November 12, 2017 1:55 pm JST

Professional video gaming reaches big time in China

Crowds fill Beijing's 'Bird's Nest' for esports

DENISE HRUBY, Contributing writer

Vici Gaming team members claim victory at the China finals of the World Electronic Sports Games Counter-Strike: Global Offensive tournament in September. (Courtesy Alisports)

SHANGHAI -- When it comes to attacking an enemy base with swords and spells, Ming Kai excels. The 24-year-old ranks among the best players of "League of Legends," the world's most popular multiplayer online game.

"I train every day," said Ming, who moved from the inland city of Wuhan to Shanghai to train with his teammates on the EDwardGaming squad, one of China's top "League of Legends" teams. He usually starts playing at the team's training center, located in an office building, around 2 p.m. and finishes 13 hours later, with breaks for food. As a team member for the past four years, Ming has won close to $400,000 from tournaments where his play is watched by paying spectators either on site or online.

Such "esports" are increasingly paying off for professional players like Ming. Alibaba Group Holding and Tencent Holdings, China's two biggest internet companies, now want their chunk of the action. Tencent owns a majority stake in Riot Games, the developer of "League of Legends," and last year took over Finland's Supercell, the developer of "Clash of Clans," in a $8.6 billion deal. Alibaba's Alisports meanwhile is promoting esports as an equal to traditional sports and deserving of a place in the Olympics.

Both companies are spending millions of yuan organizing tournaments in which teams like EDwardGaming face off in an arena. On Nov. 4, some 40,000 fans watched the finals of the 2017 League of Legends World Championship at Beijing National Stadium, the famous "Bird's Nest" of the 2008 Olympics, with a prize pool of $4.6 million at stake. Tickets for the championship, the first held in China, were priced at 280 to 1,280 yuan ($42-$192) but sold out in minutes.

Advisory firm PwC put the size of China's esports industry last year at $56 million, making it the third largest globally behind the U.S. and South Korea. PwC sees the Chinese market growing to $182 million by 2021. Chinese internet research company iResearch estimates the paying esports audience in the country already exceeds 170 million people.

"The evolution of esports is incredibly exciting and it's unfolding at a staggering scale here in China," said Wilson Chow, PwC's China technology, media and telecommunications practice leader.

King of sports

It may be exciting, but it is not yet very profitable. Consider the finals of the King Pro League Spring Tournament, which were held in July in Shanghai's Oriental Sports Center. About 13,500 people paid 100 yuan-180 yuan each to watch teams play "Honor of Kings," a Tencent game that just ahead of the finals came under criticism from the official People's Daily newspaper as an addictive "poison" for the minds of youth.

The tournament barely broke even, despite drawing millions of online viewers. "At the moment, we treat esports as a marketing tool to promote the games and engage gamers," said Stella Lui, Tencent's investor relations director. "I would say esports will [eventually] develop like FIFA or the NBA."

For now, video games themselves remain a much bigger business than esports, with PwC estimating video gaming revenues in China last year at $15.4 billion. "Honor of Kings" alone has more than 50 million active daily players; though the game itself is free, gamers are incentivized to pay for extra features as they play.

Broader revenue streams will be key for Chinese esports development. "Already we see revenue creation for esports-oriented internet cafes, the tournaments ecosystem and live streaming," said Lisa Cosmas Hanson, managing partner at Chinese gaming research company Niko Partners.

Of market revenues in 2021, PwC expects streaming advertising to produce $84 million, sponsorships $54 million, merchandising $31 million and ticket sales $12 million. Globally, it sees 2021 esports revenues hitting $874 million.

"It's definitely a long-term investment to penetrate this area, but there are all these business opportunities," said Cecilia Yau, PwC's Hong Kong entertainment and media practice leader.

Long view

Education is part of that long-term investment. Nanguang College in Nanjing last year announced the launch of a degree program in esports analysis, soon after the government added esports to the list of permitted degree fields. Nanguang's program is supported by Hero Sports, a local esports management company. Several other colleges have also added esports courses.

City authorities in Changzhou, which neighbors Nanjing, have set out plans to build an esports town, complete with stadiums designed for esports. Alisports intends to hold World Electronic Sports Games competitions in the city.

Alisports hopes the series, in which players compete in national teams, will become the Olympics of esports. In the augural season last year, teams from 125 countries competed for total prize money of $5.5 million.

In the next few years, Alisports aims to sign broadcasting and live streaming deals for the games. Reah Yuan, Alisport's esports business manager, said the company is taking a gradual approach, learning lessons from the collapse of World Cyber Games, a similar competition that ceased in 2014 after 14 years.

Alisports is also pushing for esports inclusion in traditional international events. Esports will debut as medal sport in the Asian Games in 2022 when they are to be held in Hangzhou, a city near Changzhou which is home to Alibaba's headquarters. Esports will be a demonstration sport at the 2018 Asian Games in Indonesia.

The International Olympic Committee said in late October that it is studying the possibility of including esports in future Olympics, following enthusiastic comments from the organizers of Paris' successful bid to host the 2024 Summer Games. On the other hand, esports were downgraded to an exhibition sport at the Asian Indoor and Martial Arts Games, which were held in September in Turkmenistan, after being a medal event in three preceding events.

Tencent and Alisports may eventually find themselves competing for the same viewers, but for now, they agree esports are at an early stage of development in China and that any investment will benefit all stakeholders. "We want to create a win-win model for all partners," Yuan said, while Tencent's Lui said, "The more investment, the better for us."

Asia300

Alibaba Group Holding Ltd.

China

Market(Ticker): NYS(BABA)
Sector:
Industry:
Retail Trade
Internet Retail
Market cap(USD): 473,172M
Shares: 2,555.89M
Asia300

Tencent Holdings Ltd.

China

Market(Ticker): HKG(700)
Sector:
Industry:
Technology Services
Internet Software/Services
Market cap(USD): 490,566M
Shares: 9,498.92M

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