It's not a surprise that live-streaming services are quickly becoming the most accessible way to consume entertainment. According to Sandvine, streaming traffic now accounts for over 70% of North American downstream traffic in the peak evening hours on fixed access networks. And it's no wonder that startups like Meerkat and Periscope are gaining momentum and big tech giants are pursuing an opportunity to buy those companies. At least that's what happened to Periscope when it was acquired by Twitter (NYSE:TWTR) last year.
The gaming publisher Activision Blizzard (NASDAQ:ATVI) joined the live-streaming race this month when it bought Major League Gaming (MLG) for $46 million. MLG's main asset is a streaming broadcast technology platform MLG.tv. Over the years it made a big impact on the world of competitive gaming in North America and now, with the resources that Activision Blizzard has, it could challenge its main competitor Twitch for the status of No. 1 platform for eSports fans all around the world.
MLG was created in 2002 when the eSports industry wasn't as popular as it is today. It helped the company to slowly build its fan base and become the biggest competitive gaming organization in North America. Every year MLG organizes different tournaments in games like Dota 2, Starcraft 2, and Call of Duty: Advanced Warfare etc. According to their website, each month they reach over 20 million highly-engaged fans across the network through web, mobile, connected TVs and others. And this opens up a great opportunity for advertisers and big sponsors to promote their products and/or services via MLG's distribution channels.
As I wrote before, MLG has its own live-streaming platform MLG.tv. This is the most valuable asset of the company as it brings most of the profits to the organization in comparison with other services. The business model of the platform is simple. MLG gives the ability for famous professional teams or players in the world of competitive gaming to stream their content online. It helps them increase their popularity and promote their brand. And on the other hand, MLG attracts advertisers and sponsors to place their commercials/banners/ads inside those live streams. Thanks to the big user base, it can efficiently monetize the content and help advertisers maximize their reach.
The main competitor of MLG is another live-streaming platform Twitch.tv, which is owned by Twitch Interactive. Since its foundation in 2011, the platform quickly gained popularity among gamers and three years later was acquired by Amazon (NASDAQ:AMZN) for $970 million. According to SuperDataResearch, in 2014 Twitch claimed the largest revenue share in the video game content industry, taking 43% of the $3.8 billion market. It's also the second largest platform for video gaming content after YouTube.
With competition like that, it would've been hard for MLG to challenge Twitch's current position. But now, when Activision Blizzard is joining the race, it's possible for the company to earn its place under the sun. It's most likely that MLG will be a part of the publisher's newly created eSports division. With the resources that it has, I see three options for Activision Blizzard/MLG to take a chunk of the market from Twitch and dominate the space:
1. Create premium content
In his latest interview to New York Times, Activision Blizzard CEO Robert Kotick said the acquisition will help the company create the ESPN of video games. Unlike Twitch, that allows any user to live stream their gameplay, Mr. Kotick believes that there's an opportunity to build a bigger mainstream audience for eSports through more professionally produced events modeled on traditional athletic competitions. The premium content that Activision Blizzard will offer will be able to attract more interest from corporate sponsors and advertisers and have the advantage against user-generated-content networks.
2. Make a bet on its own products
Unlike its competitors, Activision Blizzard holds a number of popular IPs in its portfolio. Its Call of Duty franchise sold over 140 million units all around the world and its other titles are very popular among fans. According to Newzoo, 45% of eSports gamers in the US have played at least one of Blizzard's key franchises in the past three months.
The publisher can use this as leverage and live-stream different tournaments and championships of those games via MLG technology. And given the popularity of the titles, it can lure away Twitch users into its own ecosystem.
3. Establish a long-term partnership with different eSports organizations
As the industry continues to grow, there will be a number of other eSport organizations participating in this field. This will open up a great opportunity for Activision Blizzard to establish long-term partnerships with those organizations and win the contracts to live-stream their events via MLG.
There's also a high probability that one day eSports will be an Olympic discipline. It's already a second-level Olympic Sport in South Korea and given the enormous growth of the industry in the last few years the odds of going international are quite big. And if Activision Blizzard manages to win exclusive rights from the Olympic committee to stream their events online, surpassing Twitch will only be a matter of time.
Last year Activision Blizzard made a number of important business decisions to increase its presence in the competitive gaming field. They released their MOBA game Heroes of the Storm that could became one of the top 10 paying eSports titles of all time before its one-year anniversary, and created their own division devoted solely to the relatively new industry. The move to acquire a live-streaming service seems like a natural evolution for the company. Considering the resources that the publisher has, it could challenge Twitch and become the No. 1 platform for competitive gaming all around the world. And as the eSports arena becomes more professional and organized, Activision Blizzard will use everything it can to become the leader in this field.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.