Facebook Gets Its Game Face On

Jon Markman

Billionaires and technology behemoths see something in e-sports. Now Facebook (FB) is taking a harder look, too.

The Information recently reported that the social media giant has been in talks about streaming rights for Vainglory, a popular mobile e-sports title.

You can’t blame them. Consulting firm Deloitte forecasts e-sports will generate $500 million in sales in 2016 with more than 150 million viewers. That’s up from $400 million in 2015.

For those of you who have missed the rise of this phenomenon, e-sports have elevated video-gamers to the level of professional athletes.

These gamers are paid to play on teams that compete against each other in virtual competitions. Fans cheer them on in such popular video games as Overwatch, League of Legends, World of Warcraft, and Counter-Strike: Global Offensive.

In e-sports, teams compete against each other in popular video games such as World of Warcraft.

Back in May, Facebook hooked up with Major League Gaming, a subsidiary of Activision Blizzard (ATVI), to stream e-sports tournaments. Clearly, Facebook sees a new business opportunity that meshes well with its core strengths.

“E-sports is an exciting space and continues to be a growing priority for us,” said Dan Reed, the head of global sports partnerships at Facebook.

“With over 1.6 billion people on the platform and a growing suite of VOD and live-streaming products that partners can use to increase engagement, Facebook is uniquely positioned to help e-sports fans connect around exciting moments and great e-sports content.”

FB isn’t alone in recognizing the opportunity. In 2014, Amazon  (AMZN) entered a bidding war with Google (GOOGL) to buy the live-game streaming network Twitch for $970 million. Undaunted, Google immediately revamped YouTube Live. By 2015, it launched a stand-alone gaming network. A year later, Microsoft (MSFT) acquired the interactive, live-streaming site Beam.

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Billionaires Peter Gruber (Golden State Warriors) and Ted Leonis (Washington Wizards) partnered to buy Team Liquid, a renowned e-sport franchise. That followed the Philadelphia 76ers’  purchase and merger of two e-sports franchises Team Dignitas and Apex Gaming. The move makes the 76ers the first North American real-world professional sports team to own a virtual-world e-sports team.

What they all see are the undeniable trends. Viewers, especially younger people, are shunning traditional television viewership and spending more time online. When Amazon bought Twitch it accounted for 2% of all Internet traffic. Only Netflix (NFLX), Google and Apple (AAPL) were bigger. And it accomplished this incredible growth in just three years.

A big part of the growth was the result of the shift away from traditional large screens, like televisions, toward second and third screens, like laptops, tablets and smartphones.

Facebook lives on second and third screens. Facebook Live has already seen large scale adoption. It has the streaming technology in place and its social reach is without equal.

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When it comes to sports, this trend means more fans watching games on those second and third screens. While e-sports as a business now represents just a tiny fraction of European and NFL football, it is growing faster and attracting the type of viewer advertisers covet. Deloitte reports 75% are millennials 18-34 and 82% are male.

Facebook shares have lingered near record highs despite overall market weakness. Investors are looking for a double-digit increase in earnings in the next few quarters due in large part to momentum in mobile ad sales and engagement. Growth is not accidental. What keeps Facebook one step ahead of competitors is vision. It is constantly looking for the next thing that will keep users engaged. Right now, that is e-sports.

Best wishes,

Jon Markman

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