Jan/Feb 2022: Adapt and Adjust
Feb 14, 2022 | Vol 5.1
Happy Year of the Tiger, Esports Enthusiasts!
It’s been a minute since my last post. Professionally things have been busy — more on that below. So let’s start by recapping esports world in China over the last year:
Any questions? Great! Now a few words about where we are now.
Ever since SAMR, China’s market competition regulator, blocked the Huya/Douyu merger and the “Common Prosperity” reforms started landing, especially the video game restrictions for minors,1 a bit of froth has come off of China’s esports sector. Fewer flashy headlines about big partnerships and official programs, but major leagues like LPL, KPL and PEL seem to be doing fine and growing with a stable of global sponsors. Consider that this sector lost a long-awaited, 5-city, one-month takeover of the 2021 LOL World Championship, but experienced massive celebrations in the street when EDG won it all in Reykjavik.
The biggest story in gaming and pretty much everything last month was Microsoft’s $68.7B acquisition of Activision Blizzard (ATVI), sending ripples across multiple industries, including esports. The biggest story in esports however was the merger and sale of top-tier esports tournament operators ESL and FACEIT to Saudi Private Investment Fund (PIF)-backed Savvy Gaming Group for a cool $1.5B (with a “B”), a nice return for soon-to-be former owner Modern Times Group, which acquired ESL in 2015 for $80M. The Saudi PIF followed its ESL deal by throwing another $1B at Capcom and Nexon, Sony (arguably) reacted to the ATVI acquisition with a $3.6B acquisition of Destiny developer Bungie, and let’s not forget that the year started with Take-Two’s $12.7B deal for Zynga. Right now, FaZe Clan is preparing to go public via SPAC at ~ $1B valuation.
It’s wise not to conflate esports and the broader gaming sector, but clearly things have gotten much frothier all around on the global stage, and this might just be the beginning as companies in this space seek to build IP and market share while money is cheap. Buckle up!
In the wake of the Common Prosperity campaign, the esports industry has a lower profile, but a solid commercial foundation relative to other regions and expansion opportunities abroad, for example in SEA (I am not asserting esports has fundamentally solid economics — that is long conversation for another time, kids). Maybe the corny “crouching tiger, hidden dragon” 卧虎藏龙 idiom does have some application this Year of the Tiger. Bottom line: we are entering a less buzzy phase in Chinese esports, and that’s not necessarily a bad thing.
Follow me on Twitter at @ChinaEsportsBiz. Got questions? DMs are open.
I am thrilled to announce that I have joined Paradigm Counsel, one of Silicon Valley’s premier boutique law firms specializing in corporate and IP transactions for emerging companies. I am especially looking forward to serving the firm’s clients at the intersection of technology, innovation, media and entertainment, esports, and sports-centric early-stage ventures. Details here.
I’ll continue publishing this newsletter, but I plan on zooming out a bit beyond China. Most importantly, I will continue to never use this newsletter to provide any sort of legal advice. See the disclaimer below.
This Month’s Highlights
Here’s what caught my eye this month and why. For more news, check out the Recommended Resources links on my home page here.
▶️ Douyu and Huya
According to Reuters, Tencent plans to take DouYu private after its plan to merge Douyu with Huya and Penguin Esports was blocked last year. Douyu’s stock price suffered in the aftermath, partly because Huya was positioned as the surviving entity. On the bright side for Tencent this is an opportunity for Tencent to buy out other shareholders and restructure the business.
Meanwhile, esports broadcasts remain a core component of Huya’s business strategy. Last month it locked up the exclusive broadcasting rights to the LPL for 5 years, making it the long-term home of the world’s most popular esports league.
Shanghai-based VSPN, one of the largest global esports operators, has filed for an IPO on the Hong Kong Stock Exchange. VSPN was one of 2021’s biggest publicly disclosed fundraising recipients in esports, but remains a long way from profitability. VSPN hosts most of the major esports events in China and Tencent holds 13.5% of the ownership. With so much of the local market share, additional funds could help fuel VSPN’s moves into global markets, especially SEA.
Bilibili banned livestreaming of more than 60 video games to align with increasingly tighter content restrictions. Rainbow Six Siege and World of Tanks were on the list, making China effectively dead territory for international esports broadcasts of these titles. Demand is probably negligible, but it contributes to a division in esports titles at China’s border.
▶️ ONE Esports
Singapore-based ONE Esports entered into a “long-term” partnership with Samsung to develop a ONE Sports mobile app for Samsung devices in 6 SEA territories. Says Gamepress: “The app will be positioned as the go-to source for esports news and content in Southeast Asia, and will be seamlessly integrated into the ONE Esports media ecosystem, featuring news and content syndicated from ONE Esports’ website, oneesports.gg, which will be localised across each market.” This caught my eye because for an esports org to secure a connected TV (CTV) app on Samsung devices is an impressive feat both in terms of content distribution and esports commercialization.
▶️ Asian Games, Commonwealth Games, SEA Games
Tencent, the Olympic Council of Asia (OCA), and the Asian Electronic Sports Federation (AESF) held a ceremony to formalize strategic cooperation ahead of the 2022 Asian Games in Hangzhou, where esports will be a medal event in eight titles. Six of the titles, all but Dota22 and Hearthstone3, are published by Tencent in China, so perhaps that is why Tencent is officially involved? In contrast, two of the titles featured at the upcoming 31st SEA Games in Hanoi, Vietnam, are direct competitors to Tencent titles also being featured (Bytedance/Moonton’s Mobile Legends: Bang Bang and Garena FreeFire).
Tencent is also the main backer of the Global Esports Federation (GEF), which will operate the inaugural “Commonwealth Esports Championships” in Birmingham, UK, to run in conjunction with the Commonwealth Games. Titles TBD, but selection will help us understand where this is all going: will they be mostly “virtual sports” a la the surprisingly well-viewed Olympic Virtual Series, or will they be mostly Tencent titles, or will other publishers whose titles have strong user bases outside of China cooperate with GEF? In any case this will all be fodder for the debate around the wisdom of adding esports to international sporting events, which skews differently by region.
▶️ PUBG Mobile or Whatever They are Calling it in Your Country
After PUBG Mobile was banned in India because of its ties to China via Tencent, it came back in India as “iQOO Battlegrounds Mobile” and its first big esports tournament hit 460K peak viewers, making it one of the most popular esports tournaments in January. PUBG Mobile remains the highest grossing mobile game with 63% of its revenue coming from China, where it is Peacekeeper Elite [和平精英]. China’s Nova Esports became back to back champions last month in the PUBG Mobile Global Championship 2021, pocketing $1,530,000 of the $3.5M prize pool. At the same time, viewership of the PMGC slipped to 646K peak viewers on non-Chinese platforms, making me wonder if heavier competition in the mobile BR genre outside of China is taking a toll.
▶️ YeSports / Talon Esports
HK-based Yesports raised $2.25M in seed funding from Polygon Studios and others for development of an “NFT-based esports marketplace and esports-focused metaverse”. First announced partner: Talon Esports, which will launch a series of NFTs for its 2021 ROV Pro League winning Arena of Valor team, laden with perks for fans.
I have a feeling this is going to be a regular feature
Sports and esports clubs alike are always looking for better tools to engage fans, and NFTs marketed to fans (like the YeSports x Talon collab) have been a break-out category for almost a year and are a welcome new source of revenue.
But esports org should pay attention to how this is unfolding and avoid costly mistakes. I was intrigued by this series of investigatory reporting by The Athletic on NFT-based fan tokens issued by UK football teams through Socios, which makes the case that early holders of the crypto on which the tokens are based have benefited at the expense of fans. It could become a serious misstep for a number of household name football clubs.
The Socios story highlights the need for esports orgs to be clear about their objectives and carefully conduct due diligence on prospective NFT partners. Otherwise it is just a matter of time until one of them makes a bad deal and alienates their fan base.
Low viewership of Dota2 events reflect continued post-pandemic disarray of Dota2 international majors, not a good sign for China’s top-tier Dota2 clubs which historically do well in global events with big prize pools.
If Shanghai wants to realize its official goal of becoming the global esports capital, it will have to beat Los Angeles, according to a study from Shanghai Jiao Tong University. Researchers ranked what they determined were the top 15 esports cities around the world, which in China included Shanghai, Beijing, Hangzhou, Xi'an, Chengdu, Wuhan and Haikou.
Women’s pro esports is on the rise in mobile gaming, especially in SEA where a new viewership record was set in the Mobile Legends: Bang Bang Women’s Invitational.
A rare partnership between esports organizations in SEA brought Singapore’s Team Flash together with Cambodia’s BURN Gaming, to elevate their ML:BB divisions and give Team Flash more exposure in Cambodia.
Japan is opening a gaming and esports high school in the Shibuya district, perhaps surprising for a country that is a relative newcomer to esports, but the article does a good job of putting it in context.
Tencent Esports and Ouyu Technology are building esports hotels in Hangzhou with esports-themed tech as well as high-tech experiences such as a virtual butler (which is dubious as an improvement in a country where labor is inexpensive and plentiful) and murder mystery games (which are somehow super popular in China right now). Registrations for new esports hotel businesses surged 60% last year to 3,500, and are most plentiful in Henan province, especially Zhengzhou.
But forget esports hotels, now China has esports boats.
The inaugural season of China’s pro Wild Rift league (aka League of Legends Mobile), the WRL, starts in March, and it’s going to be big. The first international Wild Rift tournament in Singapore, the Horizon Cup, put 10 teams from 8 regions on the global stage, and ended in a final between the two Chinese entrants, with Da Kun Gaming beating SBTC Esports.
Finally, thank you Patty Yu for posting these heartfelt (?) Valentine’s Day messages from LNG:
Nothing in this newsletter is written as or should be construed as legal or investment advice, and the accuracy of sources used can not be guaranteed. All of my commentary is personal opinion, which I reserve the right to change, and also to get completely wrong. Moreover, all of the opinions in this newsletter are mine and do not reflect that of Paradigm Counsel.
No citation needed for one of the most over-reported stories about China in the last year
Published by Perfect World in China as licensee of Valve
Published by Netease in China as licensee of ATVI