Can Existing Game and eSport Companies Survive?

I’m one of the few old media guys to jump into the gaming business.  Since the WME/IMG and Turner deal was announced to launch a new eSport league, many media pundits have reached out to me to get my take.

So what’s happening?

I do not know the details of the Turner deal, but I’m sure the thinking is to mainstream eSports, marry old & new media, and open the flow of new ad dollars into gaming.  TV gives eSports authority…general market credibility.  This is one of the first steps solidifying eSports as a true “sport” for advertisers.

eSports & games have reached an inflection point.   Game revenues are growing exponentially.  eSport audiences now offer more valuable key demographics than most TV shows and live sporting events.  Media companies are taking notice.

A gold rush has begun to acquire existing game businesses and/or carve out media real estate.  As Disney, Warner, FOX, and Comcast jump into eSports, the gaming sector is going to become an extension of their entertainment businesses.  Comparisons can be made to the early days of the cable biz (then its’ consolidation), and the rise of owning local production companies globally (think Fremantle, Shine/Endemol, Sony).

Most game companies are not prepared to protect their turf, and seem to lack management depth to compete on this new playing field.  They do not protect their IP, and have allowed third parties to use their IP for free effectively relinquishing control.  The thinking goes that this will generate more in-game revenues and/or help to market their games (“free publicity”) to reduce user acquisition costs.  However, this practice diminishes IP value, and brings up a Pandora’s box of legal issues for both parties.

Many of these independent eSports businesses – who use publishers’ IP and currently dominate game competitions -- do not own any valuable IP of their own other than the branding or trade-marking of their events.  This is not a sustainable long-term strategy.  Whoever owns or licenses the IP can produce eSport events.

I’ve discussed this point with several game and eSport biz players.  They believe that they have long-term relationships with game publishers and pro gamers, and nothing will get in the way of these bonds.  I’ve been on both sides of the media disruption equation.  I can tell you that loyalty and/or license fees/rights go only as far as the highest bid, or if a company feels they can reduce their costs, they take the work it in-house.

Does anyone remember when Rupert Murdoch’s nascent FOX network made a play for the NFL (1993), and snatched the rights from CBS?  Then CBS was naïve and arrogant.  They couldn’t imagine the NFL going with any other network, or someone overpaying for these sports rights. 

This FOX rights coup forever changed the face of televised sports.  It made FOX a stronger network competitor too when local TV stations switched network affiliations.  The NFL deal gave FOX prime programming to market and promote their shows to young demos, which help built the network to what it is today.  Murdoch was looking beyond whether the deal made sense.  He had a larger, strategic vision.  Overpaying for the NFL was a small price to pay to build a stronger network, and hurt his competition.

Talent is another issue.  Many pro gamers believe they are not paid fairly or offered enough perks.  This pervasive feeling goes beyond tournament pools.   Only a few gamers make big bucks, and the majority of the players barely scrape by.  Hollywood agencies are jumping in to represent gamers.  This will escalate costs, and forever change the way eSports operate. 

Tech companies like Amazon are going after the games and eSports businesses too.

Amazon’s acquisition of Twitch gives both companies strategic advantages in marketing, media, data, and shopping.  This deal gives Amazon the tools to seriously challenge Netflix’s domination.  Amazon now has the ability to reach gamers -- the prime demos for streamed content -- that Netflix cannot reach efficiently outside of their universe.   

Entertainment is at the intersection of media & technology.   eSport companies need to realize that they are in the entertainment business, and not the “games business.”  The only way for eSport companies to keep up – and control their destiny -- is to stay ahead strategically, fortify existing businesses…innovate and adapt...own IP.  Historically, maintaining the status quo has been proven to be a failed media strategy.

Once the big media companies understand the business, they slowly begin to pick off executive talent and over pay for rights.  Within a few years, the pioneering eSport companies will change ownership or be gone forever.

The free-to-play, online, and console game businesses are different than some of the challenges eSports companies face, but these distinct businesses spin off so much revenue that any media company would be interested in their cash flow. 

The Wall Street Journal recently reported (October 12, 2015) that Warner Bros.’ 11-year old game division is beating established publishers like Electronic Arts and Activision Blizzard (which Warners owns) at their own game, and for the first time, game revenues outpaced film revenues for the studio. 

On a personal note…in Hollywood, there are few to none independent producers left.  These dinosaurs began to die when the Financial Interest and Syndication (Fin-Syn) rules were abolished in 1993.  I was one of them.  The studios/networks/media companies now control all production.  All producers – and most content creators – work for hire.  

Fortunately, I created Grudge Match – the ABC show I’m working on bringing back as a free-to-play game and eventual eSport – just as the law changed.  I own all of the Grudge Match IP/trademark for TV, digital, and games.  However, Warner Bros. jumped in several years ago to register “Grudge Match” for film and produced a movie.  If I had protected my IP properly, Warner Bros. would have had to license the rights from me.   

The game of media consolidation has begun.  Fasten your seatbelts.  In the pioneering days of cable TV, Ted Turner – my former mentor – summed it up best, “Lead, Follow, or Get Out of the Way.”