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Protocol Gaming
Your essential guide to the business of gaming with Seth Schiesel and Shakeel Hashim.

Esports are taking over the world

Esports are taking over the world

This week in Protocol Gaming, your weekly guide to the business of video games: The esports phenomenon, the sharp divide in game earnings last week, and five questions with the Among Us creators.

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The Big Story

Esports are taking over the world

When it comes to esports as a consistent global spectator business, there is League of Legends and then there's everything else. Last weekend, Tencent's Riot Games wrapped up what has become this year's dominant esports event: the LoL world championship in Shanghai. South Korea's DAMWON Gaming won, and the scale of the event was immense.

  • Over more than a month, Riot hosted 22 teams with about 230 personnel in Shanghai. More than 3.2 million people in China signed up for a lottery to attend the championship; 6,312 were allowed to attend in person. Riot's lottery system weeded out scalpers by requiring entrants to prove they were actual League of Legends players.
  • And there were zero reported coronavirus cases.
  • The finals attracted the second-largest viewership in esports history (behind only another LoL match from last year), according to preliminary data that excludes China. Chinese media said more than 50 million people in the country watched the finals Saturday.
  • Sponsors at various levels included Mercedes-Benz, Louis Vuitton, Mastercard, Spotify, Cisco, Bose, OPPO and Red Bull.
  • Riot plans to return the LoL championships to China next year, holding events in multiple cities before staging the tournament in the United States in 2022.
  • Meanwhile, television ratings for traditional sports are down sharply this year almost across the board.

"League of Legends is a cultural phenomenon in China," Tom Martell, Riot's director of operations for global esports, told Protocol on Monday. "It's our largest region in terms of fans and players. The passion they have for League just transcends in sheer scale what we see elsewhere."

  • Martell said the production was distributed by about 45 different services and networks globally in about 20 languages and that the company would not have full global viewership figures until later this month.

"There is no esport without a fantastic game, so it begins and ends with the quality of the game and its resonance with our fans globally," Martell said. "As an esport, the presence natively in all these regions is a huge part of this. We operate 12 professional leagues around the world that are supporting full-time professional ecosystems there."

  • "It's an aspirational path for gamers to say: 'Hey, I want to be a pro gamer. How can I do that?' And they can look at League of Legends and its sustained success and they go, 'This is something secure that I can participate in that's going to be here.' It's not going to vanish or be a flash in the pan."

- Seth Schiesel

Overheard

  • "The commercial reality is that if we kept our original release date, we would be fucked. We believe we'd lose at least half our players, almost all of our streamers, a chunk of our developers, and we honestly wouldn't blame them." — Grinding Gear Games CEO Chris Wilson delayed the next Path of Exile expansion to avoid Cyberpunk 2077's latest release date: Dec. 10.
  • "Now is a good time for me to step away." — Chris Lee will no longer lead the Halo Infinite project, which has been delayed to next year.
  • "I think Asia — outside of Japan — has huge potential for us. And Latin America has huge potential for us." — PlayStation CEO Jim Ryan said the PS5 could help continue the brand's global expansion.
  • "Our motivation is not to turn everybody into a subscriber." — Xbox's Phil Spencer said retail sales aren't going anywhere.
  • "I don't know that it portends some other big consolidation." — Bethesda director Todd Howard said the reaction to the Zenimax-Microsoft tie-up surprised him.

READ NOW

CCC

Today's online marketplaces gather millions of sellers, hundreds of millions of buyers, and generate billions of dollars in economic benefits. Specifically, the Connected Commerce Council (3C) research shows that the value marketplaces bring to small and medium-sized businesses exceeds $145 billion annually. Read more on why we should celebrate the benefits of digital tools and the businesses using them.

Read more here.

Level Two

Investors didn't like Ubisoft and Activision's earnings

There was a sharp divide in game earnings last week: While the outlook's good for console manufacturers, things are less peachy on the software side.

Both Sony and Microsoft's gaming divisions had pretty good quarters. While PS4 sales dropped, unsurprisingly, software and subscription revenue soared. An optimistic outlook for the PS5 — Sony's hoping to sell 7.6 million by the end of March — and the subscription and software sales that should entail also led Sony to raise its full-year operating income forecast by 13%.

  • It was a similar state of affairs for Xbox. Overall gaming revenue was up 22% year-on-year, driven by a 30% boost in gaming content and services. Both companies' results were a reminder that as game purchases shift toward digital, console manufacturers stand to win big.
  • Facebook, the newest entrant to the console wars, is also doing well: It said Oculus Quest 2 preorders were five times higher than the original Quest's, confirming Protocol reporting that the new VR headset is a huge hit.

But buried in Microsoft's release was one worrying number. While a 30% boost in content and services revenue is good, it's a far cry from the 65% growth it reported in the previous quarter. That's reflective of a broader trend: Gaming's COVID-accelerated growth is slowing down.

The situation isn't awful: Growth is still strong. But it does seem that the huge boom from earlier in the year is coming to an end, and we're approaching something more like normality again. In a market with consistently high expectations, normal often isn't good enough.

— Shakeel Hashim

Lootbox

  • Did you know there's an election today? Bobby Kotick is one of the few game executives who have donated heavily to Republican candidates and party organizations, as pointed out by Bloomberg's Jason Schreier. Phil Spencer, Strauss Zelnick, Robert Altman, Gabe Newell and Emmett Shear, meanwhile, have each donated to Democratic campaigns, according to OpenSecrets. Palmer Luckey is one of the few other notable Republican donors.
  • Krafton is preparing for a 2021 IPO. The PUBG creator said it's hired bankers to lead a listing that could reportedly raise $9 billion.
  • Scopely raised $340 million at a $3.3 billion valuation, with a bunch of big name institutional investors contributing to the round. In other fundraising news: Streamer-fan platform Shotcall raised $2.2 million, while game financing company Sugar raised just under $2 million.
  • $9.9 billion has been invested in games this year, a new record. More than half of that came from the $5.3 billion raised in Q3, driven by Epic Games' huge fundraise and Unity's IPO.
  • Genshin Impact made $245 million in its first month, Sensor Tower estimates. That made it the top grossing mobile game worldwide, with 67% of player spending coming from outside China. It's not the only giant Chinese game, either: Tencent said Honor of Kings reached 100 million daily active users.
  • Nintendo's continuing its cloud streaming push. Control and Hitman 3 will come to the Switch via the technology, powered by Ubitus.
  • EA was fined almost $12 million for violating the Netherlands' gambling laws with loot boxes.
  • Simon Woodroffe has left Rare. In other moves, Samantha Wallschlaeger is the new lead narrative designer at Hardsuit Labs.

Five questions for …

The Among Us team

Among Us, created by the three-person team at Innersloth (who prefer not to use last names), is the breakout hit game of the moment and perhaps the breakout hit entertainment franchise of the year.

What was your first gaming system?

Amy: I believe it was the Nintendo Gameboy Color via Pokémon Red, though I was playing educational computer games on PC and playing N64 games when visiting my friends.

Forest: PC. I grew up on hand-me-downs: Commodore and Tandy 386 and 486.

Marcus: N64. Mario Kart and Super Mario 64 were the first two games I owned.

What is the most important trend in the game business in 2020?

Amy: I'm not as well in-tuned with game business trends, but I feel like memes and drawing in different references and making it humorous has been more frequent and more successful from what I've seen!

Forest: Wholesome games that are also massive successes make me so excited for more wholesome games on the horizon.

Marcus: I don't know much about game business :\ Seems like F2P mobile is becoming a huge market.

What has been the most overlooked aspect or development in the game business over the last year?

Amy: The humans making and working [on] anything game related. Remembering these are normal ordinary human beings, not machines churning out whatever people want.

Forest: Not sure if this is overlooked, but with social distancing increasing the number of games people are playing, games also have more opportunities to help players through tough times, give deeper insight on tough topics, or just bring people together.

Marcus: I can't think of anything. I don't follow business that much. I just like making games.

What new technology or technical development are you most looking forward to?

Amy: I feel like this is a silly answer but games being cross-platform, people being able to play with their friends on any system. Also more accessible game design and related technologies.

Forest: Haha, Innersloth basically makes fancy Flash games, so I don't have many desires in tech … Ruffle.rs is going to be pretty handy though …

Marcus: I'm looking forward to VR getting more stable. I think there's a lot of cool things that could be done in VR that haven't been yet.

What games are you playing recently that don't come from your company?

Amy: Hades, Animal Crossing and hopefully someday [I have] some more free time so I can beat Death Stranding!

Forest: Hades or Genshin Impact when I have the time. Mini Metro when I don't.

Marcus: Overwatch and Sea of Thieves. Multiplayer games are fun. I've started Assassin's Creed Origins to get the single-player fix.

Look out for

Consoles, schmonsoles

PC gamers are focused this week on AMD releasing the new Zen 3 CPUs on Thursday that AMD CEO Lisa Su revealed last month to rapturous response. The new chips appear to outperform comparable Intel processors, which is a huge triumph for AMD after years of languishing in second place.

AMD last week also revealed its new "Big Navi" video cards, which appear comparable to Nvidia's new Ampere series.


- Seth Schiesel

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