During a tough financial period for US companies caught in the crossfire of the trade war with China, digital gaming and esports have emerged as a source of success (and for some, trouble) for American entertainment companies in China. Hasbro has recently highlighted exceptional growth from its Magic: The Gathering card and video game, which has become a staple of the Chinese esports and gaming culture.
Hasbro’s recent Q3 financial results highlighted 20% growth in its Entertainment, Licencing and Digital business segment. Much of this success was attributed to growth driven by the Magic Franchise. With total esports forecast to witness a 21% growth in global revenues in 2019, and a 18% growth in audience reach this year, it is no surprise entertainment companies are seeking to leverage esports as an area of growth and an important means of business diversification.
Digital card games offer a significant opportunity, especially in China where the genre is most popular, and where Futuresource forecasts the greatest esports revenue and audience growth. Furthermore, whilst brands such as Hasbro have been household names in the west for some time, China is a more difficult market for western brands to penetrate, with younger Chinese generations difficult to reach.
In December 2018, Hasbro announced the esports tournament ‘Magic Pro League’ which would be played predominantly on Magic Arena, the latest video game platform from the franchise. This iteration of the digital platform has so far succeeded in gaining traction with gamers, whereas previous attempts to bring Magic: The Gathering into the digital world have failed to encapsulate gamers. When played with physical cards Magic is a dynamic game, frequently being updated with new card packs which diversify game play. Video game AI has previously failed to replicate the complexity of the game successfully, resulting in a lacklustre gameplay. Whilst playing against a virtual opponent limits gameplay, the game does lend itself well to adaption for esports, thanks to its established competitive structure and widespread fanbase estimated at 35 million gamers, up from around 20 million in 2015.
The promotion of a franchise through esports has achieved mixed results in the past. There have been attempts to break into the competitive landscape of esports, which have backfired due to a combination of factors. One key example is Take-Two Interactive’s EVOLVE, which suffered due to having a limited player base and therefore a limited audience, despite having many of characteristics that would suggest the title would succeed. Hasbro’s initial return on investment has been positive, with Magic: The Gathering meeting important prerequisites which suggest that the venture should continue to be well-received. Primarily, the company is benefitting from the diversity and established scale of the Magic target demographic. Magic Arena is also entering an unsaturated space, with Blizzard’s Hearthstone the only standout card game competitor. The 1v1 ‘tabletop’ spectator view also ensures that no action is missed, and spectators can experience the game as if they were sat at the table playing themselves. Viewership of MTG on the official YouTube and Twitch channels is reported to have doubled since the competition started earlier this year and purchases of both the tabletop game and downloads of the digital platform have increased and in fact mitigated the declining sales of some flagship physical products from the company.
A 10% tariff on toys manufactured in China (which makes up over 60% of Hasbro’s product range) will take effect in mid-December 2019 and this is expected to result in a decrease in US retailer demand for tabletop games, which will cost the consumer more at point of sale during the run up to Christmas. Uncertainty remains over future potential tariff increases, and whilst this is expected to cause further decline in US retailer demand for physical toys, digitally native products which are exempt from tariffs such as Magic Arena have been unaffected.
The number of gamers is increasing globally and toycos could benefit from entering an incredibly lucrative market, with gaming software spend in 2019 reaching $131 billion. The total addressable market of dedicated gaming devices is estimated at 409 million devices across consoles, handheld gaming devices and gaming PCs and this is expected to grow to 453 million devices worldwide by 2023. Tapping into this growing market will be important for companies looking to diversify from physical forms of entertainment, such as tabletop toys and games.
Futuresource’s recent Kids Tech consumer survey found that over 95% of children used a smartphone at least once a week and around 20% used a desktop PC or games console every day. 59% of children aged 3-16 used smartphones for gaming and 58% would watch people streaming content to websites such as YouTube. Of this 58%, watching game content or esports was ranked as the most popular choice when asked what the child’s favourite type of content was. The survey also highlighted that young gamers were more likely to both play games and watch others play games online than to do one or the other. Consumption habits amongst the traditional target audience for companies such as Hasbro is changing and as is evident, investment in adapting to meet these changes is paying dividends.
Whilst China is an incredibly lucrative market for many, international relations and differences in politics remain a hindrance. The continued threat of trade tariffs is creating uncertainty: with China a key target for any company looking for international expansion, the political climate is a significant consideration. Furthermore, esports and technology at large has become a contentious area, with Blizzard currently under fire following its treatment of a pro-democracy Hong Kong protestor and contestant in its Hearthstone league. However, the reward for those successful in developing a strong Chinese market proposition in gaming and esports is huge, and the market is difficult to ignore for any international gaming or entertainment company.
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