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Will Fortnite’s foray into eSports add value to Epic Games?

In July 2019, 16 year-old Kyle “Bugha” Giersdorf turned up to a 24,000-seat stadium in New York, along with over 100 other finalists, to compete for the Fortnite World Cup. He returned home that day with the title of the best Fortnite player on the globe and $3 million, the biggest individual prize victory in competitive gaming history. As Epic Games ventures into this vast new territory, we take a look at its current monetization strategies for Fortnite, and how eSports can add further value to the brand. 

How does Fortnite make money?

Fortnite: Battle Royale is a free-to-play, third-person shooter game with over 250 million users. Released in 2017, it made a $3 billion profit in 2018, according to TechCrunch - not bad for a game that doesn't cost a dime to download. How did it achieve this incredible feat? The crucial revenue generator is The Battle Pass, which costs $10 for quarterly subscription, and gives users 'exclusive' access to the game's updates, like new character and map features. These have to be unlocked through in-game achievements, meaning the Battle Pass also drives retention and increases lifetime value. 

Microtransactions are another important revenue stream. V-bucks, the in-game currency (100 V-Bucks translates as roughly $1), does not let players purchase any performance-enhancing features, but rather aesthetics, like cosmetic skins and dances, and other game modes. Put simply, people are paying to make their characters look cool. 

These main revenue streams are underlined by a few important factors. First is the game’s social component: it is a fundamentally social experience that caters to groups of friends playing together. If your friends are buying the coolest cosmetics for their characters, you naturally don’t want to be left out or stuck with a lame aesthetic. Indeed, 72% of millennials cite their friends as the biggest influencer on their own shopping habits and purchase decisions, according to a 2017 study by eMarketer. The second factor underpinning Fortnite’s huge revenue is its cross-platform functionality, which makes it playable on all devices, from PC to mobile and console. This makes the game accessible and highly versatile, enabling it to maximize playing time, which increases LTV. Finally, gamers are incentivized to buy in-game accessories by their time-sensitive availability, with many items only available for a limited amount of time. Epic Games monetize from the FOMO (Fear of Missing Out) this generates. 

How does eSports make money?

Not resting on their laurels, in 2018 Epic Games made their lofty eSports ambitions clear, investing $100 million into a prize pool for its competitive gaming contests, and matching that in 2019. So, what is eSports all about? 

eSports is a broad term to describe competitive gaming, which is diverse world with different genres, games, and leagues. It’s fair to say it is having its moment: according to Newzoo, the global eSports audience surpassed 454 million in 2019, and by 2021 it’ll be a $1.7 billion industry

How can an industry in which people watch other people play video games be so valuable? The simplest way to understand it is by comparing it to traditional sports. Take the English Premier League: broadcasters Sky Sports and BT Sports pay billions for media rights to show live soccer games; the league is sponsored by Barclays; every team within it has lucrative sponsorship deals with brands (as do many players); and huge revenues are generated from weekly ticket sales and official merchandise. 

eSports monetizes in the same ways, and has the potential to surpass the audiences of traditional sports. Sponsorship revenue is already tipped to exceed $456 million in 2019, and, as it is a relatively new and untapped industry, there is tremendous potential for innovation. For Epic Games, entering eSports could open a whole new world of opportunities and help Fortnite strengthen its position as the world’s most popular video game.

How Epic can monetize from eSports 

The obvious way Epic can monetize is by signing significant sponsorship deals and selling media rights for its leagues and tournaments. Fortnite’s inaugural World Cup accumulated 14 million hours of watch time: the huge following offers big brands the opportunity to connect in an authentic way with an engaged demographic, especially during large-scale events with millions of concurrent viewers. Brands are already willing to shell out big money to access a captive TV audience, but eSports could push their budgets even further, as there is more potential for interaction and it's more accessible (millions could be live streaming an event on any device).

Further revenue streams will come from ticket and merchandise sales from live events. They could even build their own Fortnite-themed stadium to host tournaments, which sounds radical but is far from unfeasible. Returning to the soccer comparison, many teams have multi-million dollar sponsorship deals for stadium naming rights. For any big brand seeking to increase awareness among Fortnite’s audience, this would present an attractive opportunity. 

eSports - a marketing goldmine for Fornite? 

Rob Chiarini, director of eSports at Ubisoft, said in a recent discussion with VentureBeat: ‘as many eSports start up, they look at it going, hey, this is a marketing vehicle, a messaging vehicle, a community retention and engagement vehicle’. For Epic, it presents a valuable opportunity to achieve all these things. 

Ticket and merchandise sales will bring in money, but most exciting, from an innovation standpoint, will be the possibilities to drive audience engagement, for example creating rooms dedicated to immersive virtual reality experiences within the venues. Quite how this would look remains to be seen, but with the right execution, watching gamers compete will just be one part of a wider Fortnite experience. By strengthening the real-life community and creating a buzz from these events, Epic can maintain Fortnite’s hype and ensure long-term consistency for their current in-game monetization model.

Moreover, just like real life soccer players, the most popular gamers could be turned into celebrities, becoming vehicles for Fortnite to spread its name further into the mainstream. We already saw Fortnite star Ninja host rap giant Drake on his live Twitch stream in 2018; partnerships such as this can further popularize the game, and turn its top players into real, marketable individuals. The goal of all of this would be to maintain the game’s relevancy and popularity, which provides the backbone of any monetization strategy.

In terms of retention - ensuring the most popular Fortnite gamers continue playing, streaming, and competing - we might see Epic agreeing an increasing number of long-term contracts with players, especially with the rise of rival Battle Royale titles such as Apex Legends. The lucrative prizes are another method to lure the top gamers and streamers into the competitions, and to keep them coming back. 

Fortnite’s first Champion Series began on August 17th and entails five weeks of competitions, with trios of gamers competing together. At this early stage we can only speculate over Epic’s future strategies, but judging by the success of its first World Cup, and its statement of intent in the form of a $100 million prize budget, it is clear they are in the eSports space to stay. With Fortnite dominating viewership on live streaming platform Twitch, the foundations for a large, engaged eSports audience are there. Now it’s just a case of innovating and testing the waters to find the winning formulae. 

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