With the gaokao, China’s make-or-break college entrance exam, just a few weeks away, a high school teacher decided to lighten things up by discussing some of the most desirable things his students could do in their future careers.
While his intentions were good, parents soon protested that the teacher should resign. What happened?
Well, he showcased eSports as the third most popular career choice, ranking it behind only the performing arts (acting and singing) and linguistics.
He also showed an interview on state television with Jian Xian, a top gamer in China who reportedly makes more than Rmb100 million ($16 million) a year, to help students “deepen their understanding about the profession”.
Parents were far from pleased, complaining that their children had come home to announce they would like to pursue a career in professional video gaming.
“You call it professional gaming I call it playing video games. How is that a good job? If you like to play video games so much why don’t you stick with that instead of teaching,” one fumed.
Whether it’s a solid career choice or not, competitive video-gaming – collectively known as eSports – is one of the most talked-about new industries in China.
What are eSports and how popular have they become?
The simplest definition is ‘competitive video gaming at a professional level’. The majority of popular eSports these days are team-based games played in leagues or tournaments over a longer period, culminating in a final event. They can be sports games, strategy games or multiplayer shoot-em ups.
The full extent of the boom in China was on display in Beijing last November at the world final of a tournament for Tencent’s game League of Legends. The prize money on offer was more than $4 million and a crowd of more than 40,000 people packed into the Bird’s Nest stadium (built for the 2008 Olympics) to watch the battle between South Korean gaming stars Faker and CuVee.
It wasn’t just audiences in China that were watching: the clash was broadcast to tens of millions of viewers in two dozen languages around the world.
Another driver of the gaming boom in China stems from last year’s announcement that eSports would become an official medal sport at the Asian Games in Hangzhou in 2022. That was the biggest endorsement yet for competitive gaming. But in many ways, eSports is already viewed as mainstream by younger Chinese. Top players now rake in multi-million dollar incomes from endorsements and payments from avid fans watching them play online.
The Ministry of Education added eSports as a new major in higher education a year ago and at least 20 colleges and vocational schools have begun offering related studies. One is Lanxiang Technical School, which we have mentioned before as a finishing school for hackers (see WiC254). Even Peking University, one of the oldest and most prestigious universities in China, has jumped on the bandwagon by establishing its own curriculum for eSports.
Who are the customers?
One of the factors driving the popularity of eSports among investors is the demographic of the fanbase. The age of conventional sports viewers is going up – in baseball it is 57, for instance, up from 52 in 2006, and the average for NBA watchers has also increased from 40 to 42 over the past decade.
Video gaming taps a lucrative market of younger consumers that attracts advertisers and sponsors. One Nielsen report in 2016 put the median age for eSports watchers on TV at 32. The median on streaming sites was lower at 25.
“Current eSports audiences are generally young, easily engaged, and ready to spend, and companies are now starting to realise that this is a ripe and juicy market for their products,” says Drew Holt-Kentwell, founder of eSports marketing company Catalyst Esports Solutions.
Although the eSports market is still relatively small – last year, it reached $906 million in revenues, mainly from advertising, ticket sales and merchandising, says industry analyst Newzoo (though this figure does not include monies made from the video-streaming of eSports nor the massive sales generated from the games themselves) – it has been growing exponentially. China accounts for 18% of those revenues, behind only the US and Europe. South Korea is still home to the best players and training infrastructure. But with one of the largest gamer-bases in the world in China, the potential for eSports is enormous.
The Chinese tech giant, the world’s largest online gaming company by revenue, has played a big part in bringing electronic gaming to the mainstream.
For now, it primarily uses eSports as a marketing tool to sell its huge portfolio of gaming titles, such as League of Legends (a desktop game) and Honour of Kings (a smartphone one). Tencent hosts regular eSports tournaments around the country to bring people into venues to play its games and watch video streams of other people competing in them.
Increasingly, eSports is moving centre-stage within Tencent’s corporate strategy. For instance, when it acquired the licence to distribute Epic Games’ smash hit Fortnite in China, Tencent also committed Rmb100 million ($15.65 million) to turn the game into a spectator sport. It is replicating the same strategy in the US, where it is rolling out Arena of Valor (the Western adaptation of Honour of Kings). Tencent has also announced plans to host an Arena of Valor World Cup in Los Angeles in July with a prize pool of more than $500,000.
Tencent sponsors some of the biggest video gaming clubs in China to nurture talented gamers and it has signed a deal with the local government of Wuhu in Anhui to build an eSports university, plus a stadium to host video gaming events.
“It is painfully difficult to challenge Tencent’s lead position in the eSports industry. That’s because it is near impossible for anyone to develop a new game that would be hotter than the ones owned by Tencent,” Huxiu, a portal, concludes.
The property sector and eSports
Around China, developers have been transforming spaces in shopping malls into eSports arenas, hoping to use the sport to lure younger consumers back to bricks-and-mortar retail. Hong Kong’s New World Development, for instance, has partnered with mobile game developer Hero Entertainment to create a network of eSports-themed spaces in projects in at least nine Chinese cities. Greenland, a Shanghai-based developer, has also started construction of its first eSports stadium, a 30,000-seater in Shanghai’s Qingpu district. The developer plans to build eSports “towns” and theme parks at its mixed-use developments in larger cities. The goal, it says, is to drive traffic to its nearby shopping malls and boost occupancy at its hotels.
Local governments, too, believe that eSports could boost their city economies. To that end, Hangzhou has built a multimillion-dollar arena for its local team LGD Gaming. Occupying 23,000 square feet, the stadium features press conference venues, fan zones, practice areas, a bar and gift shop, and high-tech control rooms where squads of technicians coordinate web broadcasts to millions of spectators.
Meanwhile, Chongqing’s government is pouring Rmb5 billion of funding into a 60,000-square-foot arena lined by LED screens in Zhongxian, which until recently was a “remote and impoverished township,” reckons the Global Times. The stadium, scheduled to be completed later this year, will be dedicated to professional video gaming.
“With eSports being such a hot topic at the moment there is no shortage of investors. As a result, a large number of eSports towns are cropping up around second- and third-tier cities,” says Tencent News, a portal.
How many companies are making money from eSports?
Unlike other professional sports, which profit from selling the broadcasting rights, eSports is yet to earn comparable royalties. But industry participants believe that there will be ways of monetising the fanbase, including Google, which led a $120 million investment in the Chinese live-stream mobile game platform Chushou (Chushou claims 90 million registered users between 12 and 22 years old that tune in to watch 300,000 active livestreamers play per day).
Google may see eSports as a way back into a market where its search services are blocked (Google’s YouTube also launched a specialised service for live-stream gamers in 2015). Others are doubling up their investments. Tencent has put $630 million into Douyu, another live-streaming gaming platform for desktop games, and NetEase’s gaming unit announced similar plans to invest in live-streamers and related eSports partnerships.
Another eSports live-streamer Huya – which hosts 2,600 different games – listed in New York this month. Its IPO raised $180 million, and jumped nearly 34% on its first day of trading. According to Reuters, Huya had 40 million users in the fourth quarter and its revenues tripled in 2017. Yet again Tencent is a major investor, holding 39.5%.
Can Chinese players lead the world in eSports?
The track record for many Chinese gamers has been dismal. The aforementioned technical school at Lanxiang hasn’t won a game in the League of Legends Development League, while Shanghai Dragons, another professional team that is owned by NetEase, lost 30 straight matches in a league for the Activision Blizzard game Overwatch.
“Thankfully for NetEase, the Overwatch League proposed the use of city names for the teams. So Shanghai Dragons doesn’t reflect its NetEase ownership. Can you imagine how much mockery NetEase would have had to endure with such a terrible track record?” Huxiu comments.
To improve local standards, a few local teams have paid big salaries to South Korean gamers to play in China. And last weekend there was national glory when more than 126 million people tuned in to watch China’s RNG (Royal Never Give Up) beat a South Korean team in one of the biggest tournaments for League of Legends.
More broadly, industry insiders have complained of a shortage of qualified people in Chinese eSports. At the moment, the sector employs at least 50,000, according to local data firm CNG, but it reckons there is demand for a further 260,000, including players, coaches, adjudicators and club managers.
Perhaps that teacher was right to talk about it as a career option after all. There have been changes in attitude towards competitive gaming at government level, possibly because China has a chance to dominate the industry in sporting and commercial terms.
The Ministry of Culture has encouraged the growth of the sector by releasing favourable policies to lure investment.
But there remains a longstanding distrust of video games, which were banned for years as “digital heroin”. Even now, the authorities are wary about the impact of too much gaming on the country’s youth. Tencent’s share price took a beating in July last year after the People’s Daily ran commentaries comparing its Honour of Kings to a “poison” spreading across the country. “It’s a miracle how far China’s eSports industry has come in a country where video games and eSports have always been treated so unfairly,” surmises LeSports, a sports portal.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.