Pay-Per-View in Esports: The Monetization Solution to Esports Winter?

Izento 2023-05-09 04:14:03
  Esports has now officially hit the decline, after several years of astronomical growth, the industry has now been forced to recorrect. From laying off all staff at The Guard, an organization that had teams in Valorant and the Overwatch League, to Counter Logic Gaming being acquired by legacy esports brand NRG, with CLG being a founding member of the League of Legends LCS and NRG being a popular Rocket League and Valorant organization, with past ties in LoL and CSGO. Evil Geniuses have lost several sponsors for their brand, and TSM, almost synonymous with the game League of Legends, is now scaling back their operations and fielding a budget roster for their flagship game. As it has been coined previously, esports winter is upon us and teams are concerned that with a looming recession in the United States, sponsors are scaling back their marketing budget, which accounts for the majority of esports teams’ revenue. There has been one solution that has been suggested –and with much hatred fans have spoken out against it– which is pay-per-view (PPV). Popular esports caster Erik “DoA” Lonnquist has expressed that esports should move to a PPV model. Much to the chagrin of several fans, they expressed their distaste for suggesting that the audience would need to pay out-of-pocket to watch their favorite players and teams. Let’s discuss what that would look like. PPV has been cited as the one last bastion for esports to be saved from its monetary woes. Fans have cited that many cannot afford a PPV model, given that the esports audience are from a very young demographic, a group that has low disposable income. Even though many fans confuse the difference between players of the game and viewers of the esport, it is tough to argue that esports events wouldn’t see a substantial dip in viewership numbers, but with shrinking sponsorship budgets it may be time to crunch the numbers and see if a PPV fee could supplement less viewers and dwindling sponsorship dollars. At the end of it all, esports is suffering a major market correction, maybe even signs of death throes. Fans suggest that PPV would kill esports, but forget to mention that the symptoms it is currently experiencing are of a slow terminal cancer. Instituting PPV would allow another avenue to monetize a viewer base in a space that suffers from diversified revenue streams. With viewers clearly not worth much to sponsors, they might have more value as a paid viewer, even if that means losing a large portion of that viewer base due to a paywall. But how did we get to the point where PPV is seemingly our last resort? For that, we have to look at Activision Blizzard and Riot Games. The Overwatch League (OWL) was supposed to be the mainstream legitimacy that esports so desperately desires (even though still to this day the mainstream doesn’t understand it). With a franchise system that had teams claim a city (mostly US-based cities) to represent, and then battle it out in a tour-based system, with each home team creating their own stadium to host league games, this was thought of as “too big to fail”. The OWL had lost all of its sponsors as it headed into 2023, with big names such as Coca Cola, T-Mobile, and State Farm disappearing, in part because of the sexual harassment claims in recent news, but surely the OWL selling a false bill of goods didn’t help their track record either, as they struck a broadcast streaming rights deal with monopoly streaming platform Twitch for $90M; a deal that was supposed to help Twitch secure a better portfolio to pitch towards advertisers for more ad revenue dollars. Even former Twitch executive and esports broadcast pioneer djWheat explained that the deal “was not going to fucking work”. This of course did not work, and didn’t do the esports industry any favors and directly gave a permanent black mark on the industry as a whole, removing any leverage esports could ever hope to attain over the monopolistic streaming platform. Riot Games’ various tournaments for League of Legends is the juggernaut of esports. Hosting tournaments in all corners of the world, their flagship tournament LCS was supposed to be the crown jewel that would create a sustainable league for American esports teams to generate revenue. The BAMTech broadcasting rights deal of 2016 was supposed to inject $300M into the coffers of LoL esports teams, but then became a bust as the deal never fully materialized. Riot Games has recently also lost several sponsors, including most notably the bankrupt FTX, Budlight, and State Farm. Esports tried to grow up too quickly, but some would say actors like Riot Games didn’t capitalize soon enough. The uproar over broadcast rights is important, because it’s cited as the only other potential major revenue stream besides sponsorships for esports teams (and tournament organizers such as ESL and BLAST in CSGO), but esports seems to fundamentally misunderstand the building blocks that lead up to broadcast rights and they quickly jump to examples such as the NFL. The NFL is what many esports publishers look towards as the scaffolding model for how to build a monetization system. The NFL sells broadcast rights to a television channel, and then that channel sells ad slots during the game. The plan was easy enough to see for esports; build esports up by offering the product for free and building up huge viewership numbers in the process to entice sponsors and get backing from traditional media. Then ink a broadcasting rights deal as you already have a proof-of-concept to show a broadcaster. Sounds simple enough, right? The problem for why it doesn’t work with esports is that you need a market that isn't a monopsony–a market with only one buyer– and one that is held almost solely by Twitch. Although industry folk like to hold esports publishers as the head of the pyramid scheme, none of it works without the streaming platforms. While there is the alternative of YouTube, esports is an even smaller drop in the bucket to such a gigantic company. Broadcast rights are simply a funneling mechanism to bundle viewership together to then sell to advertisers (which is also the same reason why esports teams hire streamers to boost their numbers). Because advertisers would like to do as little legwork as possible, they’d rather spend all their marketing budget in as few places as they can, all while getting the same engagement. Less work to gather all the data to then present to their bosses, and as an aside, most marketing teams are already on the lowest rung of the corporate ladder as it’s a hard expense to justify with direct conversion rates usually being impossible to track as advertisement ≠ product sold. Broadcast rights are just a glorified ad package deal. Esports isn’t at the level to leverage a broadcast rights deal, especially now to the likes of disenchanted Twitch executives that are beholden to Amazon executives. To use a martial arts analogy, the NFL is a black belt in the martial art of monetization and esports is trying to imitate it, but in reality esports should be learning from a purple belt. A black belt is so far removed from what it took to get to that stage, it no longer does things that if copied, would help someone gain the status of black belt. But what about copying something that literally does martial arts, the Ultimate Fighter Championship? The UFC runs on a PPV model, costing about $80 for an event. Just like esports, the UFC is still somewhat grassroots. The UFC might arguably command enough viewership to switch from a PPV model, but it did allow the sport to grow to the status that it enjoys today. This shining example is what many esports industry figureheads tout as a reason for esports to shift to PPV. While this might work for LoL with its league-based tournament structure, it would be far more difficult for a game like CSGO. The UFC can sell out a PPV because the fight might be against two legendary fighters, and a matchup that won't be repeated for several years to come. The same cannot be said for something like NaVi against Astralis, a matchup that will surely happen within a year's span of time. Not to mention because the only two notable tournament organizers being ESL and BLAST, those teams will surely face-off against each other in the competitor’s tournament, so paywalling with a PPV would be almost meaningless for whichever tournament organizer decides to do so, as fans would just watch the other tournament for free. The viewer base has been conditioned to want a free product, but that’s rather ironic given the current situation with a service like Twitter. It was announced in early 2023 that Twitter would start charging for the “blue checkmark”, often now seen as a status symbol of the digital age. Several high profile figures, including those in esports have detested the change, saying that unless it provided vastly more features, paying for Twitter Blue is for suckers. In some ways this is similar to fans refusing to chip in for PPV. Both products were free before, but where else can you get the same product that esports or Twitter provide? Certainly no one is going back to the ancient Facebook. Reddit is a poor substitute with its focus on the mass audience rather than an individual voice. Yet much like the sinking ship that is the debt-ridden company Twitter, esports industry folk do not see the parallels of their strange hypocrisy when shouting at the plebs about PPV. Aside from all of these debates, with the small space of esports veterans and fans bickering, game publishers are the reason PPV will never happen. The gold rush to create an esports title came around 2015, when Riot Games had proven that the model was lucrative and esports could serve as a money-generating marketing tool and extend the shelf life of a title. Games like Overwatch, PUBG and Rocket League looked to capitalize on the revitalized tech. The esport arm of a game publisher is supposed to both draw in fans initially with its tournaments and spectacles, creating media buzz, but more importantly it’s for player retention and marketing. Most esports require some barrier-of-entry of game knowledge, some being incredibly high like LoL or Overwatch, whereas a game like CSGO or Rocket League are easily understood at a glance, even if you don’t understand the nuances. This means an esport like LoL isn’t meant for non-LoL players, it’s meant for people who play the game, and an avenue to advertise in-game merchandise such as skins or emotes. Friction with PPV would ultimately impact in-game sales. As esports veteran Adam Apicella put it, without microtransactions being shared with esports tournament organizers and teams, they’re financially doomed. It is apparent to everyone in esports that the lion’s share of revenue is made from in-game sales, something which the game publishers are reluctant to share. This is the number one reason why a PPV model is likely to never happen, as it would require the game publisher’s permission and slow profits from in-game microtransactions, but that’s a rabbit hole too long to discuss here. To put it simply, PPV will never happen in-part because it already has, with a past example being On-Gamers Net (OGN), the Korean LoL tournament organizer that had a subscription model to watch Starcraft and LoL games in HD, and access to view past VODs. The OGN channel on Twitch had 25,000 subscribers in 2013 according to veteran esports caster Montecristo. This was eventually decommissioned by Riot Games because it paywalled their marketing exercise for their microtransactions. Secondly, because game publishers like Riot Games, Valve, and Activision Blizzard have squandered their head start in esports, they have let viewership dwindle and now must rely on co-streamers. Looking at games like Valorant, where a single co-streamer can sometimes get more viewership than the official Riot Games broadcast, they’re beholden to co-streamers in some regard. The incident in 2022 at the CSGO IEM Rio Major where the popular Brazilian streamer Gaules had more focus on his stream than the official one is just another example of co-streamers' value. With co-streamers pulling great numbers which help sustain several esports titles, it’s far too late to switch to a PPV model. In order for that to work, streamers would need to apply for a broadcast license, similar to what local bars do to play the NFL (with sound) or the UFC. Esports publishers would need to develop a pricing model for these licenses, something that would be difficult to price properly, given that co-streaming takes place digitally and not at a physical place like a restaurant or bar where there are limitations to the physical number of viewers one can fit in a single location. So while we all can talk about the hypotheticals of switching to PPV for esports, it will most likely never happen. Unless a game publisher can develop their own streaming platform, to then charge for PPV access and get streamers to join as well, this is all a pipedream. With such a tech-savvy audience, I’m sure esports fans would resort to pirating VODs, even if they come out a little later than the official broadcast. But just like how music and anime torrents died because users didn’t mind paying for a well-organized service like Apple Music or Crunchyroll, game publishers would need to build a very large infrastructure to properly monetize via PPV and prevent a pirating situation. The solution isn’t to “just” start a PPV model, because there are many roadblocks for that seemingly simple task. For now, I suggest you hunker down because this esports winter isn't just a cold snap.
Izento has been a writer for the LoL scene since Season 7, and has been playing the game since Season 1. He has played CS since 1.6, and DoTA since WC3. Follow him on Twitter at @ggIzento for more League content. Images from Riot Games, Activision Blizzard, and Getty Iamges For more LoL content, check out our LoL section

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