Important to read: Fourth Annual Esports Survey Report

Esports is growing, but as everything else that is growing, it has its own pains and problems. This report is extremely good to read. Source: https://www.foley.com/en/insights/publications/2022/01/fourth-annual-esports-survey-report

We did not bring the whole report here, so please go and read it yourself from the source, but the main points are here:

In November of last year, an esports viewership record was set when over 4 million people watched the 2021 World Championship for League of Legends. The high mark, which came despite the exclusion of Chinese platforms, surpassed the previous peak set two years earlier and allayed fears that pandemic fallout would negatively affect audience size. Indeed, esports viewership is up, even with the return of some in-person events, and revenues are projected to reach $1.8 billion this year.

These high-flying numbers – as well as occasional viewership climbing to 220.5 million and dedicated viewership up to 215.3 million globally – are likely behind the bullish sentiment in the 4th Annual Esports Survey. Conducted by Foley & Lardner LLP, Sports Business Journal, and The Esports Observer, the survey finds that nearly 9 out of 10 esports professionals expect esports investment and deal activity to increase in the first six months of 2022.

A Logical Progression for Monetization – and What’s Driving It

Eighty-eight percent of the more than 400 executives surveyed expect investment and deal activity to increase in the first six months of the year, up from 73% who answered that way in 2020. Not only that – this year’s gains in positive sentiment came from the percentage of respondents who anticipate significant or moderate increases, possibly a sign that industry officials see an inflection point on the horizon.

When it comes to the primary drivers of esports investment, industry members are most focused on online streaming platforms, while advertising and sponsorships – for a fourth consecutive year are expected to be the greatest revenue drivers. Notably, events and competitions moved up two spots to second on the list of revenue drivers, a sign that industry officials expect esports to significantly benefit from the continued return of in-person events as the pandemic ebbs. The return to in-person events is expected to provide greater visibility for advertising and sponsors and, concordantly, renewed opportunities for revenue growth.

Cybersecurity, IP Licensing Top Legal Concerns

Cybersecurity and intellectual property (IP) rights/ licensing issues were respondents’ top legal concerns. Continuing cybersecurity worries make sense given that web app attacks have skyrocketed since the beginning of the pandemic, and after 2021’s series of high-profile DDoS and ransomware incidents, it is clear even big-name publishers are vulnerable to cyberattacks.

The IP concerns might stem from the growing popularity of non-fungible tokens (NFTs) and smart contracts. Multimillion-dollar prices for digital tokens are expected to increase concerns over fraud and copyright issues, especially after NFT scandals, such as Evolved Apes NFT creator Evil Ape disappearing with $2.7 million, rocked the video game industry.

Other matters – including cyberbullying, a lack of adequate player protections in contracts, labor and employment issues, and lack of diversity across the industry – were also concerns.

Another top concern was match-fixing, but esports executives’ worries there appear to be wrapped up in broader concerns about a general lack of adequate detection systems and monitoring tools for fraud and cheating. In January 2021, for example, developer Valve suspended 37 Counter-Strike: Global Offensive coaches for cheating activity related to bug exploits. Meanwhile, natively digital media consumption platforms continue to be seen as a significant opportunity for growth in the esports betting market, as they more readily facilitate integration with publishers’ core products.

A Desire for an Overarching Regulatory Body Amid Growth

At such a high-risk, high-reward moment, 72% of esports executives strongly or somewhat agree that esports needs a single overarching governing body for regulation and rule setting, up from 44% in 2020. This appears to be an acknowledgment that an organization like the International Olympic Committee could provide more overall structure to better provide commercial comfort for additional mainstream brands and outside investors.

Growth and Investment

Esports Expected to See More Growth and Investment, Despite Monetization Difficulties

Despite monetization concerns – a recent survey by Newzoo showed the average revenue per fan would only reach $2.47 by 2023 – esports executives remained optimistic about the future of their industry, specifically investment and deal activity.

What’s behind their bullishness? Sixty-one percent of respondents expect the continued growth of online streaming platforms (e.g., Twitch, YouTube Gaming), including crossover integration of video gaming with other forms of entertainment, to increase investment in the first half of 2022. One survey respondent said that the “pandemic led to the enhanced development of online gaming platforms and had a positive impact on the overall growth of the esports industry in 2021.” COVID-19 has clearly accelerated the adoption of online streaming platforms like Twitch, which hit a peak of 6.3 billion hours watched in the first quarter of 2021.

COVID-19 friction at live events and the declining appeal of traditional sports with younger generations were also cited as possible drivers of growth – both ranking second at 47%. Measures taken at live events (e.g., social distancing, mask policies, vaccination and/or negative testing requirements) have driven adoption among those looking for a COVID-19-safe alternative to the risks and inconveniences of in-person attendance.

Calls for Increased Regulation

There was no clear winner as far as perceived growth opportunities for the esports betting market, which is probably a sign respondents are bullish about 2022. Natively digital media consumption topped the list at 54%, followed closely by increased adoption of regulated gambling in the United States (52%), inherently global fan and consumer bases (48%), and legacy integration with cryptocurrencies (43%).

Natively digital media platforms offer a host of advantages to traditional bookkeeping and betting, which may explain respondents’ optimism. Unlike traditional sports gambling avenues, which require an engaged audience to download an app or physically go to a betting window, esports benefits from users who already own devices that digitally integrate with betting mechanisms. And, because esports runs on machines and produces vast quantities of data, machine learning can be used to better price pre-game odds and update in-play odds by the millisecond.

NFTs — the Next Frontier?

Non-fungible tokens (NFTs) assign a unique identifier to digital assets using blockchain technology. They also offer an entirely new revenue stream for both teams and publishers, which could help align viewership and monetization growth. In 2021 alone, European team OG Esports generated almost $1 million by releasing three collections of digital artwork as NFTs. Top-tier publishers, such as Ubisoft, have a particular interest in NFTs and their ability to boost “play-to-earn” models, where in-game items gained through normal gameplay can be sold for a profit.

Our survey reflects these changing attitudes – particularly among publishers and developers, who were the most represented demographic – with nearly 4 out of 5 respondents expecting the prevalence of NFTs to increase this year. When asked to specify which of the following NFT uses they thought would become increasingly prevalent in esports over the next 12 months, respondents’ top choice was digital player cards of professional gamers, streamers, or content creators (64%), followed by unique “skins,” animations, characters, or songs (54%) and virtual merchandise related to specific esports organizations and teams (51%), with unique highlights from esports competitions (44%) trailing close behind.

Legal Risks

As esports matures amid political and cultural upheaval, legal concerns continue to evolve. Though respondents view cybersecurity and malware attacks and IP rights/licensing issues as the greatest legal risks to the esports industry – those categories were selected by 42% and 40% of respondents, respectively – there was no clear winner when we asked about top legal issues. Cyberbullying within games, contracts that do not provide adequate protections for players, and labor and employment issues all fell within 7 percentage points of the respondents’ highest-ranked selection.

Publishers face different obstacles. Survey respondents, when asked which issues facing major game publishers were potentially negatively impactful, rated cultural and/or political shifts away from youth video gaming (e.g., links with violence, government limitations on playing and consumption) and challenges with the franchise league model and system as paramount, with the former receiving 54% and the latter 53% of responses (respondents were allowed to check all answers that applied). Challenges competing with traditional sports (46%) and the ability to generate new and successful esports-friendly titles at scale (36%) ranked well behind the others.

In regard to potential challenges facing the franchise league model, friction remains as to how the industry should be structured. The ubiquity of the franchising model in the more established and stable (in the sense of longevity and in that no one company owns the intellectual property of the game itself) traditional sporting world makes highly structured leagues and teams a familiar and attractive option for prospective owners and advertisers, as does the opportunity for more effective monetization via sponsorship and media coverage. But some respondents may expect pushback from competing frameworks and models, including revenue-share. Moreover, many teams will not want to geolocate within a specific city, especially if their audience is primarily global.

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