eSports Boom in China

The market for eSports and online games is rapidly growing in China, spurred by demand from consumers in the country's smaller cities. Later this year, the world’s first purpose-built eSports gaming stadium is set to open in China’s Chongqing municipality with space for up to 20,000 excited fans. The municipality's plan is to make the region a destination for eSports fans and target the growing revenue in online games and entertainment.

Spending by Chinese consumers on online games, online video and live streaming is on track to surge over the next three years, from $54 billion to $116 billion. Analysts say, “China online entertainment platforms are competing aggressively for traffic. We’re seeing strong demand across the board, but particularly in households in lower-tier cities where online games rank as their second most popular type of content accessed online.” As a consumer marketplace, China has attracted a lot of attention. As China's economy evolves, its 1.4 billion people have more money to spend on items beyond housing and necessities. Although Chinese consumers spent 3.49% of their disposable income on entertainment in 2017, that's still well below their consumer counterparts in Japan and South Korea, who spent 7.25% and 7.08% respectively suggesting robust growth prospects. Chinese consumers will boost their entertainment spending by 8% annually over the next decade, with online entertainment capturing a good portion. While the live streaming industry has increased by 100% annually over the past three years, the pace could slow due to increased competition, growing host maintenance and marketing expenses, and users shifting to other entertainment channels such as short-video platforms. The real opportunity, however, may rest in games.

eSports has transformed gaming into a professional sport replete with high-paid players, local teams and the chance to watch tournaments at an arena or streamed to a mobile device. This rise in eSports has helped invigorate interest for gaming broadly. Games now account for 56% of online entertainment revenue. Online games create an entire ecosystem—the streaming attracts more players, and those players spend money, which powers the demand for streaming—what the report calls a “virtuous cycle." While online entertainment has taken off across China, the country’s wealthy lower-tier cities could be the primary driver of the industry's growth. There may also be additional market growth in the coming years. About 25% of residents in lower tier cities still rely on offline entertainment, compared with 20% in the larger, top tier places. As penetration of Internet and mobile moves people from offline to online, entertainment spending may be the big winner.