Why MLG's Winter Arena Being PPV is the Best Thing to Happen So Far in 2012

Written by airety
Feb 14 2012, 7:00 AM EST

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I’m going to take an unpopular opinion here. I’m expecting some backlash.

I don’t care.

The decision that MLG made in pricing its Winter Arena event as a pay-per-view event is brilliant. I think it is necessary. I applaud the bravery of MLG in making this move and taking the risk for every tournament organizer and content producer out there. And this article is my attempt to convince you of the same.

In the past few weeks, we’ve learned from the horse’s mouth that no tournament is making any money. Those of us with some background in business have had this suspicion for some time. Anyone who has run an online event knows this. But it’s out in the open now.

This much is indisputable: if a profit cannot be made, this industry will collapse. We’re teetering on the edge right now.

In general, StarCraft II fans have been extremely spoiled in the past year:

  1. You’ve had access to more content than you can possibly consume, all of it with a free option.
  2. You have an incredible amount of say in what you get. You want better players? MLG flies in Koreans. You want bigger prize pools? IPL3 makes it happen. You want your favorite casters? Nobody bothers having an event without Day[9], Tastosis, or Bitterdam casting.
  3. A significant portion of you use AdBlock, depriving many events of any advertising revenue from streaming.

At the same time, the competitive StarCraft II fan base is incredibly loyal and passionate. They are extremely opinionated and will seemingly switch from praising to crushing a community personality every week, but overall the fan base is energized and is enthralled with competitive StarCraft II.

The Problem with Free Content

Here’s the big problem: the fan base is not growing fast enough. MLG, IEM, Dreamhack, IPL - they’ll all release press releases talking about how many stream views, uniques, concurrent viewers they had. Earth shattering numbers, they’ll say. Incredible growth, they’ll say.

It’s bullshit, and they know it. You say that because it gets attention from the right people, and because it’s the truth. But the reality of the matter is that the number of people watching tournaments hasn’t really increased much from early 2011 or even late 2010. Many were hoping for 300-500% growth. Depending on whose numbers you are looking at, the fan base grew somewhere between 20-50% last year.

That’s not enough. Mainstream advertisers are not rarely seen because we don’t provide the right demographics - you’ve likely heard hundreds of times that the 18-35 male demographic that eSports caters to is the hardest demographic to reach and demands a premium. That’s completely true. However, it is a hard sell to pitch your 150,000 viewers as a valuable commodity. It’s just not enough.

It’s like trying to sell one loaf of bread to a busy restaurant. They may see the bread and say, “Wow, this bread is great! Can you bring us fifty loaves every day? That’s what we need.”

“No,” you say. “I just have this one loaf.”

That’s the value proposition for eSports right now. We have a valuable product for advertisers, we just don’t have enough of it to even matter. Econ majors will look at this say, “Ah, classic supply/demand! With supply so limited, you’ll be able to charge an incredible premium!”

Business people will look at it and say, “Your supply is so limited you are meaningless. You are irrelevant.”

There’s still a chance to continue growing as a fan base. It’s going to take a lot of work from everyone in the community - fans need to get their friends interested, developers need to make their games more spectator friendly, tournaments need to work more with the gaming media and work to convert fans of one game to fans of multiple games, players and personalities need to put forth their best effort every day.

But the event production industry cannot wait for another 10 years of 20-50% growth. Nobody will be left.

Enter Alternative Revenue Models

In the aftermath of MLG’s announcement, two trains of thought came up in the community again and again:

“Assembly has to be celebrating, as a free to watch event they are going to have so many more viewers.” “The GSL just started looking a lot more valuable, you get so much more for the same price.”

You are right. Assembly, GSL, IPL, IEM - all of them are thrilled with MLG’s announcement. Some part of it is probably that a “competitor” may have shot itself in the foot a little bit. Most of it is because MLG has some balls.

The Winter Arena could be an incredible failure on the part of MLG. They could sell zero passes and broadcast an event to nobody. No matter how many passes they sell, they still have to fly out players, pay out prize money, pay for the production staff, streaming, etc.

It could also be a huge success. Let’s do a little math right now, assuming MLG Winter Arena was completely free to watch.

Average concurrent viewers: 100,000
Average CPM for an ad: $2
Number of commercials aired per hour: 8
Hours broadcasting: 30
Percentage of people using AdBlock: 0%

We take 100,000 / 1,000 to find there are 100 “M’s” in the CPM (Cost per Milla, or 1,000 impressions.)

We take 100 and multiple it by $2, which gives us $200 earned on average when a commercial airs. We have 8 commercials an hour, so that’s $1600 an hour. Now with 30 hours, that ends up at $48,000 in ad revenue.

This is an extremely high estimate of what could be earned, because it’s not reality. Reality is that a portion of those viewers will be from regions where you cannot fill an ad, so they don’t earn you any revenue. Reality is that 0% of people using AdBlock hasn’t been true since 1997. But let’s say it’s true.

So if they aired it for free, they would have $48,000 in revenue. At their price of $20 for a pass, they need to sell 2,400 passes to equal that revenue.

That basically means if more than 2.4% of the people that would have watched the event if it was free end up buying a pass, they generate more revenue. MLG is making a bet that this could happen.

But what about event sponsorships? They will still have them. Maybe they’ll get paid less for them, but you’ll still see that revenue. I consider that moot - plus if event sponsorships were so lucrative for tournaments, we wouldn’t be looking at MLG trying other revenue models.

If they succeed - they will prove that the market is willing to bear a premium for premium content.

If they fail - they will prove that the market is NOT willing to bear a premium for premium content, and tournaments can look to make a profit by other means.

What other means? Well, they can cut costs for one (scary for a fan, but would you rather have no tournaments at all, or not see Day[9] and 30 Koreans + Europeans at every North American event?)

How MLG’s Success Would NOT be the End of Free Content

There is a ridiculous amount of saturation in the market. Everyone that isn’t a major tournament is getting viewer numbers significantly less than the feel they deserve. Typically they are right.

On top of that, every tournament needs to have some sort of hook in order to draw viewers. You need a premium caster or a premium player. Occasionally you can pull one in without spending a large sum of money, but typically you need to have a significant prize pool or compensation package to bring one in. This goes back to StarCraft II fans being a bit spoiled in 2011 - if it isn’t Idra, Huk, WhiteRa, Destiny or a member of Team Liquid playing - you don’t watch. Unless there is a major caster involved, of course.

If some content producers go the premium or pay-per-view route, there will be less supply of free content available. This will mean more viewers for those free to watch events, which will mean more ad revenue, which will mean an opportunity to make a return on investment.

It will also expose viewers to a bigger variety of players and casters, something many in the scene think is necessary for the continued growth of competitive StarCraft II. If Idra only wants to play in large prize pool tournaments (that are more likely to be PPV) - great! The free to watch streams will expose you to the next Idra, or someone just as good as him who doesn’t have as much attention.

So, Should You Buy the Pass or Not?

My recommendation after all that - do whatever you want. If you think it’s worth $20 to you, buy it. If you don’t think it’s worth $20, don’t buy it. The beauty of this is that whether is succeeds or fails, it’s good for eSports. Obviously MLG would prefer that it succeeds, and teams are hoping people buy passes so more people see their players and sponsors, but the reality is that just answering the question “Will people pay a premium for premium content?” is going to be great.

Feel free to criticize how MLG has handled this. Feel free to support other events if you want.

But don’t think the model of 2011 is coming back. The eSports dollars are not infinite. Charity on the part of individual fans, investors, or sponsors cannot sustain this industry. We need to see if this works.

Written by: Alessandro "airety" Minnocci
WellPlayed Chief Marketing Officer.

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