How and why the eSports industry is growing

In this article originally published on VentureBeat, Azubu head Jason Katz writes about the changes in the role of eSports in the modern gaming industry. Katz also describes the terminology, features and prospects of the evolution of the eSports phenomenon. Azubu sponsored the publication of this article.

With the popularity of eSports skyrocketing, professional competitive gaming should soon become even more profitable for everyone involved. Its rapid growth is sparking many conversations about its potential and whether it will peak in the near future.

About a month ago, NewZoo, a company that specializes in gaming market research, predicted annual revenues for eSports would reach $765 million by 2018. NewZoo also said the eSports fan base should swell to 165 million by that time.

Colin Sebastian, managing director and senior equity research analyst at investment company Baird Capital, is equally optimistic. In October 2015, Sebastian said in a report that by 2020, eSports earnings should reach $1.8 billion.

"We believe eSports are about to go mainstream," he said. "By next year, its active participants will number over 200 million."

Sebastian added that game publishers are allocating "impressive resources" to the eSports infrastructure, and noted that within the last one-and-a-half years, eSports-related companies have received about $175 million in venture investments. Sebastian said this information "is not widely spread outside the gaming industry."

Indeed, eSports are growing remarkably fast, and this tempo of growth will likely increase within the next decade. Jason Katz, Azubu's COO, recently shed some light on why eSports are destined to become a powerful and stable segment of the gaming industry.

"One of the conditions needed to ensure the steady growth of eSports was the inclusion of publishers," said Katz. "Until recently, they were quite indifferent to eSports due to their business models: they simply sold their CDs and published new mass market games every year in the hopes of gaining a client base.

"But when the free-to-play model appeared, their focus shifted to the hardcore gamers who are so devoted to the games they follow, they'll make in-game purchases for months or years on end. They are the key fans and participants in eSports events. Therefore, large publishers like Riot, Valve, Activision and Blizzard reviewed their attitude to eSports and started to see them as a key component of a project's development."

Engaging publishers of that caliber that led to a dramatic increase in the financial and organizational support of eSports. For instance, Riot is creating and coordinating professional "League of Legends" leagues all over the world, and Valve arranges The International, the annual "DOTA 2" tournament, for which the prize purse totaled more than $18 million in 2015.

The increase in the number of eSports events has brought about positive changes for professional gamers. Like everyone else, players have to earn a living, which doesn't leave much time for practice. For this reason, some pro gamers leave eSports after graduating from school. But having a salary, winning hefty prizes and attracting sponsorships allows the best gamers to completely devote themselves to perfecting their skills – just like professional athletes and people in show business.

"Until recently, professional careers in gaming were very short; only a handful could provide for themselves for a somewhat longer period," says Katz. "High turnover rates kept fans and gamers from developing long-term relations, which is crucial for any emerging sport. Nowadays, more and more players are able to provide for themselves through games alone, which is helping eSports to achieve the kind of professionalism seen in the major athletic sports."

The structural growth to which Katz is referring includes the numerous managers, coaches, agents and lawyers that coordinate the eSports business, the various media that cover the events and tournaments, and the assortment of fantasy leagues and gambling sites. The appearance of the latter alone proves eSports are gaining popularity.

What's more, when cable networks like ESPN start following eSports events and covering its schedule changes, there's no room for doubt: professional competitive gaming has gone mainstream. And that's a significant victory for everyone interested in the development of eSports.