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Business trends

Asia's esports scene spawns raft of new businesses

From Singapore to Chengdu, companies edge in on a billion-dollar global market

China is the world's largest gaming market and the second-largest for monetized esports.

SINGAPORE/DALIAN, China/TOKYO -- Competitive video gaming has become a serious business in Asia, home to half the world's esports audience. Now, the boom is giving rise to unlikely partnerships and new industries, as companies jump into a global market expected to expand by 75% to $1.6 billion within the next three years.

In Singapore last week, Asia's largest sports media company teamed up with Japan's biggest ad agency to bring virtual battles on par with physical combat. ONE Championship, a mixed martial arts promoter backed by Temasek Holdings and Sequoia Capital, will from next year hold esports matches alongside its tournaments in a new venture with Dentsu, the first of its kind according to ONE.

Singapore Telecommunications, which set up its own esports league this July, will help with regional marketing of the matches and, according to industry sources, is thinking about investing in the venture. Event logistics will be managed by Razer, a U.S. company fast diversifying from its origins as a manufacturer of gaming devices.

"Mixed martial arts and esports are the two big categories for millennial contents," ONE's chief executive Chatri Sityodtong told the Nikkei Asian Review on Nov. 7, when the company announced $50 million in initial funding for the deal. "We want to own the whole spectrum."

Esports events are a burgeoning business in Asia. In China, where the number of competitive players doubled last year, internet giants like Tencent Holdings and Alibaba Group Holding are setting up venues across the country. Alibaba is hoping to catch up to Tencent's strength in gaming with a plan to bring its own arenas into rural areas, and its subsidiary Alisports now holds a tournament every week across Shanghai, Beijing and Guangzhou.

ONE Championship, Asia's largest sports media company, will hold its physical battles alongside virtual ones.

For game developers, esports tournaments increase exposure to their franchises and, ideally, convince spectators to play the games themselves. For promoters, corporate sponsorships make up the lion's share of revenue at 40%. This is where ONE hopes to widen the net, capturing the "natural crossover" between martial arts and gaming fans.

But the industry is changing fast. By 2022, the sale of broadcasting and other media rights will become the main income source as viewer numbers swell, Goldman Sachs analysts predict.

In the meantime, esports player academies are sprouting up in China, while in the Japan, gamers seeking an edge are boosting the fortunes of high-spec electronics vendors.

At the e-Dream training institute in the electronics production center of Chengdu, in China's Sichuan Province, an instructor watches a student inch his sniper avatar across a digital battleground, picking off enemy forces. As his instructor gives advice, the student taps calmly at the keyboard, allowing himself a small smile of satisfaction as he dispatches the last shooter.

Here, students pay 6,800 yuan ($975) for a month's tuition, hoping to join the ranks of China's professional gamers, who can earn up to roughly $700,000 a year. The academy's strict regime of daily classes is designed to enhance teamwork, encourage clear communication and teach players how to stay cool under pressure -- all vital for success in the mass online battles of games like "League of Legends," played in esports.

"Because we provide one-on-one training, tuition is expensive," said Hou Xu, who manages e-Dream. "But many students apply."

China's overall video game market was worth $26 billion in 2017 by one count, the largest in the world. That was despite revenue per player at half the level of the U.S., according to estimates by UBS. When it comes to monetized esports, the country is the second-biggest market after the U.S.

Beijing has helped esports take root, listing it as an official sport in 2003 and then making it a national industry in 2016. The explosive popularity of smartphone games has pushed things along.

Besides game academies, other ancillary businesses include schools for aspiring play-by-play announcers, in-arena emcees and event managers. In 2017, Sichuan Film and Television University established an esports department, taking a cue from central government policy.

"Universities must change with the times," said Luo Gong He, who heads the school.

A sure sign that the times are changing came in August, when mobile esports made it into the Asian Games in Jakarta as a demonstration sport. Competitive multiplayer gaming is being considered as an official medal event for the next games in 2022.

In Japan, meanwhile, the combination of a nascent esports industry and moneyed consumers is beginning to drive sales of high-performance gaming computers.

Among the high-rise buildings in the Tokyo business district of Chiyoda, staff at electronics store Sofmap Akiba say they increasingly encounter a certain type of customer: They insist they need a computer fit for esports, but they do not know enough about the technical features to describe what they want.

This year's Asian Games in Jakarta included esports as a demonstration event. (Photo by Akira Kodaka)

What the shoppers do know is that they are unwilling to compromise on performance. A second's lag on an underpowered computer can cause a professional player to lose a battle without even being aware of it, said Yoichi Tomori, representative of the professional Japanese esports team Scarz.

Huge processing power and advanced graphics cards, such as those made by California-based Nvidia, push up the prices of these devices. Sofmap Akiba's recommended gaming PCs cost up to 200,000 yen ($1,753), more than double the price of the average laptop, according to figures from Japanese consultancy BCN.

The high expense has also spawned a busy secondhand trade, unusual in a country that tends to prefer to buy everything new, and a resurgence in internet cafes, some of which now come equipped with high-spec gear.

The Japan eSports Union, an industry body, launched this past August. And esports were the talk of the Tokyo Game Show, the major industry expo held in October, according to consultant Serkan Toto. "They were really pushing hard," he said.

In Singapore, Dentsu has jumped into the ONE venture partly to bring Japan's lagging games industry up to speed with the esports race in Asia.

Market watchers have high expectations. Goldman Sachs analysts project the audience for esports to outpace the U.S. National Football League by 2022. The global audience for "League of Legends" tournaments, mainly based in China, already beats viewership for the baseball World Series and the National Basketball Association finals, they note.

Others see investment potential. With Japanese gamers flocking to upgrade their hardware, UBS analysts see positives in exposure to gaming semiconductor companies and device makers.

"Semiconductors play a vital role" in gamers' user experience, and producers enjoy healthy financial positions with gross margins in the 70s, they pointed out. "We expect Asia to be the top revenue generator of the global esports industry in the future, proving to be a key growth driver for the overall gaming industry."

For some, though, the explosion of corporate interest signals a tricky transition point for the industry.

"As a business, esports is now entering a new and critical phase toward maturity," said Peter Warman, chief executive of Newzoo, a well-cited source for game industry analysis. "Profitability and return on investment is, for many organizations at the heart of the esports economy, a challenge."

According to the company's research, members of esports teams expect the industry to really take off in five to 10 years. Brands and agencies, however, expect the time frame to be much shorter -- three to five years.

"This illustrates the current state of the market," Warman said. "Great expectations from outside and more conservative views from within."

Nikkei staff writer Shuhei Ochiai in Tokyo contributed to this report.

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