• Denis Green

5 TRENDS SHAPING THE ESPORTS LANDSCAPE IN CHINA

China is the world’s largest esports market with revenue estimated to hit $385M in 2020. If you compare that to North America where revenue is on course for just $252.5M, it’s no secret that China is the future of esports. Herein lies opportunities for both global esports brands and traditional sports IP to leverage.


We’ve seen gaming grow as a dominant force with many Chinese favouring playing video games over traditional sport. Esports tournaments pack out arenas like Beyonce, whereas domestic and international sports have a hard time trying to sell tickets even in Tier One cities. China’s youth of today now dream of becoming the next UZI, rather than the next Lionel Messi.


So just how does a country that banned games consoles for 15 years in the early 2000s now generate more than one-quarter of game revenues worldwide? This Blog explores five unique insights from China’s esports landscape.


#1 The National Sport: Centrally promoted and encouraged


No country’s government has publicly backed the growth of esports more than China’s. The link between sport & the state is closer than the rest of the world, as China has implemented a centralised approach for elite development. The government is pushing esports growth domestically as a source of national pride, and unlike football or other popular consumer sports, China has a dominance within esports. The state is eager to capitalise on this and success so far as a medium to craft nationalism.


Chinese teams now regularly compete on the global stage, and win, claiming victory in competitions such as the League of Legends World Championship. This is in stark contrast to their failure in qualifying for the 2018 FIFA World Cup. This success is a proven way to demonstrate China’s soft power and international goodwill.


Despite restrictions in console sales in the early 2000s, along with online gaming curfews for minors and approval of new games, esports grew through new policies and wide-ranging investment. This was supported further after being officially deemed a profession by the Chinese Ministry of Education in 2016.


Esports towns & cities are popping up having been established by local authorities as they look to compete with each other, while mega-city Shanghai has genuine ambitions to become the esports capital of the world. Adding to this, Hainan launched a $150M development fund to transform the island through esports, and Hangzhou is putting together a 3.9M square foot esports complex.


China has called on its domestic tech giants, most notably Tencent and Alibaba, to further support and invest, with Tencent’s CEO committed to help Shanghai achieve its capital goals. And there’s been a big win for talent development as Chinese universities are launching new modules and majors in esports.


#2 Money Reaching New Areas


Sponsorship within esports is becoming increasingly developed, although there are still only a handful of teams that are generating profit on an annual basis in China. The entire esports ecosystem in China at the same time was valued at $13.6B, so where is the money being made?


The supply chain is broken into three levels and heavily lopsided. Level 1 includes game publishers like Tencent, Netease and Blizzard Activision. This level alone represents 89.2% of the whole esports industry of China’s esports revenue, including game revenue and income from the tournaments. They have complete control and leave little on the table for the next two levels.


Level 2 includes leagues, teams and livestream platforms, those consumer-facing brands that are building the sport on a daily basis. Their revenue, especially leagues and clubs, are predominantly split across broadcast rights and sponsorship deals with local and global brands.


Level 3 is peripheral areas that touch the sport, including the facilities, the merchandise, education and surrounding events. The first level of the supply chain is slowly becoming saturated, and there is recognition that for the industry to become more sustainable, the second and third levels will need to expand.


For overseas teams, there is significant interest from Chinese livestream platforms, especially Douyu, Bilibili and Huya, to invest in the highly valuable broadcast rights. The competition between these platforms to attract new users to their channels means that it is now the optimal moment to sell broadcast rights. Within the livestream platforms, there are further revenue opportunities including advertising revenue on broadcast content and also virtual gifts, a trend more advanced in China than the rest of the world.


Beyond this, brands through sponsorship in order to develop their reputation overseas and domestically, in particular if the team has a China connection or Chinese player.


#3 Uniquely linked to China’s culture & customs



If there’s a country fit for esports, then it’s China. The country now boasts a gaming population of over 500M with 26% of internet users watching esports monthly, that’s more than double the level in the US.


Predominantly a one-child nation with a reputation of gold medal athletes across individual sports, China was positioned as a leader when sports & gaming combined to create esports. Not only are the barriers to entry low, but the physical capabilities play a reduced role. China wants to develop esports as their national icon.


China’s digital revolution came early with the country seamlessly integrating the digital age better than most. Chinese children are born holding a mobile phone whilst it’s rare to see outdoor pitches filled with people playing traditional sports; they’re usually playing video games. The internet cafes also played a crucial role in the development of esports back in the 1990s and 2000s. Popular with younger audiences to escape from student life, these cafes became a digital bar of casual and competitive gaming, providing them with high speed connectivity and a sociable, safe environment. Now in a 5G era, the growth has accelerated across the country.


Esports is part of the social fabric for the Chinese youth. Being an esports player can be ‘cool’, socially accepted, and deemed a worthwhile job if you’re good enough.


#4 Driven by Tech Empires


Esports is government-backed and run by the domestic tech giants. This is predominantly led by Tencent, the leading global esports organisation, as well as a small number of organisations that control the landscape.


Tencent owns Riot Games, the maker of League of Legends, and Penguin Esports - the livestream platform - as well as holding investments in Epic Games, Activision Blizzard, Supercell, Ubisoft and many others. Similarly to their restructuring of the LEC and LCS tournaments, Tencent and Riot Games established a joint venture which manages the League of Legends Professional League in China, including tournament operations, ticket & talent management, and digital promotion.


Tencent’s revenue hit $15.2B, of which gaming was responsible for $5.26B. There was significant growth due to the impact from COVID-19, as well as investments in domestic games and Western esports properties. These all led to mobile games becoming Tencent’s largest single revenue generator.


Alibaba invested $150M in the International Esports Federation in 2016 to create the ‘Olympics of esports’. This is yet to profit though, with the business model already shifting after being announced as the world’s highest paying esports tournament in terms of prize money. Beyond Alibaba and Tencent, ByteDance has formed its own gaming business, and is looking to launch its own game store that will sit inside its existing apps and leverage its billions of users.


#5 Long-term Benefits from COVID-19


Most industries were hit hard financially during the pandemic, yet gaming fared slightly better. Q1 earnings from popular streaming platforms saw Douyu's total revenue reach $330 million - a year-on-year increase of 53%. Huya also achieved a notable increase reaching $340 million, an annual increase of 48%.


And it wasn’t just financials in the green, viewership spiked too. The Overwatch League (OWL) scored a record high in viewing performance since the establishment of the alliance in 2018 across platforms Bilibili, Huya, and Netease. Overall, OWL's average minute audience (AMA) in the 2020 season increased by 50% compared to the 2019 season.


January to April presented an ideal time to attract new gaming fans as live traditional sports abruptly stopped around the world. The return of the LPL Spring Tournament brought in new fans eager for any form of entertainment. Even the big government players backed the broadcasts with China Global Television Network (CGTN) airing the final of King Pro League (KPL) Spring Split, marking the first time that a Chinese government-operated platform has streamed an esports tournament since 2003.


It wasn’t all positive though as platforms came under fire for profiting from free online classes during lockdown. Huya and Douyu offered online education classes for free to younger generations while schools were closed across China. Both are facing pressure and criticism for video game ads being used in abundance in close proximity to those online classes.


Now is the time to invest


China consistently leads in the Olympics medal tally, it now has its sights set on the esports podium. The nation’s investment in the gaming industry and prioritisation of esports as a strategic area are concerted moves to stimulate the national economy and encourage innovative business practices. Most of this new revenue will come from sponsorships which will grow to $222M by the end of 2020. Meanwhile, a growing 65% of the general public agree that esports is a sport, as the penetration level amongst the general public has almost reached the same level as traditional sports.


2020 has proven to be an accelerant of existing trends, and amidst the global pandemic where digital connection is stronger than ever, esports in China will only continue to innovate and grow across all sectors. Broadcasters want to air it, platforms want to pay to own it, the youth want to study it, and the government will continue backing it.


Now is the time for global esports teams, leagues and organisations to invest into esports in China. For Western teams, they should be looking for Chinese talent to fill their rosters and create the connection. Global brands should be investing into esports to successfully target these young Chinese consumers. Whilst esports leagues and teams should target Chinese live streaming platforms as a new way to monetize their media rights.


This article originally featured in SportsPro


28 views

Global HQ, China 

1199 Middle Fuxing Road, Building A, 301, Shanghai 200025

+86 21 6445 9899

Info@mailmangroup.com

London

1st Floor, The Windsor Centre

15-29 Windsor Street, London

N1 8QG

+44 203 637 7447

Info@sevenleague.co.uk
Private Policy

APAC HQ
Singapore 

Mailman Pte. Ltd..

5 Shenton Way, UIC Building, #11-S1103 Singapore 068808


(+65) 90263042
Janna@mailmangroup.com

Los Angeles

Gideon Clark
 

+1 216 456 7782 

gideon@mailmangroup.com

Case Studies

Consulting

Agency

Regions

About

Careers

Red Cards

Blog

Contact 

Case Studies

Consulting

Agency

Regions

About

Careers

Red Cards

Blog

Contact 

Case Studies

Consulting

Agency

Regions

About

Careers

Red Cards

Blog

Contact 

Case Studies

Consulting

Agency

Regions

About

Careers

Red Cards

Blog

Contact 

  • Instagram - White Circle
  • Facebook - White Circle
  • LinkedIn - White Circle
  • Twitter - White Circle
  • WechatIMG12273
  • weibo-social-logo
  • Instagram - White Circle
  • LinkedIn - White Circle
  • Twitter - White Circle

© 2020 MAILMAN GROUP