Mega Trend: Distributed Innovation
As anyone familiar with the explosive popularity of ‘Fortnite’ will attest, video game streaming is here to stay. Far from being a niche form of entertainment, the popularity and reach of streaming has grown rapidly over the past decade. According to ‘twitchtracker.com’, popular streaming platform ‘Twitch’ (a subsidiary of Amazon) has had average active viewers of 1+ million watching 46 billion minutes of streamed content per month in 2018. These figures are up 55% and 65%, respectively, on a year over year basis. Effectively tapping into this platform will enable gaming publishers (such as Activision Blizzard) to drive further engagement with their titles, monetize this incremental engagement, and support a variety of other critical activities spanning innovation, customer analytics, and marketing.
Activision Blizzard is an American video game company based in Santa Monica, CA with a market capitalization of $48 billion. The company’s audience reach is massive – in the 3rd quarter of 2018, the company had 345 million monthly active users that spent an average of 52 minutes per day in the company’s games. The company is highly focused on in its games’ presence on streaming platforms, mentioning in its 3Q’18 earnings release that it had “seven of the top 20 most viewed games on the industry’s largest streaming platform, including ‘Call of Duty: Black Ops 4′ where viewership continues to break franchise records”.
The company has many good reasons to be highly focused on how the streaming platforms are receiving their titles. The first and most obvious reason is purely economic – streaming amounts to free advertising and drives awareness among Activision Blizzard’s target market. This is further enhanced when companies grant streamers “early access” to upcoming titles in exchange for the streamer playing the game on their stream. Beyond being highly effective advertising, streamers can help to drive greater engagement and lower churn among the company’s customers. Streamers achieve this by adding commentary to their gameplay to teach newcomers how to improve their playstyle. In addition, many streamers are highly experimental in their play and turn the greater gaming community on to different ways to engage with the game (which reduces fatigue and burnout). Finally, streamers offer gaming companies the opportunity to track how the community is engaging with their titles. By analyzing the content of the most popular streamers of a given title, Activision Blizzard can key in on the gameplay “modes” that are driving the highest amount of engagement and use this knowledge to inform their development priorities.
While streaming platforms offer a wide array of benefits to gaming companies, the evolving monetization strategies of these platforms present challenges. The default sharing of economics entails a split of streaming subscription revenues and ad revenues with the streaming platform and streamers – the gaming publishers receive none of this revenue. Activision Blizzard has worked to address this disparity by entering into separate arrangements with the streaming platforms. This is possible because the company fully controls the eSports “leagues” for their games where “player versus player” competitions are especially popular. Streams of these infrequent competitions typically drive some of the highest volumes seen on streaming platforms such as Twitch. In the long-term, Activision Blizzard is expected to continue launching competitive eSports leagues to further capture a share of streaming monetization revenues.
Beyond the creation of additional eSports leagues, I would recommend that Activision Blizzard explore creative ways in the immediate-term to ensure they’re positioned to capture a meaningful share of monetization revenues in the long-term. One potential strategy is by signing a roster of streamers to partner with Activision Blizzard. These streamers could receive exclusive access to game “betas” and other experimental content as well as promotion through the company’s marketing channel in exchange for a share of their streaming revenues. In addition, Activision Blizzard should be extremely thoughtful about how they can make their titles that are currently in development as “streaming friendly” as possible. The fact is that some games are simply more enjoyable than others when it comes to watching them on a stream. This isn’t something that can be fixed after release (or even late in development) – it needs to be considered in the early stages of development.
Despite my recommendations above, I have one primary open question regarding the overall monetization opportunity. While I feel there are obvious moves that Activision Blizzard can make to incentivize streamers to partner with them, I’m curious as to whether there are opportunities to capture economics from the steaming platform side as well (e.g. Twitch). With that said, it is unclear to me what value gaming companies can offer streaming platforms to credibly demand a material amount of streaming revenues. I would welcome any feedback or thoughts on this topic.