations to promote the further formalization and professionalization of the esports industry
As 5G, Al and other technologies mature and become widely used, esports users’ viewing experience and consumption scenarios will be further upgraded, which will help accelerate the expansion of the esports market.
Sports + esports and games + esports has become a trend. More and more games use esports as an important means to extend their life cycle, and sports events see esports as a young weapon.
Challenges
Lack of emerging high quality games suitable for esports. At present, the esports market still relies on several older games, such as League of Legends and Honor of Kings.
The Matthew effect is more obvious, with resources and traffic concentrated in the top esports events and clubs. Relative lack of traffic attention and capital sponsorship for third-party events and small events
The industry is susceptible to large policy fluctuations and is a policy-sensitive industry
Industry faces large professional talent gap
Brands entering the field of esports have certain cognitive biases and poor information, affecting investment and sponsorship decisions
The current game discrimination chain has affected the user interoperability between esports events to a certain extent.
▶️ A number of 2020 predictions will likely need to be adjusted to account for the COVID-19 epidemic as it evolves, but otherwise this report is a recommended read for a current overview of the Chinese esports market. A link to the original version is below; contact us if you are interested in purchasing an English translation.
LINKS: WanPlus
LEAGUES & TOURNAMENTS
G-Rex Gaming Exits Pacific Championship Series (PCS)
G-Rex is exiting the PCS, the new LOL league for teams in Hong Kong, Taiwan and Southeast Asia, due to corporate restructuring by its parent company Emperor Esports Stars Limited. ▶️ The inaugural launch of PCS has been delayed due to travel restrictions related to the COVID-19 epidemic; finding a replacement team hopefully does not add to the delay.
LINKS: Inven Global
STREAMING / MEDIA
Tencent Becomes Top Shareholder of Bilibili
Tencent increased its stake in Bilibili to 18%, becoming its largest shareholder, while Alibaba Group continues to indirectly own 8%. In the last year, Bilibili's largest growth segment has become esports streaming, and it cemented its status in December with its $113M USD / ¥800M RMB exclusive media rights deal with TJ Sports [腾竞体育] for the LOL Global Finals. ▶️ With this investment, Tencent becomes the largest shareholder in the three top esports streaming companies in China (Douyu, Huya, and Bilibili) in addition to platforms it owns outright (e.g., Tencent Esports).
LINKS: YiCai Global
SPONSORS / PARTNERS
RNG | China Electronics
An subsidiary of state-owned enterprise China Electronics announced on Weibo that it has entered into a partnership with Shanghai-based RNG to create a new "esports platform", which was confirmed by RNG, somewhat mysteriously. We will be watching for details.
LINKS: ECO氪体
SPECIAL FEATURE: GOVERNMENT POLICY, PART 3
2019 was a busy year for the Chinese esports industry, so as part of an occasional series we are sharing our analysis of trends that emerged in 2019 and tying them to 2020. Currently we are examining governmental encouragement of China's esports industry, a key factor differentiating China's esports market from every other major market, and particularly important to the growth of China's esports industry in 2019.
Part 3: Local Regulation, continued
This week we continue our review of China’s municipal policies rolled out in 2019 to promote and standardize the local esports industry and incentivize development and investment. Our first installment (Vol 3.05) covered central government policy, and last week’s issue (Vol 3.06) covered Shanghai and its districts. If you missed an installment, you can catch up at the Archived Issues section of our website.
Beijing
Despite issuing its first official policy statement of support for the “healthy development” of Beijing’s esports industry in July 2018, it was not until November 2019 that specific incentives were announced, when Haidian district announced new policies offering ¥10M RMB in subsidies for construction of esports venues, up to ¥2M RMB for high-achieving esports clubs, and up to ¥5M for esports tournaments (see Vol 2.17). Two weeks later, the Propaganda Department of the Beijing Municipal Committee of the Communist Party of China weighed in, with a series of opinions focused on the video game industry as a whole, including esports (see Vol 2.18). It recommended establishing an esports industry association to guide gaming companies on the fulfillment of their “social responsibilities”, and stated support “within existing political doctrine” for esports-related business, notably Beijing-branded events, media rights sales, globalization, and esports vocational training.
Shortly thereafter, the Beijing Municipal Government released 13 new measures specifically aimed at accelerating development for the local online gaming industry, including esports “research centers and theme parks” (see Vol 3.1). The measures target a production output value of $21.59B USD / ¥150B RMB by 2025, with the goal of building Beijing as an "international online game capital" [国际网络游戏之都], an interesting choice of words suggesting that Beijing intends to occupy a lane adjacent to Shanghai’s “global esports capital” [全球电竞之都].
Xi’An / Shaanxi
Xi’an entered 2019 having just lured esports organizations VSPN, Team WE (LPL) and Banana Culture to the Qujiang New District with subsidies that were announced in August 2018, along with broad official support from the Xi’An municipal government for the esports industry. In July, the Qujiang New District hosted the first World Cyber Games (WCG) in 5 years (see Vol 2.4). Recently, the Shaanxi provincial government included esports in its call to promote “cultural tourism”, in a report issued by the third session of the 13th people's congress of Shaanxi seen as a sign of provincial approval of the direction Xi’an has taken on esports. (see Vol 3.03)
Chengdu and Sichuan
Chengdu sought to compete with Xi’an in 2019 as the most prominent western city for esports, with several recent high-profile esports tournaments and esports-friendly business policies.
In September, Chengdu included esports in a set of new incentives to promote the local sports industry, including up to $1.12M USD / ¥5M RMB in subsidies for international tournaments, and direct payments up to $2.81M USD / ¥20M RMB for teams with the name "Chengdu" in the title, such as the Chengdu Hunters team in the international Overwatch League (see Vol 2.13).
In October, Sichuan followed Shanghai in adopting its own professional esports player registration policies [四川省电子竞技运动协会], which apply to players, coaches and referees (see Vol 2.14).
Wuhan
In August, Wuhan announced a series of partnerships with local Wuhan esports companies, including a new venue for mobile esports, which was part of the package luring elite Honor of Kings team eStar Pro from Shanghai to Wuhan — the triumphant return of its founder, local hero Sun "XiaOt" Liwei (see Vol 2.9). Wuhan followed the move by hosting the King Pro League (Honor of Kings) Fall Spite Final with a spectacular light show on the waterfront. As noted last week, eStar Pro is a big donor to Wuhan’s fight against COVID-19. Sadly, after a successful first year, it is unlikely that Wuhan will host another offline esports event this year, and it would not be surprising if work on the new esports venue is altered or delayed.
Guangzhou
Guangzhou took a number of major steps in 2019 aimed at developing a complete esports ecosystem encompassing a large area including Guangzhou, Shenzhen, Hong Kong and Macau:
The city of Foshan got the ball rolling in July by announcing the establishment of an "e-sports district", the Nanhai Esports Culture and Creativity Industrial Center [南海电竞文创产业中心], at a total investment value of $290M USD / ¥2B RMB, and a plan to roll out additional development incentives (see Vol 2.02).
In August, Guangzhou released the 2019-2021 Guangzhou Esports Industry Development Action Plan to cultivate a “Global Esports Industrial Center" through a series of incentives and industrial projects such as building esports industrial parks and establishing an esports academy (see Vol 2.9). Shortly thereafter, a partnership was announced between Guangzhou Sports Academy and Tencent’s King Pro League (KPL), which we’ll revisit in our next issue.
In September, the municipal governments of Shenzhen, Hong Kong and Macau partnered with esports club V5 and venue operator Allied Esports to develop the "Guangdong, Hong Kong and Macau E-Sports Cultural Foundation" [粤港澳电竞新锐文化基地], to foster an esports industry ecosystem between Guangdong, especially the Qianhai region, Hong Kong, and Macau (see Vol. 2.15).
In early December, a major summit was held at Guangzhou University to promote development and investment in the esports industry in the Guangdong-Hong Kong-Macao Greater Bay Area. At the summit it was announced that Sun Yat-Sen University Xinhua School of Management would establish an esports major, making it one of the first top tier universities in China to do so.
In late December, apparently following a trend set by Beijing, the Guangdong Provincial Propaganda Department issued guidance on the development of esports within a raft of opinions on the "culture industry", stressing the importance of “healthy” development while also supporting the accelerated growth policies (See Vol 2.19). Clearly Guangzhou has made a lot of institutional progress towards its aspiration of becoming a “Global Esports Industrial Center,” even opening China’s first esports museum in April 2019.
Hainan
Hainan Province moved quickly in 2019 to build an esports economy around the cities of Haikou and Sanya, unveiling a plan in July to establish Hainan as a “Global Esports Harbor” and leverage its designation as China’s 12th Free Trade Zone to attract investment. By the end of 2019, Sanya with its thriving resort industry seemed to be the biggest municipal beneficiary by promoting its advantage in “esports tourism.”
The Hainan “Global Esports Harbor” plan included a concise set of six major policies to 1) create a $700M USD / ¥1B RMB esports industry special fund, including subsidies for events and clubs, 2) develop professional talent, such as esports athletes and executives, 3) offer zero-tariff and low tax policies, 4) expand its visa-free entry program for international visitors, 5) simplify venue hosting and events approval, and 6) boost international live broadcasting of esports events in Hainan.
A number of new industrial projects and international events followed shortly thereafter, each citing influence of the new policies, including: a $679M USD / ¥4.78B RMB International Esports Theme Park in Sanya (see Vol 2.5) and holding the festival-like World University College Games qualifying rounds (see Vol 2.8) and finals (see Vol 2.15 and 2.17) in Sanya.
Small Cities
There are also a number of smaller cities in China which have, in recent years, warmly embraced esports as a vehicle for local development. The 2019 national esports market analysis by China’s Ministry of Human Resources and Social Security (CMHRSS) [人力资源和社会保障部] discussed in part one of this article (see Vol 3.05) highlighted policies issued by Taicang in Jiangsu Province and “smart city” Yinchuan in Ningxia Hui Autonomous Region as examples of esports-targeted economic incentives.
In 2019, few cities apart from Tier 1 and 2 cities announced new esports initiatives. One exception was the town of Tai’an in Shandong Province, otherwise famous only for being the site of Taishan mountain, which partnered with Shanghai Yucheng Group [上海钜成企业管理(集团] to launch the "Belt and Road" Esports Tournament with teams from China, Russia, the Philippines, Vietnam, Singapore and Thailand, and to become an "esports industry town”, with the ambitious goal of "creating a new model of esports tourism industry integrating living, gaming, competition, education and business." (see Vol 2.11)
Also in 2019, The town of Zhongxian, located on the outskirts of Chongqing, announced it had entered into an arrangement with Tencent to develop the esports industry and the "digital economy", with plans to build a vocational academy to develop the local esports talent pool (see Vol 2.5). Zhongxian has been an “esports town” since 2017 and sports a high-tech venue where it hosts the annual China Mobile Esports League (CMEL) finals.
Essentially, esports town are losing out to the major cities, which have become much more powerful attractors of esports fans and investment. Competition between the larger cities and Shanghai districts to attract esports activity has left smaller cities out in the cold. Despite this, towns like Zhongxian soldier on, looking to the example of Katowice, Poland, as a small city that has become an esports landmark as the annual host of a major ESL IEM tournament.
Current State of Play
By the end of 2019, the esports policy framework laid out by Shanghai at the start of the year had become a template for several other major cities, which were embarked on a frenzied competition for development and tentpole events. The pace was set by the central authorities' urgent call to build an ecosystem that could fill the labor gap identified by the CMHRSS and harness the power of China’s esports industry to drive economic growth and global influence, as discussed in Part One. Smaller esports towns, even those that were established early, have largely missed the wave as their survival is challenged by the increasing intensity of the esports market in major cities.
Of course, COVID-19 has effectively put all activity on hold, just as all of those provincial and municipal programs began heating up. For now, the way forward is unclear, and it will be some time until we can assess the results of the programs implemented. It is possible that many projects will fall by the wayside, and that unfulfilled subsidies will be diverted to other needs. On the other hand, China’s national economy has much ground to make up once the outbreak is effectively contained, so it is possible that we will ultimately see a new surge of economic activity in this area. Given the durability of esports as a popular form of entertainment in China, at a minimum it is unlikely that official policy at the national or local level will reverse course, although the desire to develop safeguards and more viable paths to professional and academic achievement in esports, which we will review in Part Four, will continue.
NEXT: We will continue this Special Feature in two weeks with Part Four, looking at the central and local governments’ efforts in 2019 to develop regulatory safeguards to minimize unwanted social effects of esports, and their efforts to navigate between the goals of academic achievement and encouraging esports as a professional pursuit.
If you live outside of China and are looking for a way to join the fight against the novel coronavirus, consider donating to this incredible gofundme campaign organized by Wuhan University Alumni in New York. They have worked out the logistics of purchasing and delivering medical supplies directly to hospitals that need them in Wuhan, and their use of funds is transparent.
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