🎮 and another one

OWL finals. EA earnings. Facebooooh.

Living only two blocks from the Barclays Center in Brooklyn makes things really easy if you care for esports. Last weekend it conveniently housed the Overwatch League Grand Finals.

The question on everyone’s mind is (or should be) whether the weight of Activision’s marketing machinery was successful in pushing esports into favor with fans and brands.

The answer is a conservative yes.

After the usual industry hobnobbery, I ditched the VIPs to instead sit with the fans and sample the atmosphere. I was not disappointed.

The event itself was solid: London Spitfires rolled over Philadelphia Fusion with ease. The overall production values were among the highest I’ve seen, and talking to the support staff taught me that Activision went all out on making this a fun event for the fans. Before kick-off, even Overwatch’s game director Jeff Kaplan made a quick appearance. The crowd loved it.

The genesis for Overwatch tournaments differ from League of Legends and Dota 2 in that the latter emerged organically and were slowly cultivated over a prolonged period of time. To skeptics, the OWL is the esports equivalent of a boyband: it is a deliberate effort by an already highly successful entertainment label that is looking to build more inroads with its fanbase and diversify its revenue streams for the long term.

The fact that this is working provides further evidence that competitive gaming makes a unique contribution to existing game publishing. Whereas musical artists make almost nothing from record sales (unless they’re Taylor Swift, etc.), they earn most from live performances because it allows fans to come together and celebrate the things they collective share and enjoy. So, too, do esports fulfill a desperate need among audiences that play games and want to share this with others. It is about celebrating the fandom around a particular game, meeting your favorite pro-players, and publicly sharing your interests. And on that the Overwatch Grand Finals delivered.

But there was one swing that was a clear miss.

What kept the OWL Finals from being a resounding success was its half-time show. Whoever hired DJ Khaled must’ve thought that esports fans are the same as mainstream audiences, listen to mainstream music, and keep mainstream consumer habits. They do not. This is no discredit to Khaled who is super-famous and well-respected. But they may as well have hired Celine Dion. Khaled’s performance fell painfully flat, not in the least because of his insistence to ‘sing his lyrics’ which, as it turned out, most attendees did not know.

This performance, in all of its cringey glory, was the proof point the OWL needed. It provided a valuable glimpse behind the curtains of the OWL production machine. In the abundant rhetoric around how esports is re-connecting advertisers with millennial audiences there is much consensus and little creativity. Advertisers, who are understandably conservative but willing to try something new, ultimately look for things they recognize to push innovative suggestions up the chain of command. But brands have to learn that if they want to remain relevant, they have to meet consumers half-way. You can’t just take an existing formula, tweak it slightly, and release it back into the wild. A new generation of media audiences cares little for the validation provided by framing their favorite pastime in a sports context.

My thesis going into the event was that if esports are to be a widespread phenomenon that is a key component to contemporary video game publishing, then certainly a large organization like Activision will find traction if it spends as much as it does. And it did.

However, to reach new media audiences, brands, advertisers, publishers, and event organizers need to build their engagements and activations from the ground up. After Khaled left the stage, one suggestion I overheard was that a K-pop performance would have been much more appropriate and engaging.

Last weekend Overwatch fans came out to support their teams and their game. But they also brought a message: esports fans are not your mother’s media audience.

On to this week’s update.


NEWS

Continued investments in esports drive momentum

With Overwatch kicking off the season for big finals, the enthusiasm for competitive gaming is likely to increase. Across the industry there are bigger commitments. First, former chief executive at eBay and HP, Meg Whitman, invested in the Immortals, which is apparently valued at $100MM. Second, Chinese streaming site Douyo is now considering a US listing on the wings of the overall esports success, hoping to raise $600-$700MM. Hasbro’s CEO Brian Goldner went on TV to sing the praises of esports and how it supported its Magic: the Gathering brand (“about a million people a month are watching Magic tournaments online”).

Facebook had a sh!t week

Losing about 25% in share value following its earnings report, Facebook’s misfortune didn’t stop there. It also saw its plans to open an innovation center thwarted and lost one of its top lawyers involved in its data privacy debacle. What’s boggling my mind is the prolific negativity towards a company that reported +42% y/y revenue growth. But I suppose it is this degree of financial irrationality that ensures that no firm is too big to fail is a myth. Link

Toymakers walk different paths

Where Hasbro reported a return to profitability despite the obvious erosion of toy retail and a -7% decline in revenues at $905MM, its rival Mattel was having a more difficult time (-14%, $841MM). Hasbro’s ace in the hole, it turned out, was Dungeons & Dragons. Mattel, on the other hand, is planning to cut 2,200 jobs as it looks to reduce its ownership of manufacturing plants and personnel.


MONEY, MONEY, NUMBERS

Electronic Arts (EA): Total revenue for the quarter was $749MM. However, what should be EA’s strong suit proved to be among the weaker components of its earnings as the firm reported a slower-than-expected growth of its live services revenues. Totaling $450MM for this quarter, live services were up +$30MM y/y, compared to +$221MM in 18Q3 and +$161MM in 18Q4. In particular its Ultimate Team generated unexpected less y/y, which disappointed investors. Link

In addition, EA also launched its PC subscription service, Origin Access Premier. The merits of this approach are debatable: certainly the success of subscriptions in music (e.g. Spotify) and video (e.g. Netflix) suggest a willingness among audiences to commit to a monthly payment in exchange for access to content. Even so, EA today is a far cry from the 100 titles-a-year publisher that is was before. Its continued emphasis on sports titles, combined with less than stellar success in other categories (e.g. shooters, casual) suggests that retention and rent-seeking are key strategic components. What EA needs is (1) more original IP (it currently only has Anthem on the horizon), and (2) more third-party content. The announced service is PC-only. For the full year of 2017, EA reported 17% of earnings from PC. Link