Esports hype
Audience: I’m curious about the potential for esports. Is it overhyped, underhyped, or something else?
Pachter: Esports is going to be a giant phenomenon on the planet, but the value chain — who is going to make money off it? That’s way overhyped. Everybody wants to be the ESPN of esports. Activision has self-proclaimed that they are. What do they own? They own Overwatch and Call of Duty. Are those going to be around in 50 years? Will we be watching people play those in 50 years? Maybe.
But will we watch people actually play soccer in 50 years, the real game? 100 percent. Football? Unless it keeps causing brain damage, 100 percent. I don’t think there’s a game yet that has universal appeal, that’s easy to understand, that everyone wants to watch. I think there’s an amalgamation of games. A few million people want to watch each game, and when you add that all up it’s hundreds of millions of people.
Esports is largely like a bunch of sports like golf, the WNBA, tennis. They’re all interesting sports, but you probably don’t watch them all. You don’t watch golf if you’re not a golfer. You might watch tennis because it’s easy to understand. The WNBA, I’ve never watched a game. I’m not saying it’s a bad thing, I just don’t care. I barely follow men’s basketball.
ESPN is good because they have the World’s Strongest Man and college football and baseball. They don’t care if only one percent of the audience watches each sport. It’s always on. I don’t see how Activision, with two games, is ever going to dominate. Zero probability.
GamesBeat: We have Twitch Rivals now, where they switch the game out that’s being played. That’s interesting.
Pachter: Twitch is going to win. Sure. Twitch is the ESPN. They have the audience. The most fascinating thing to me about esports is that there are these celebrity casters, these guys who are truly great. They came out of nowhere. What were they doing before they were Twitch casters? Some of these guys are like TV announcers and they’re really polished, but some are just fun to watch. Ninja’s good because he’s fun. I love that there’s this whole fun new thing. Before you’re gonna be Bugha and win $3 million playing Fortnite, you have a better chance at being Ninja and making, God, $50 million.
Again, it’s a big phenomenon. But think of it as all sports, as opposed to individual games. There isn’t going to be a game for a very long time that’s as big as NFL football or international soccer for real people to watch. I can’t think of that game yet. I’m not going to watch people playing Candy Crush.
Ying: It gets interesting when there’s enough of an audience base where there’s people willing to secure the broadcast rights. If you look at real sports, that’s where they make all their money. It’s not about selling merchandise or tickets. It’s when ESPN or ABC is willing to pay millions of dollars for broadcast rights. That’s when it floods the ecosystem with money.
Right now we’re still pretty far away from that. All the valuations the teams are getting, and all these companies trying to sell themselves as part of the esports ecosystem, all of those values are inflated. They’re all banking that they’ll be able to survive until that point and they’ll be one of the leaders getting a slice of that pie.
Drexler: It’s been interesting to watch the Echo Fox spot in LCS and what happens with that.
GamesBeat: How much is that worth?
Drexler: Exactly. What is that valuation going to do to the rest of the spots?
GamesBeat: The Kotaku story on this subject was very interesting to read. Anybody who’s interested in esports should go check that out, about the overinflation of numbers that are being used to hype esports. Whether it’s true or not as far as being on the money about esports — there’s debate on the specifics — do you guys have any opinions about the numbers being thrown around?
The other thing that’s interesting about esports, though, is that this is what kids use in their debates with parents about addiction. “What do you mean I’m addicted to this game? Haven’t you seen Fortnite? I could win millions of dollars.”
Pachter: I work for a stock brokerage company. Our CEO called me and said, “Is there a chance we can get some of these esports millionaires to invest their money with us?” I said, “Man, where do you even get a list of esports millionaires?” So instantly I get this top 200 esports earners list, and of the top 200, eight were from the United States. I said, “We would be better off going after the WNBA.” I know there are more millionaires in the WNBA than there are in esports in the U.S. Then we should go after golf, because there’s at least 250 golfers making a million bucks a year.
It’s really not a big deal! And yet look at all these billionaires that buy Call of Duty teams and Overwatch League teams. It’s because Bobby Kotick is a billionaire and he’s got his club of billionaire boys that he gets together and he’s convinced them that they’re going to make more billions.
They’re trying. He really did position it like this is the NFL. You’re getting the Cleveland Browns in 1930 and 50 years later it’s gonna be worth $2 billion. Maybe? Or 50 years later Overwatch isn’t a thing. I just don’t understand — if you bought the Los Angeles team for any game Activision ever made in perpetuity, I could see that. That’s worth $60 million or whatever because Activision is going to be there in 50 years. But not Call of Duty. If EA ever got their act together and made Battlefield well every year, Call of Duty would get cut in half.
GamesBeat: I still think the kids have another winning argument here, which is–everybody knows that AI is going to wipe out so many jobs. Maybe a third of all jobs could be wiped out by AI. So why should I go to college and study computer science?
Pachter: Most of those jobs are truck drivers.
GamesBeat: Why don’t I play video games instead, get paid to play video games, and create a career that didn’t exist five or 10 years ago, like being a Twitch streamer or a YouTuber or an esports star? Why can’t I do that, and that’s my career?
Futter: There are two paths there. There’s the esports athlete. You have degradation of the human body that happens in esports, just like it does in physical sports. Your twitch reflexes are going to degrade. You hit 25, you’re getting run over by kids who are 10 years younger than you.
Pachter: Is there a DOTA player over 25?
Futter: I don’t think so.
GamesBeat: Okay, dad. So I’m going to win a million bucks and quit after five years to go to college and become a lawyer and work for the Overwatch teams. That’s my career path.
Futter: I would have that conversation. All right, show me your talent. The beautiful thing about esports is that — Fortnite had open qualifiers. Go ahead. Show me how you do. We’ll have another conversation about it.
The other path is I’m going to be a streamer. Okay, well, let’s talk realistically about what a streamer’s life is like. You think you get to sit back and play video games? No, you have to worry about building your community, managing your community. You have to eventually worry about having moderators you can trust, that you can turn the keys over to. You have to have a streaming schedule. You think it’s all fun and games, but it’s a job. It is an actual job. People get burnt out doing it.
Drexler: I have two boys, eight and 12. My 12-year-old is very much into Fortnite. He played Fortnite for quite a while, and then he watched streamers on Fortnite, and I let him watch and listen with headphones, because God knows what these guys are saying that my eight-year-old might hear. But he’s bored of it now. If he ever came to me and said, “Dad, I want to be a streamer,” I’d say all the things you just said, and then, “Go for it.” You’re becoming an entrepreneur, a marketer, a media creator. There’s a ton of great things in there. But if he asked me, “Can you help?” I’d say, “Well, you gotta do it. You have to want it badly enough.”
I have a personal story, because a good friend of mine, his son — this is five or six years ago — he said, “I don’t know what to do. My son wants to become a professional League of Legends player. A kid playing video games, are you kidding me?” I’m in the industry, so we talked about it. Long story short, the next time I saw him he said, “I’ve decided it’s gonna be okay. I’m going to let him do it.”
He went and became a League player. He was one of the best in the world for a while. They were paying him six figures, putting him up. Then they were hiring Korean players to kick him off the team because it was easier. It was just cutthroat mayhem. This poor kid is now in his 20s, and he’s trying to piece his life back together, because he didn’t know how to take that kind of pressure and intensity.
You throw five or more teenagers in a house together and they’ve never lived on their own before, never seen this kind of money before. They’re asked to play this game 14 hours a day, and if they’re not playing enough or not playing well enough, they’re out. It does some things to your head.
Futter: The other piece of that is, who is the adult in the room? Who helps these kids learn how to manage their money, learn how to do all these things? There are some great services out there that will teach people, “Hey, here’s the basics of setting up your streaming schedule.” Understanding, do you want to be a variety streamer? Do you have a specific game you want to do?
DeLaet: I look at this with my 15-year-old kid. I said, “Sure, we can set up a YouTube channel for you. You can stream on Twitch.” He did it, and the funny thing is, he had about 10 or 15 views for every stream he did on Fortnite. I posted a time-lapse video of our pool we had constructed last year, and that went viral. We had 250,000 views of this pool, and he’s getting 20 views on his game streams. I’m like, “Kid, this is going nowhere fast. Maybe you should stay in school.”
Futter: As parents, we know that the more you say “No, you can’t do it” to a kid, the more they romanticize what it is. Go ahead. Give it a try. See how it goes. You’re still responsible for all your responsibilities around the house. You’re a member of this family. You have chores. Keep your room clean. Your job is to feed the dogs and take the recycling out. You have to keep doing it. And the second you stop doing those things that you’re supposed to do, you have failed to balance as anybody who has a job and a family and a life and other responsibilities needs to balance. Therefore something needs to go, and unfortunately this is the lowest priority. If you want to do it, show me you can take responsibility.
GamesBeat: Dad, I’m thinking about dropping out of college, because I’m getting really good at this game. It takes a lot of practice, and I’m not sure I really need school. Look, Bill Gates and Steve Jobs, they just dropped out of college.
Drexler: What esport did they play?
GamesBeat: But they were passionate about what they were doing, and that’s me too.
DeLaet: Tell him the same thing I tell my kid. Every choice you make in life, you gotta live with it. You’re getting to the point where you’re old enough to make these decisions, and you have to live with them. When you’re 25 and you’re thinking, “Hey, that decision I made when I was 18, where did shit go wrong?” Kid, you made that decision and you have to live with it. I can only guide you so much.
Drexler: Also, Facebook Memories will help you understand where you went wrong.
Game store wars
Audience: What do we think about new store platforms coming in? 30 percent has been the standard for a long time, but Epic and others are trying to change that.
Pachter: We don’t care about Epic. You do not care about Epic. You care about Google Stadia and you care about Amazon, which is coming in and they’ll be there the day the consoles launch. You care about Bobby Kotick, who is the only person who matters, okay? Bobby is the only person in this whole discussion who matters. Strauss Zelnick feels the same way, the president of Take-Two. But Bobby is on record. He says, “I’m playing them against each other.”
Strauss was president of 20th Century Fox 30 years ago. Strauss gets windows. Movies have windows, as you know. Movie theater first, then it’s on video rental, then pay-per-view, then streaming video on demand, then free TV. There’s all these windows. Bobby is going to say to Google, “You want our game? You want the same day as the console guys? 20 percent.” Google’s gonna say yes. Amazon will say, “We don’t want Google to have it. We want it for ourselves.” Bobby will say, “10 percent.” Amazon will say yes.
Then Bobby goes to Sony and Microsoft and says, “I’m giving it to them for 10. Why do you get 30? I don’t get that.” Sony will say, “Fuck off, 30 percent.” Bobby will say, “Okay, Amazon gets an exclusive window for three months. Amazon, will you take five percent?” This is an auction. This is a fucking auction.
GamesBeat: Then the anti-trust regulator will come in.
Pachter: No they won’t. No they won’t.
GamesBeat: They’ll say Amazon and Google can’t offer….
Pachter: No, no, no. Sorry, dude. You have it completely backward. Anything that lowers the take, that’s competitive. Bobby’s going to make these….
GamesBeat: It’s dumping. You lower the prices until they leave the market, and then you raise the prices.
Pachter: Yeah, yeah. And Google and Microsoft are going to leave the market, because they’re almost out of money. No, sorry dude. You’re completely wrong. That won’t happen. The console rates are going to drop to 15 percent. They’re going to get there. Everyone’s going to reach that accommodation and they’re going to be 15 percent.
Mobile is harder, because it is duopoly. It’s iOS and Android. There is no real pressure for those guys. You’re seeing Netflix work around it. Spotify works around it. They can somehow deliver it to you over the web and it works with your phone. I’m waiting — if Apple tries to stop them from doing that, that’s anti-trust. That’s going to take more years. But it’s a great question. You heard it here first. 15 percent by 2025. It’s going to take a while before anybody cares about Stadia or Amazon.
GamesBeat: Epic is already at 12 percent, right?
Pachter: That’s Epic. What can Epic deliver to? A PC?
Futter: It’s platform versus storefront. It’s a platform conversation versus a storefront conversation. This is where we get into trouble with consumers, who are like, “Epic is anti-consumer because they’re doing platform exclusives!” No. It’s a store. You load it up on the same PC that you load up your Steam games. They’re just giving developers more money.
In some cases you have indie developers who are coming in and saying, “Guess what? We had an uncertain future because we weren’t sure if your game was going to succeed. Now we have a minimum guarantee from Epic. I can guarantee that we’ll more than break even. We’ll be able to make game two.”
Pachter: Try to find Converse Chuck Taylors or Jack Purcell tennis shoes on Amazon. They don’t exist. Never have and never will. Why? Nike owns both. Nike gets full price at Foot Locker. The store is cutting Nike a break, a better take for Nike, more dollars to Nike, to keep them off Amazon. Is that anti-competitive? Absolutely. Is that bad for the consumer? 100 percent. But Amazon can’t get them. When the Wii came out, you could not find a Wii on Amazon.
Futter: That’s the big holdout, the consoles. It’s Nintendo and Sony and Microsoft. I don’t know where Nintendo is going. They don’t have to do anything right now. Switch is doing well.
Pachter: They don’t have any games other than their own.
Futter: Okay, I don’t know if that’s true.
Pachter: They’re getting Overwatch. Did you see that leak?
Futter: I did see that leak. That was interesting. I’m not sure if they’re getting Overwatch or if they’re getting Smash characters in Overwatch, or the other way around. Maybe that’s where it’s coming from.
But I think you’re right. I think we’re going to see pressure against Sony and Microsoft, especially as we start blurring the lines between what it means to have a living room console — that line between PC and console is starting to blur with Stadia and any other streaming platform that comes in. Especially as Microsoft pushes toward xCloud. Now you have a console — they’ve created their whole ecosystem where they’re less focused on their hardware, which does expose them to the conversation about platform fees.
This whole thing, there’s a lot of moving pieces here. As we enter the new console generation and streaming becomes a bigger deal with new entrants to the market, everything is being disrupted right now, and it’s super cool.
Pachter: Can I make one more bold prediction? This is something nobody’s calling. I actually think the winner of all of the streaming wars is Sony. People are ruling them out, but Sony comprises PlayStation Plus. Sony right now has 40 million people paying them five bucks a month. It’s 200 million bucks a month of essentially pure profit. If you take that audience and make it 300 million, 400 million people streaming, what does Sony care about royalties on games? They’re perfectly happy if they have 300 million people paying them five bucks a month to play multiplayer.
There’s a reason they bought OnLive and Gaikai. They have the technology just like everybody else does, and they have consoles, and they have a shit-ton more exclusive content than any of these other clowns who think they’re getting into this business.
GamesBeat: Are developers still happy with their share of Sony’s money?
Pachter: I never met a developer who was happy about anything, ever. They’re bitter, nasty little people. [laughs]
Futter: It’s a perspective thing. Oh, I’m giving Steam 30 percent, just so I can be on their storefront. The value of that, the perceived value of that, has changed over time as discoverability has gotten more challenging, which is why you see Valve responding with new ways to address discoverability. They’re playing around and seeing what sticks.
The big conversation that Epic is focused on, the 88/12 — they’re trying to lean away from the stuff like not having universal cloud saves yet. That’s an issue. They’re not offering the same currency options. That’s also an issue. There’s a variety of things that EGS doesn’t do yet. There’s a lot of noise whenever there’s an EGS exclusive announced. “Oh, no, it’s anti-competitive!” But they’re focusing on the wrong thing.
There are some people — I don’t want to dismiss the fact that there are members of the community who say, “Here are the five features that I use on Steam that aren’t on EGS yet, which is why I’m not really happy about these deals.” I think Epic has a lot of work to do in order to catch up on its infrastructure before we can really have that conversation about — there’s no parity in the conversation right now. They will catch up.
But this was something that came up at GDC where I went to the Steam business update. They said, “Here are all the things you get.” They didn’t come out and say “…that Epic isn’t doing for you.” But they have anti-cheat and anti-piracy stuff that goes across the board. They have hosting for a variety of things. They have the Steam Workshop. The biggest one was, “We moved into a market where people don’t like to use plastic. They want to buy with cash. They want to go to a store and buy a code and come home. These are things that simply aren’t available yet on other platforms.” The reason Epic is pushing the 88/12 conversation is because that’s where it’s succeeding, with the understanding that it has a lot of work to do to catch up.
Drexler: On that point, though, would you expect Epic to go back to 70/30 once they catch up?
Futter: No, I don’t think they would go back to 70/30. I think that they’ve reframed the conversation. It would be really challenging for them, although anything is possible.
Pachter: I think 12’s the number forever.
Futter: Yeah, I think that’s the number. They’re looking to push people in that direction because it gives them a competitive advantage. They know that there are other platforms, Steam included — for instance, Steam cards. You go to the store and buy a $50 game card. Steam eats the cost, which is somewhere between five and 10 percent, of putting those cards into the market. They just absorb that. Then that money is spent on purchasing games and it goes to the developer.
That’s a harder thing for people to intellectualize and internalize. “Part of my 30 percent comes back to me from everyone who purchases games with Steam cards.” I think Epic has, wisely for them, simplified the conversation so much that there’s a lot being lost.
Final predictions
GamesBeat: What’s going to be the biggest piece of news by the end of 2020? Biggest piece of news in the game industry.
Pachter: I was actually serious. I think the Intellivision Amico is going to shock people. I mean that sincerely. I know Tommy’s here. If you haven’t played it yet, it’s really fun. I mean, I got a private thing. It’s really fun. I think people are way underestimating Tommy. I think it’s going to shock people, how good it is.
Futter: Just as there was resistance to digital distribution, we’re going to see resistance to subscription gaming completely fade away. We’re going to see that people are starting to loosen their grip on the need to own their media. Ownership of media, even in a digital distribution context — when we reach parity with digital distribution, it doesn’t mean what it does now to have a physical copy of a game in your hand. People are going to further embrace the idea of a subscription model, as long as the content stays substantive in the way that Microsoft, especially, is setting the pace.
DeLaet: Apple Arcade is going to be a big platform in general. People aren’t thinking about it a lot, but I think that’s going to be the Netflix of gaming.
Ying: Because we deal with a lot of investment and M&A, one thing we’re starting to see is a lot of investment into China and M&A in China between studios there that are developing content for overseas games. In the last couple of years we’ve seen a lot of Asian companies acquiring and investing in western devs. Now we’re going to start to see more and more of the reverse.
Drexler: For me it’s social gaming. One of the last panels talked about community gamers and how they spend more, spend more time. They’re really driven by wanting to play with their friends and family, people they know, whether they have a history of being gamers, hardcore gamers. We’re democratizing gaming now. In the same way that social games on Facebook exploded, we’re now at a point in mobile and other cross-platform opportunities where that’s coming back to the fore. It’s not just asking somebody to milk your cow or mow your field or collect your fruit, but actually meaningful activities together, playing multiplayer together, with brands and experience that they love.
Disclosure: The organizers of GameDaily Connect paid my way to Anaheim. Our coverage remains objective.