{audio:0:00:13} Can you start by sharing some context on your role, when you joined Overwatch?

{audio:0:00:20} I spent seven years at Blizzard Entertainment and the last role I had there was as the business director for Overwatch which is, essentially, responsible for the commercial performance of the franchise. So Overwatch the game, any consumer products, any ancillary business, business operations, business development, product management, growth, analytics; all those commercial operations pieces were my responsibility.

{audio:0:00:52} Can you explain how an esports league, typically, works, versus the more traditional sports leagues that we are familiar with?

{audio:0:01:01} The first part of that answer, in terms of how an esports league works, is that it’s highly variable. There are all different types. One aspect that creates a lot of that diversity is how involved the publisher is, in producing esports. In traditional physical sports, ball sports, where obviously, no one owns the rights to basketball or American football or soccer, the rights for a video game are held by the publisher. They may choose to hold those rights a little more tightly and create a more structured league system. The examples of that would be the Overwatch League, which I was involved with, in the high-end esport competition, based on Overwatch, the game. The League of Legends Championship Series, probably the biggest esport in the world, has moved towards this more centralized model – I would describe it more like a North American sports model – where the owners of these teams operate in a closed league system; they purchase the right to be part of that. Then they co-operate the league in some way, with the publisher, generally.

{audio:0:02:19} There’s another version of that which is a little bit looser, which is something more akin to Counterstrike or Dota 2, where a publisher might provide some rules and maybe they provide a centralized championship or something like that, but they’re not nearly as involved in the operation of individual tournaments and things of that nature.

{audio:0:02:42} Then there’s an even more extreme, which is maybe like a lot of the fighting games – Evo is an example of this – where the publishers are really not directly involved. They’re just letting this thing happen and it’s being run and managed entirely by third parties. There’s a huge spectrum of different ways that esports work and it’s still evolving pretty rapidly. I think a lot of that is tied into, what makes the most sense for an individual esport, really depends a lot on the nature of the game and what the publisher’s goals are in creating that esport and how they think about why that’s valuable for them, in their business.

{audio:0:03:23} What’s your view on how a publisher would look at the differences in league structure?

{audio:0:03:28} There’s a few different ways that publishers look at it and they might look at it very differently, by game. For example, for the Overwatch League, I think the team, in the broader Activision organization, saw the potential to build a more standalone, more evergreen sports league, that can grow as a business, unto itself. It’s related to the game and the game, itself, would benefit tremendously, of course, for having a popular esport. But there is also, they felt, a direct opportunity for meaningful business, by creating a more closed league style system.

{audio:0:04:09} There are a lot of avenues for that. There are things like media rights, licensed apparel, tickets to live events; a lot of the same revenue streams that exist in live sports, traditionally, could also be available there. That’s one end of the model, where you look at this as a business unto itself, that you see being meaningful and accretive, overall. The other extreme, potentially, is really framing the esport as a marketing vehicle for your game. Is this really about marketing in a community hub, for your game, as well? Is having your esport more about, hey, we’re going to create this thing that keeps this community vibrant, produces new Twitch streamers, as an example, has all these benefits that relate back to your core business of the game and that’s just a very different model. That model used to work on a game called Hearthstone and I set up and led most of the creation of the esport content for that game, which was really big and we invested a huge amount of money in it, but it was really more focused in this way. It was more about, this is a community event; this is more designed to make the game more successful and build out the community of players around the game and create that content. How that’s valuable to us is that it makes the game itself more vibrant.

{audio:0:05:40} How do you think the big publishers today look at esports? Do you think it’s more marketing or a real revenue opportunity?

{audio:0:05:47} Frankly, I think that’s still TBD. The biggest esport in the world is League of Legends, I would say; it’s been around for quite some time. It’s also one of the biggest games in the world. In esports, the value of a game tends to be tied, pretty closely, to the value and popularity of the game itself. It’s still to be seen, to some degree, can you create and scale and sustain a really large business, on the scale of a AAA title, with hundreds of millions of revenue a year, depending on the specific title, but in that zone? It’s not clear yet. Getting some clarity on that point is going to take a long time.

{audio:0:06:43} The thing I used to say, generally, is if you think about it more in the context of sport, there are very few persistent sports leagues that are tremendously valuable. They’ve taken a long time to grow and sustain and to be built, somewhat independent from the actual play of the game by the populous. For instance, very few adults are playing American football regularly and lots of fans have never played, organized much recreational football, but they are still huge fans of the National Football League, of the NFL. I used to say, we’ll know that an esport is a permanent business, when the first time a parent takes their child to an esport event – which is already happening – when that parent, in the past, had been taken to an esport event by their parent. When it becomes three generations, that’s when you know it’s forever.

{audio:0:07:52} There are real challenges there. A large challenge is that games are still a relatively new development – particularly live-service games – especially in the context of history of sport. They are maybe 15 or 20 years old, give or take. The oldest of these games that were really early and vibrant, are less than 15 years old; more like a decade old. There’s a question of, can that individual game sustain, over decades, and carry an audience with it in the same way that basketball or soccer or baseball are able, over many decades, to sustain and grow that audience. It takes a long time to build it up, but once you have it, it’s amazing.

{audio:0:08:39} But it’s also different because the game publisher has almost total control over the league and the game. Whereas the NBA doesn’t have that type of control over basketball. How do you look at the parallels and the differences, in terms of trying to understand how big this market could be?

{audio:0:08:57} Something that’s really important here, in these conversations about esports, is to be very mindful of the analogies that you draw. For example, is a publisher like the NFL. Or one example I’ve often used is, even though no one owns basketball, I used to work at Nike, at a certain point – I was a consultant for them, as well – and at the time, Nike, in North America, the percentage of basketball shoe sales that there were Nike shoes, was like 95%; a really, really high number. Of course, Nike didn’t own basketball but that, essentially, meant that any time people played basketball, a five on five basketball game has $1,000 of Nike gear on it, every time. It’s actually somewhat similar to a free-to-play game. It is so pervasive that they really are capturing all this value from play. I find this to be an interesting and different analogy that I don’t think is used as much. There are other ways to monetize in this way and, even in those cases where you don’t own the sport, Nike had cornered the market, at that moment, on the apparel that was required to play and so they were very invested in just growing the pie.

{audio:0:10:36} I think it’s important to address that, depending on where people come from. For example, folks that are thinking about this in North America as opposed to Europe, I see that they tend to default to more of a European football model. Is it more of this regulation style, where there are not so many centralized leagues? Maybe there is this overarching thing, like FIFA. That’s a very different paradigm from this more tightly controlled league concept that is really core to North American sport business model. I think the jury is still out on what is going to work there, frankly. I think we’re still in that first phase.

{audio:0:11:19} Like a lot of innovation, across any number of products, the first wave of market entrants tend to borrow super heavily from analogous, existing things in the world. In this case, it’s physical sport. I very firmly believe that we don’t know yet, if that’s right. Is that the right model? In the same way that the early internet would, in various ways, mimic physical stuff and then, over time, we’ve seen the benefits of what you can do in purely digital space, emerge and you see that evolve. I think another area for esport that is still ripe for innovation is, how can esports lean into their strength, as a digital, widely-distributed product in a way that physical sports can’t match. There are a lot of ways that that can also work, depending on the title.

{audio:0:12:12} When I was working on Hearthstone, it’s a card game and latency is not a material factor. We can actually run a large-scale competition, around the world, at the exact same time, with no competitive issues, because it wasn’t required to be together, in the way that a shooter game or some of these other games require fast twitch reflexes; at the highest levels of competition, they really require everyone to be physically present, in the same place, to maintain fair play and to not have too much lag or latency.

{audio:0:12:45} I think there’s a lot to think about there. Another space that’s ripe for innovation is, how can esports, in games and publishers looking to build an esport product, how are they able to lean into what they have? The other piece that I’d say here that, frankly, I sometimes think has been a mistake is that I see publishers trying to force it. They want to make something into an esport. Something that’s really fruitful here, especially early on in a game’s lifecycle, is looking to see what your players and your fans are natively doing. They’re going to want to self-organize and do tournaments. You can sometimes put the cart before the horse, so to speak. If you come out of the gates saying, it’s going to work this way and we’re not going to give rights to anyone to run any tournaments, because we really want to own this whole pie and we’re worried about giving slices away, you lose a huge amount of testing and viability verification that you get out of those kind of community run events. If they’re able to innovate a lot more quickly, the quality bar is different from if you are producing something yourself. They also prove out the appetite.

{audio:0:13:59} Again, in the case of Hearthstone and, to a certain degree, on Overwatch, but for Hearthstone we had more time to do this, we produced variable content in the first 12 to 18 months and we spent an enormous amount of time just observing what was already happening and just trying to amplify it and trying to learn from it. We would actually ask folks to say, hey, we know you want to run this tournament; we’re really interested in testing this thing out, can we do that? Can we help you a little bit, in doing that? Just general encouragement I give to companies and the games thinking about building an esport is not to skip that step. Don’t just assume you are going to be the greatest esport in the world, because you think your game is awesome. Really take the time and build it with the community. You can always transition later, to a more high-fidelity, more controlled environment.

{audio:0:14:52} But what about the publishers? If you’re a big publisher and you’re earning hundreds of millions, if not billions, from the actual games and the content in games, how much time do they actually spend on esports? Back to this question about marketing versus revenue. If you just think of the revenue that is generated from esports, is it likely to stay a marketing ploy for the next five to seven years, given the scale of these games?

{audio:0:15:26} I think, in almost all examples, over the next several years, the biggest benefit a publisher will see, from running an esport, is the amplification it has on their core game. I think that is the strongest value proposition they will see out of it, almost certainly. Another piece that is different in this way, how you invest in esports has a core monetary cost, of course. But you have to be really thoughtful, upfront. I’ve seen folks coming from more traditional sports models and this is a real transition. You have to think like a product manager, in a lot of ways. For instance, if you want to change some technical thing for how the game works, you want to add some new content or a new feature, for an esport, the people who do that are the people who make the video game; it’s the same team. On a technical, software level, it’s just not feasible to have a separate team working on that, versus the other things.

{audio:0:16:36} You have to be really, really sharp in your prioritization. This is a classic thing that’s happening all across the industry, right now, in esports, is that the developer, the folks that are working on building the game, they want to put in this feature, but they also have this request from the esport; how do you actually map those two things together? It’s super hard. I think there are few things that really help. One is having a product manager mindset. Folks that are coming from traditional media or coming from a traditional sport league, they’re not used to having to be prioritized with something else, because they are used to running the league. Knowing, going in, so that everyone understands how the priority would work, is really important. Just being realistic about what that does to the timeframe. Avoid the temptation to have a separate esports development team that is doing the esports, because it all ends up being the same product.

{audio:0:17:46} The other thing I would say there is, it’s really important that you have total buy in and excitement from the development team, to work on this, if you’re a publisher and you want to go deep into esports. If you don’t have excitement from the people that are working on the game – not just acquiescence, but real excitement that they think this is valuable and something they want to make – you’re not going to get the best out of that product. It’s certainly something that I’ve heard a lot from folks around the industry about this challenge, where this is foisted on a software developer and, in my experience, that is not a recipe for success.

{audio:0:18:28} Can we walk through the economics of the esport industry and maybe we can use the Overwatch League as an example. Clearly, Activision sells franchises to teams; how does the revenue model work between the team and the publisher, in terms of merchandise or other broadcasting revenue, with the rev share?

{audio:0:18:54} Again, this is quite variable, based on different models, but in games that have this sort of franchise model, where teams are sold and the publisher is also involved, there are some similar characteristics. One is, obviously, they are splitting revenue or profit.

{audio:0:19:18} Is that 50/50 on broadcast revenue and merchandise revenue?

{audio:0:19:22} It depends. That’s not something I can disclose.

{audio:0:19:26} But in terms of the model, it’s after the publishers recoup the costs, as well, of running marketing?

{audio:0:19:34} That’s variable. From what I’ve seen, that structure is pretty bespoke, because there are some costs that are really hard to allocate against esport. For example, the product development costs I just mentioned, they’re hard to assign in a really smart way. I would say that, overall, often it is a split based on the fact that there are a ton of costs and revenue assigned to the league and then there is some split of the profits, at the end, between the teams and the publisher. In general, I would say that if you took all the rights together and the sale price and the revenue splits and all these things, they are indicative of the fact that, in large part, the publishers have the upper hand in a lot of these negotiations, because they own the rights. There’s a very finite number of games that have the potential to have this large footprint that justifies a high value franchise league system. I think you see that running through a lot of these, even though it plays out pretty differently.

{audio:0:20:48} Also, when you start getting down into how, specifically, revenue works between different things, what rights exist where, what rights are regional, which is also a large component of sport, what rights are at the team level, that’s an enormously complicated process and there are great people that specialize on this exact thing. For me, coming from the outside, when I started getting into this, I was, wow. They have the right to sell this kind of t-shirt in Pennsylvania, for this time. It’s for a good reason, but it’s very complicated.

{audio:0:21:28} That’s quite different from physical sports where the league collects revenue and then shares it with the teams?

{audio:0:21:37} Adam Silver is the Commissioner of the NBA and he operates on behalf of the owners. The owners can fire him. In some ways, the league doesn’t quite exist as a totally separate entity from the individual teams, in the same way. The league is an aggregation of the teams. That is a little different from this model where there is a rights holder that is heavily involved. The structure is still the same and they are all operating in the context of the league, but there is some distinction, in that way.

{audio:0:22:15} Looking at the split in revenue, what would you say is the split between broadcast revenue, franchise fees, merchandise for the publisher?

{audio:0:22:28} Right now, if you look at the games that have been able to sell teams for high valuations, the way the revenue is recognized, the upfront value of the team sales is high. I think the general model there is that the initial team sales justify this business, in some way, which is the larger proportion of revenue early on, which makes sense.

{audio:0:22:49} A $20 million franchise fee?

{audio:0:22:51} Yes, then the media rights start as a smaller proportion for the publisher, with the idea being that, over time, firstly, you are not selling teams all the time, because you can only sell a finite number of teams. Secondly, as the popularity grows, that media rights number goes up. What we see is, the proportion starts mostly as team sales, because they are setting everything up and then, over time, the team sales number goes down and the media rights and all those other revenue streams become the larger proportion, until they are, essentially, all of it.

{audio:0:23:22} But the majority of revenue, I assume, comes from broadcasters, Twitch and other avenues?

{audio:0:23:28} It’s interesting right now. Partially, it depends on how you categorize revenue and how you think about it. For example, in some leagues, there are larger media rights deals; some of them are made public, in various ways, that have many millions of dollars price tags. Even there, there is a lot of nuance that is usually not reported, in terms of okay, it says $100 million or $200 million, but is that real? Is that the actual number or is that dependent on certain targets, things like that? It tends to be something that is overlooked, in reporting on these sort of deals.

{audio:0:24:07} But if you look at something like Dota 2, they have The International every year, which is their big world championship event. It has the biggest prize pool of any game out there; it’s about $20 million to $30 million a year. They really build a lot of their microtransactions for the game, around this tournament. The reason that pool gets so big is that player buy microtransaction items and part of the money – this is a game made by Valve – I believe 50% goes to the prize pool and 50% goes to Valve. How do you think about that kind of revenue? That’s revenue in the game but it’s tied, really strongly, to the esport. I think it’s a very compelling model. Other games have models like this. League of Legends has done things like this and the Overwatch League has certainly done things like this. You are able to buy, essentially, the uniforms of different teams. It’s hard to describe that. Is that an esport revenue source, setting aside the accounting part of it? Does it feel as if it is being driven by the esport or being driven by the game?

{audio:0:25:17} From a publisher’s standpoint, they are always going to want to maximize the eyeballs on the game, no matter what. Even if Twitch turns round and says, actually, I’m going to pay you half of what another platform may pay, which would reduce the rights fees to the teams, the publisher will take it because it maximizes eyeballs and drives revenue to the game. Incentives are misaligned, somewhere, it seems.

{audio:0:25:55} There’s been a lot of good writing on this, which I think is quite smart. There’s a great article by Matthew Ball about this, recently, which outlines this in a lot of stark detail. I think you’re bringing up a more generalized point around, how do you create incentive alignment between a publisher and their role in making the game and the revenue opportunity there, versus the role of the participant in a league structure. This is a great example of, do you take the bigger dollar number, but smaller footprint and awareness, smaller number of people watching it, or do you take the smaller dollar number and the really big footprint of people watching it?

{audio:0:26:40} I would say, in practice, for where most leagues are at right now, this is a real dilemma. These leagues are pretty amazing. They also want to grow pretty dramatically. It’s not like the league just wants to sign the biggest deal possible, with a really narrow audience. They also want to have an expanded audience. It’s a mostly navigable issue. But there’s a real incentive alignment issue there that is absolutely true.

{audio:0:27:21} In the context of Twitch, in particular, and we’ve seen this as some esports have tried to move off Twitch or even game broadcasting, generally, and of course, there has been growth in Facebook Gaming and YouTube Gaming but still, Twitch really has a stranglehold, especially in core gaming communities. A lot of people think of Twitch as a channel. They think of it like, they’re watching ABC; we’re going to move over to CBS. It’s a real cost to move to CBS. You’re going to lose some people, there is a whole bunch of complexity and it’s going to take a lot of time; but they’re manageable.

{audio:0:28:07} I would contend that Twitch is less of a channel and much more of a social media platform. The reason that social media platforms are a great business is that they are some of the stickiest products in the world. People that use Facebook use it forever and ever and they spend a lot of time on it. I think it’s a similar thing with Twitch. Twitch has this appeal as a lifestyle and community hub and it’s something that they are incredibly good at and it makes it hard to move people away from that and retain and build your audience. When thinking about something like broadcast rights, Twitch in particular, holds a ton of cards. They really have a lot of leverage there because they have the existing audience and it’s very difficult to move off it. Just by the nature of the platform and being more of a social media network, the stickiness is quite high. They hold a lot of cards there and I think they’ve realized that more, over time.

{audio:0:29:10} What’s the advantage of owning a team then? If the team is not aligned with the league on broadcast rights, necessarily, when you’re buying a team, are you actually buying something else, rather than esports revenue? Are you looking to merchandise? Or is it the Twitch revenue you are looking at?

{audio:0:29:33} Firstly, some of the incentive alignment challenges that we are talking about here, it’s not as if they don’t exist in the league or team structures. Everything I’ve heard and seen suggests that it is an uneasy set of incentive structures, in most cases. There’s still real money there and I don’t think the incentives are totally misaligned. But it takes a huge amount of work – I think there is structural and contractual work there – and relationship and picking the right owners and the right group and putting that team together appropriately. Just because it’s difficult, it doesn’t mean it’s not valuable.

{audio:0:30:24} I think there are a few ways that I would think about it, as a team. Of course, you want to be there for the league revenue that you are getting. There is explosive growth inside of esports and media rights valuations have been going up and all these other pieces. So I think that is very attractive. In addition, there is building out this brand that you can monetize and you can do all these other things with.

{audio:0:30:49} Also, for most of these teams, what they’ve realized is, there is a bunch of fixed costs for operating an esports team but if you’re able to do that well, with a single game, you’re able to add additional franchise verticals at a relatively low cost, in terms of operational costs. Depending on how the branding works, maybe even some brand alignment around your overall esports brand, if it exists independent of the league, which some leagues do and some leagues don’t, that is also pretty attractive. You’re building your own brand and platform, depending on how it works, and you’re lowering your cost bases, as you undertake more esports in more gaming verticals.

{audio:0:31:34} It does seem pretty tricky for the teams. As you said, they’ve got a high fixed cost, in paying the players and they’ve got a franchise fee to recoup, plus then they are serving the publisher, in a way, as the league. It almost seems as if only the best brands in the league, the top brand teams, are going to actually be profitable businesses?

{audio:0:32:02} Yes; I think you are describing media more generally.

{audio:0:32:05} Which is the same in physical sports, I guess, to a certain extent?

{audio:0:32:09} If you look at media more generally, it’s good to be the king. If you’re not one of the top things in one of the verticals, the value of the business drops precipitously, past that. That’s true in games, in movies and lots of arenas involving media. For example, if you’re operating a North American basketball league, that’s not the NBA, I wish you well and I wish you a lot of luck. The same thing with football where we’ve seen a bunch of leagues come and go. That’s definitely the case where you just don’t want to be stuck in the middle.

{audio:0:32:46} How do you think this could change? Let’s say that your role is to make this the biggest revenue opportunity you can, what could the publishers do, to make the incentives more aligned, or change the structure to drive real business opportunities?

{audio:0:33:09} What can the publisher do? I think what’s happening now, with a lot of these leagues, is that this is like V1 of a lot of this. The publishers and the teams, everyone is learning how this works. I do think it’s a very good faith effort, on all sides, even though, in some of these cases, it can be heated and it can be challenging. But people want this to work. I don’t think it’s being done in bad faith; I think it’s being done in very good faith. But it’s new and it’s complicated and it takes time. There’s a sophistication that all sides are going to have, as these things continue to form. I have a lot of confidence that they are going to keep finding better ways, especially upfront, to address some of the incentive challenges that exist.

{audio:0:34:02} They’re also going to hammer it out, over time. I have a good friend who negotiated a lot of media rights deals with ESPN, ABC and different groups and the way he would describe it is, it’s enormously challenging to switch from an organization; getting trust, building it up, getting the incentives perfectly aligned. No matter how much time you spend at a contractual level, the reality is going to be a little different. Over time, what he has described is, that gets better because it has to get better. It’s really bad for both parties if it doesn’t improve and you don’t get there.

{audio:0:34:46} Ideally, you have a 20 to 30-year relationship and you’re improving the product together and your incentives are both aligned. I guess this is what makes me so optimistic about esports, in this incentive way is that the goal is such a long-term goal that you have to figure out the incentives or you won’t win, because you won’t be getting the best out of all the parties. You have to get the best out of all parties, for it to work.

{audio:0:35:11} Looking at Twitch and their role in the esports landscape, how do you view the platform, versus YouTube and Facebook?

{audio:0:35:23} I think it’s really hard to compete with Twitch on this. Obviously, you’ve seen encouraging signs on Facebook and YouTube, that they are strengthening in some ways. But the first mover and social network advantages that Twitch has – especially now that they are inside the Amazon ecosystem, and as they continue to get smarter about how to make the most out of that – is really strong.

{audio:0:35:49} What could they do on the publishing side? I know they are publishing games and have studios.

{audio:0:35:54} I think there are a lot of things they can do and are already doing. I think Twitch Prime is a great example. They’ve used Twitch to reach a different Prime audience, Amazon Prime, which is a relatively easy way, which is really valuable to Amazon. There are lots of tech stack things that they can do that I would assume they are pretty heavily invested in. They have abilities as a publisher, or ways that you could think of and there’s been some really interesting articles on this. There’s this concept that has come up a lot, lately, that certainly a lot of my clients have asked about, which is the metaverse and this idea of games as having this really broad interactivity space.

{audio:0:36:38} That’s a word that has many, many meanings to people but one interesting way that it could work is tighter integration on something like Twitch. Twitch is already this platform where all these people are interacting. What if Twitch has games that are more about communal interaction in some ways? There was a thing called Twitch plays Pokémon a few years, where they collectively played the original Pokémon game, hitting all the inputs. In some ways, it was a metaverse moment. It was this huge collective of people doing this experience together. We’re not even at day one for this concept. This is many years away and who knows what that really means.

{audio:0:37:21} Why would Twitch have an advantage over Fortnite, for example?

{audio:0:37:25} There are some advantages over Fortnite and some disadvantages. One advantage they have is that their platform is game agnostic. If you don’t like the art of style of, say, Fortnite, Twitch has every game on their platform. Maybe there is another game that wants to integrate in some way. One of the challenges of the metaverse concept is, how limiting is the content type that the metaverse is in? Lots of people don’t want to play Fortnite; many, many people do but there are a lot of people that don’t. Are they able to contain enough distinct experiences to get so broad that you want to stay in and make that your core social scene, in a really big, long-lasting way? I think, maybe. Fortnite is so big that it’s not like they have to get everyone in the world to do it.

{audio:0:38:14} I do think Fortnite is interesting in this way, as well. But Twitch has some different and distinct advantages that are probably a little less obvious to people, but I think are very real and they could, potentially, do great things with.

{audio:0:38:25} How do publishers view Twitch? Do they see it as a crucial broadcasting partner?

{audio:0:38:32} Anyone that owns rights to something, it doesn’t generally feel good when another party is driving a lot of value, based on those rights that you have. That’s just human nature.

{audio:0:38:44} They are also now creating IP themselves.

{audio:0:38:46} Yes. One thing that game publishers generally have is pretty direct connections with their consumers, especially on PC. Even in the context of a console platform, the publisher has all the data and they have really direct communication with the consumer and Twitch is a disintermediation point for that, essentially, that doesn’t exist in other parts.

{audio:0:39:14} Do Twitch share their data with the publisher?

{audio:0:39:17} It depends; you’d have to have a specific agreement in place. Most games that are on Twitch, as far as I can see, those publishers don’t have a formal or legal relationship with Twitch, necessarily. I think Twitch has generally been good about, if a game has requested to not be on the platform, then Twitch will stop it from being on the platform and work to do that. But they don’t have a formal agreement, in that way.

{audio:0:39:40} On the other hand, winning on Twitch is huge, especially on a marketing and community level. I think IMPACT Legends was a big eye-opener for people, to gain that launch; I think it was two years ago now. They had something like a $5 million budget and, initially, they wanted to do a Super Bowl spot. This was Respawn Entertainment; a very famous and accomplished game studio. There was no hype and they had done nothing. They were purposely holding back and keeping it secret. There had been some initial talk, from what I had heard, internally, that maybe we should do a Super Bowl slot. That’s really expensive and doesn’t exactly hit our audience. Why don’t we take that $5 million, put it into tons of influencers on Twitch, drop the game with no warning and explode our growth that way. And it worked. It was hugely, hugely valuable for that game.

{audio:0:40:37} For a lot of folks and certainly for my team, or just me generally, as a marketer, it’s eye-opening. We all knew that there was value there, of course, and we had been working to make that platform help us build communities and market our games effectively. But that was a big company going all in, on that strategy. I think you’re seeing that more now and it’s still working pretty effectively. Like any other marketing strategy, it will get more expensive and become less effective, the more people do it, so we’ll see where that goes, over time. But it’s key. No big game is launching right now, without a Twitch strategy; certainly not a PC or console game.

{audio:0:41:21} When we’re looking at Amazon, though, how do you look at the opportunity of them actually entering the space? Clearly, it’s very difficult to create great content and so it should be. The returns are non-linear, the top 10 franchises are pretty stable, year on year. Amazon have Twitch, which makes it interesting. But how do you look at the opportunity for Amazon to enter this market and, if so, what could they actually really shake up, if they wanted to? Are the publishers really worried about this?

{audio:0:41:53} Not just Amazon, but if you look at all the big tech companies, they are attempting to enter into the game space.

{audio:0:42:00} Google tried to enter with Stadia but it didn’t really work.

{audio:0:42:03} Google has been working at this, Amazon has been working at this, Microsoft has been working at this, for a longer time and in a slightly different way. Sony has this, in various ways. Big tech is trying to figure this out and has had, at best, mixed success. I think there are a few reasons for that. Game development is something where there is a very finite number of top talent. It’s really important to get them. They want a lot of creative freedom and it takes many years to build a team that’s going to be effective in launching a game. Most AAA titles are probably in full development for four or five years, in a lot of cases. Especially if it’s something new and not a sequel. Maybe even longer; six, seven, eight, nine years.

{audio:0:42:59} I would say, for different reasons, tech companies are not good at being media companies. If you look at the big game companies, I would contend they are tech companies in some ways, but they’re really media companies.

{audio:0:43:19} They’re selling IP, aren’t they?

{audio:0:43:20} Their business requires them to continually create new content and put that content out and refresh in that way, versus those existing tech businesses, whether it’s Apple, Facebook, Google, Amazon, Microsoft, that have all tried to enter into this development space. That’s pretty different for them. They are more platform companies that build something and they improve it, over time. Games have a natural boredom decay curve. In the business of a game, you have to continue to make it exciting and fun because people’s interest is just going to go down and down. I don’t get bored of Microsoft Excel. Maybe I do, but it doesn’t make me stop using spreadsheets. There’s a difference there.

{audio:0:44:10} Does free-to-play change that or not?

{audio:0:44:12} I think it’s really hard. I think there are a few mistakes that I have seen. I’m actually not sure for the full set of reasons, but they’ve spent more time and effort than I think makes sense, on non-live-service games. I think what they really want is, exclusively, live-service games. Apple Arcade is an example here. Their initial foray has very few live-service titles which tends to follow people’s play patterns and more of this Netflix of games model, which is not how people play games. If you compare it to linear media, such as movies or TV, people want to watch a movie or a TV show and maybe they rewatch it, but probably not. They just want to watch it once and be done. Whereas in gaming, they pick a small number of games and go very, very deep. It’s a very different model. I think they’ve chosen something different there.

{audio:0:45:11} I don’t know that they’re always setting those teams up for maximum success. Leading creative teams, in that way, is a pretty distinct skill set, from leading a technology organization. I think some examples have worked there. Sony had a huge head start; they’ve been operating PlayStation for 25 years. They are an example of someone who has figured a lot of that out and are able to produce internal content, at that level.

{audio:0:45:37} I think the other part here is, frankly, the brand of the studio matters a lot, to a lot of developers. Knowing that there is going to be stability there and this isn’t something that a tech company is going to get sick of, in a year or two, matters a lot to creative people.

{audio:0:45:52} Can we take a step back and look at the profit pool of the industry and what do you think it would take for the publisher to take less of the economics, in the industry? What changes could happen? How do you see that split between the major players, the broadcast platforms, such as Twitch, plus the teams, players, publishers?

{audio:0:46:17} Like any other negotiation, the rights holder would have to believe that the counterparty is able to drive a huge amount of value, in some way.

{audio:0:46:30} So Twitch and the publisher pretty much own the cards, in this industry, as it stands?

{audio:0:46:35} They have a bunch of advantages in these areas, right now. That doesn’t mean it’s always going to be that way. That’s the only way that that changes is if there is some proven value, as to who is driving what part of the value chain, that changes that dynamic. A big example where this has clearly happened is in mobile games. In mobile games, of course, we might not feel great about giving $0.30 of every dollar to Apple or Google; I would love that to be fewer cents, obviously. But at the same time, it’s worth it. They provide a huge number of services and infrastructure and the tech stack and hardware that they are able to support. There’s an enormous value there. That’s an example where that was a big change or when Steam was becoming more popular, as a platform. A similar thing; 30%. There are lots of examples where publishers sacrifice. The consoles do this. They are willing to share a whole bunch of value, but it needs to be a really manifest thing that they’re getting back, that they view as worth it.

{audio:0:47:53} Can we compare Activision’s Overwatch League versus Fortnite’s competitive gaming or other free-to-play competitive games?

{audio:0:48:03} Firstly, we would start by going back and look at any competitive games. Where are the publisher, the rights holder, really seeing the most value? As they seeing the most value as a standalone league, in some way or are they seeing more value in the amplification in the product?

{audio:0:48:19} I think Fortnite has taken more of the latter view, in some ways which informs some of their decision making. Also, the nature of one thing that is obvious for free-to-play is that it instantaneously unlocks massive scale, because you’ve removed pay barrier to play. Basically, all fans of a games’ esport have, to some amount, played the game that the esports is based on. If you remove that barrier and you do it correctly – because there are examples of games going free, from being paid and not building a bigger audience, because they didn’t navigate it appropriately and just took it for granted – you hope that, for free-to-play, you are able to scale your audience in some meaningful way, which changes some of this.

{audio:0:49:08} The other piece I would say there is, with free-to-play games versus a more traditional boxed model game, free-to-play tend to be infinite live-service games. They just go on and on forever. Fortnite is just going to exist forever, for practical purposes. Epic is not going to be shutting it down any time soon or moving over to getting people to buy Fortnite 2. That also has some implications that are navigable. There are games that are more sequel driven, that are building esports that have thought about this and are creating a cohesive experience, but it is another wrinkle that is a little different between a boxed model versus a free-to-play game that tends to be just live-service and ongoing.

{audio:0:49:57} Does it have different monetization options for the teams?

{audio:0:50:00} I don’t know that it does. Almost all boxed games, today, have some amount of in-game monetization, so I think it just depends. It doesn’t necessarily unlock a different revenue stream.

{audio:0:50:13} I’m referring to, maybe, some of the actual esports and competitive games, within the Overwatch League versus Hearthstone versus some of the Fortnite stuff. There’s no difference, really, in the team economics, across different types of esport games?

{audio:0:50:32} There can be; that’s more game by game level, rather than free-to-play or boxed. That is a lot more to do with the goals and how the league is set up.

{audio:0:50:43} It’s still relatively early in the evolution of these games, in the structure of the leagues. There are various different structures that have been set up and the publishers will still capture the economics and it’s still to be seen, will this be a marketing ploy for the next 10 years, or could this industry really take off?

{audio:0:51:07} Generally, I tend to lean towards it more being a question of when and which, than if. People love to watch other people play video games; that is 100% and that is the explosive growth that we have seen overall. It’s just impossible to argue that point. But what we don’t know yet is, when does that hit some tipping point, either just because of current trajectory we’re on, or because of some innovation or one particular thing catches fire in a certain way; like a hockey stick to being this multi-billion-dollar, huge venture. That part I don’t know. I don’t really think it’s a question of if; it’s just a question of, what’s that structure and how long is it going to take? There’s just too much demand for people watching other people play video games. The numbers are staggering and there’s already a huge, meaningful business here. It’s more figuring out how you actually turn that into a specific business around an esport concept and how long does that take?

{audio:0:52:17} Maybe it’s evolving the leagues that already exist; that’s very possible. Maybe it’s a different league. I don’t think we know that yet.

{audio:0:52:22} What would you change? Take any part of the industry; would it be a team structural change?

Esports & The Overwatch League

Comparison of The Overwatch League and traditional sports like NFL or NBA

Implications of the publisher control over league rights

How leagues can align incentives between puiblisher, team, players and fans

Is esports a marketing opportunity for the publisher or a real revenue opportunity?

Esports & The Overwatch League

Former Business Director at Overwatch, Blizzard Entertainment

inpractise.com/articles/esports-overwatch-league

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Executive Bio

Matt Wyble

Former Business Director at Overwatch, Blizzard Entertainment

Interview Transcript

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Esports & The Overwatch League(July 10, 2020)

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