Professional video gaming has been a thing for awhile, even if only on the fringe, but it’s working its way toward the center. Video game publishers like Activision Blizzard, Inc. (NASDAQ:ATVI) and Tencent Holdings Ltd (OTCMKTS:TCTZF) see the growth of ‘eSports’ as an opportunity to… well, that’s a good question. Tencent and Activision stock holders aren’t exactly how, or how much, being featured at a video game tournament actually builds business.
That’s going to change this year though, at least for Activision Blizzard. It recently announced it had hired Nielsen Holdings PLC (NYSE:NLSN) (the same Nielsen that tracks viewership of television shows) to track how much benefit company-sponsored eSports events are creating.
It could be a make or break decision for the video game maker, at least on this particular front.
eSports Is Big Business
The NFL’s Tom Brady is part of the company’s stable of superstar spokespeople, and the company’s name is slapped generously all over Notre Dame’s football stadium. Under Armour even sells a line of shoes co-labeled with the name of NBA standout Stephen Curry.
These and other deals simply weren’t enough to keep the company’s growth engine chugging along, though, with revenue stagnating over the course of the past twelve months as years of ill-advised spending finally caught up with the company’s bottom line.
Moral of the story? Just because consumers see your name and logo doesn’t inherently mean they’re going to rush out and buy your product.
It’s the basis of a question the people involved in the eSports industry have been asking themselves as the size of the crowds it draws soars: Is this really a revenue-building tool, let alone a profitable venture? If the answer is yes, then just how much investment is the business worth?
Some hand-picked statistics are certainly head-turning. For instance, in 2016, more people watched a League of Legends tournament than they did the final game of the NBA’s tournament that year.
The business is on pace to reach 300 million fans by 2019, most of whom will watch events online, but many of whom will, and this isn’t a misprint, buy a ticket to watch the world’s top players of any given game in an actual arena.
Activision Stock: Quantifying the Abstract
And there’s the rub. This is still a highly-fragmented business (each game is its own ‘league’), and a business that video game publishers aren’t terribly familiar with. There’s not a lot of money to be made in events per se, but there is money to be made if-and-when you can inspire purchases, or at least loyalty, with gaming tournaments.
It’s just not clear how much fiscal opportunity there really is, and where it ultimately comes from. That’s about to change though, with the pace being set by Activision.
Pete Vlastelica, CEO of Activision Blizzard Esports, explained:
“As esports continues to mature and reach its potential as a stand-alone business, we’re determined to lead the way and develop best practices for brands and advertisers.”
It was Brandon Snow, Activision Blizzard’s senior VP and Chief Revenue Officer of eSports leagues, however, that may have better explained why this seemingly small move is such a big deal for Activision stock.
Rather than not being able to quantify the benefit of being involved in eSports, Snow comments “we will have the data and we can now measure the value for you and show you. It’s no longer this gray unknown box that people perceive esports as being.”
As you might intuitively suspect, the real revenue generated by eSports might be the purchase of the games that fan-favorites are playing, and the purchase of the gear they’re using.
Celebrity endorsements akin to those employed by the likes of the aforementioned Under Armour and Nike Inc (NYSE:NKE) may not be too far down the road, if Nielsen can provide data that shows the benefit of such an investment.
Is Activision Stock a Good Buy?
So is Activision stock a good buy now that it’s going to start quantifying the benefit of its role in the eSports movement? It was already a good buy, with or without Nielsen’s involvement. But yes, this data will provide the much-needed metrics Activision and its partners need to justify more investment in these events… presuming the data is encouraging.
And it likely will be. If anything, the market is likely underestimating how powerful the marketing messages being delivered by eSports events and the professional game-playing industry in general have been and will be in the future. That’s going to make an already-good company even better here as eSports becomes mainstream entertainment.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.