After five grueling days of combat, it had all come down to this. With the score tied at two games apiece, Sweden’s team Alliance and the Ukraine’s team Na’Vi would battle one final time. It's the championship match of Valve Software’s annual tournament for the game Dota 2. At stake was first place and the lion’s share of a $2.8 million prize pool, the largest in the history of competitive video gaming.
The players massaged aching fingers and strategized with their teammates. Each team selected a group of five mythical heroes they used to try and destroy the enemy’s home base. For the first 40 minutes it was a close match, but then things took a dramatic turn.
Both teams abandoned their defensive positions and threw everything they had at their opponent’s fortifications. Na’Vi scored first blood, destroying one of Alliance’s main towers. But when they tried to teleport home, Alliance blocked their move. Suddenly Na’Vi was stranded in the middle of the field and Alliance was wreaking havoc inside their base.
The crowd roared its approval as the announcers tried to keep up with the action. “They’re in huge trouble. Alliance is outmaneuvering Na’Vi. KuroKy is down. KuroKy is dead! Admiral Bulldog hexes on Funn1k. Funn1k is going down as well. Oh my god they are doing it!” As Alliance went on to win the final game, more than 1 million people from around the globe watched the action unfold live.
After decades spent on the fringes, professional video gaming, know as eSports, is suddenly the industry darling. Big name developers like Activision Blizzard and Ubisoft are building games specifically for high-level competition. Blizzard created a yearlong tournament circuit that paid out millions in prize money. And Riot, creator of the most popular eSports title, League of Legends, has constructed professional studios on multiple continents where its top players can compete in front of a live audience. After selling out the 10,000 seat arena at the University of of Southern California in 2012, Riot is taking its tournament finals to the Staples Center this year.
"For a long time eSports was seen as a kind of niche sideshow by the gaming industry," says David Ting, head of online publishing at Blizzard. "That has totally changed."
At the center of this boom in eSports is Twitch, the streaming video service which has become the platform for every major tournament. "Right now they have a commanding lead over everyone else in terms of broadcasting competitive gaming," says Ting. Twitch has become so central to the market it’s being integrated directly into the software of new releases from Blizzard and in the hardware of the Xbox One and PlayStation 4. If these next-generation consoles sell as well as their predecessors, Twitch could soon be in more than half of all American living rooms.
"When it comes to the broadcast of big events, they have a stranglehold on the market," says Rod Breslau, senior eSports editor for Gamespot. "At this point folks just refer to them as the ESPN of eSports."
The growth in eSports is reflected in Twitch’s traffic numbers. In October of 2012, the company reported a little over 20 million monthly visitors. In August of this year, Twitch’s monthly traffic had more than doubled to 45 million. On the back of this growth, the company announced today that it had raised $20 million dollars in a funding round led by Thrive Capital. Participants include one of the video games industry's biggest players, Take-Two Interactive, the publisher behind titles like Grand Theft Auto and BioShock. The money will be used to grow Twitch's advertising sales team and build out its infrastructure for streaming live tournaments in Europe and Asia.
With a near monopoly on the market, Twitch has become the ESPN of live gaming
In part, the growing success of eSports has been the result of the technology coming of age. "I can remember the early days, back in the 1990s, when tournaments were recorded on VHS tape, then converted to digital files and uploaded to the web as tiny thumbnail videos," says Sundance DiGiovanni, co-founder and CEO of Major League Gaming. "It was a process that sometimes took days."
When live streaming arrived it was expensive and unreliable. "The people hosting the tournaments were paying a fortune to stream the matches live," recalls Breslau, who participated in competitive Quake matches for years. "But the video would always lag and just looked like shit."
The same was true for casual gamers looking to stream their games from home. "Even five or six years ago it was still a real pain in the ass to stream from home," says Breslau. "You needed an expensive capture card, complex software, and the dedication to spend many hours setting everything up."
Twitch has given tournament promoters the ability to cheaply and easily push live streams to millions of viewers with minimal lag. On the consumer side, it’s now possible for anyone with a PC to get in on the action. On average, more than 600,000 different players broadcast several millions hours of gameplay on Twitch each month. And the number of potential streamers is about to get much bigger. "With Twitch being integrated into the Xbox One and PlayStation 4, anyone, even with no technical sophistication, can be playing a game, and with the press of a button, be broadcasting their action live," says Breslau.
Technology is one part of eSports' recent boom, but shifting economics have also played a role. For decades, eSports leagues in the United States and Europe have come and gone, bankrupted by the lousy economics of running tournaments. In fact, it’s still not a great model. "Right now eSports, as a stand-alone business, is not a profitable or self-sustaining venture for anyone involved," says Blizzard’s David Ting.
So why are the industry’s biggest gaming studios pouring millions into promoting live events and international leagues? The answer involves a little history. During the 2000s, while eSports was largely still a hobby in the United States and Europe, a robust industry developed in Korea around the game StarCraft, with professional teams, players earning six- and seven-figure salaries, endorsements from major brands, and games broadcast on national television. The best players from around the world were eventually pulled into the orbit of Korea’s thriving scene.
"It was definitely a wake-up call to the big American game publishers," says Michael Pachter, a video game analyst with Wedbush Securities. "They saw that it had become a thriving spectator sport, that people were making money off it, and that it wasn’t them."
When StarCraft II debuted in 2010, it was embraced by a global community of rabid fans who had been playing its predecessor for more than a decade. Suddenly, eSports seemed like more than just a niche pastime for a few passionate players. It was a way to create and maintain a loyal fan base, a community that helped to advertise the game and drive major sales. "That was kind of the 'aha' moment," says Rod Breslau. "Major game developers now see eSports as a really lucrative way to market a title and extend the life of a franchise. Suddenly it’s the golden goose everyone is chasing."
While the economics of running tournaments have improved with new technology and bigger audiences, the independent leagues still can't thrive on their own. "The publishers are offsetting the costs for the leagues, because they depend on the leagues to maintain the community and grow the next generation of players, in the same way the NBA and NFL depend on the NCAA," explains Breslau.
With the support of the publishers, the industry has been exploding. In 2000, there was a little over $300,000 in prize money handed out on the eSports circuit. Last year prize money topped $10 million, and is on track to grow to more than $14 million in 2013. The over 1 million people who tuned in live to watch Valve’s recent tournament actually tops the average viewership for ESPN, which on a given day pulls in 750,000 concurrent viewers.
Twitch has an unusual creation myth. It actually began its life as one of many channels on Justin.TV, a startup founded in 2007 that initially consisted of a 24 / 7 live stream of founder Justin Kan’s daily life. From there Justin.TV expanded into a platform that allowed users to broadcast their own streams. Twitch, known then as Twitch.TV, was simply the channel dedicated to video gaming.
eSports are suddenly the golden goose everyone is chasing
By 2010, however, it was clear that Twitch was growing far faster than the rest of Justin.TV's channels, and in fact was beginning to rival its parent site in terms of size. So Emmett Shear, Justin.TV’s CTO and an avid StarCraft player, helped to spin Twitch off into a stand-alone company, keeping the basic concept of a broadcasting platform, but working to build out a feature set geared toward gamers.
This focus set Twitch apart from other streaming platforms. "The industry has largely adopted Twitch because they have the best infrastructure, features, and by far the biggest and most passionate community of gamers," says Kim Phan, the senior manager of eSports at Blizzard.
But while Twitch has a central role in the eSports ecosystem, its future is far from certain. There are a number of very large and well-funded competitors to Twitch eager to get into the market. Ustream, which has raised a total of $60 million dollars, is also integrated into the new PlayStation 4 and has created a gaming channel dedicated to streaming players. The 800-pound gorilla in the room is YouTube, of course, which has been expanding its live platform to a wider audience in recent months and begun to curate a gaming channel as well.
And while Twitch has forged major partnerships, not everyone thinks that can last. "A lot of times Twitch is compared to ESPN, and I think that’s fair," says Rick Heitzmann, a general partner at FirstMark Capital and investor in Riot, which develops the world’s most popular eSports title, League of Legends. "But if the major leagues could go back in time and see what ESPN would become, they would never have licensed them all their games." Right now, Twitch is the platform of choice for all the biggest developers to broadcast their tournaments, but Heitzmann isn’t convinced that will last. "What is to stop them from creating their own streaming technology and just cutting out the middleman?"
If Twitch were to lose its position as the number one portal for eSports, it has another, stranger business budding on its platform. Along with live competition, Twitch also hosts thousands of individual gamers who simply broadcast themselves playing casually at home. "It’s always weird when I try and explain to people what I do for a living," says Tim Mines, known as Spamfish on Twitch. "I sit around all day playing video games and talking rubbish and people pay to follow along."
The average user spends more than one and a half hours per day watching Twitch, and the company runs advertising against that audience. Mines is one of the more than 4,500 "partners" on Twitch, gamers who have built up a substantial following and can get a cut of the advertising revenue generated by their viewership. Fans can also "donate" directly to their favorite gamers in exchange for ad-free viewing and digital goodies. "It’s a bit surreal," says Mines. "I’ve quit my day job, I’m gaming eight hours a day, doing what I love, and making a living."
Will the audience for watching other people play video games really develop into a meaningful business to rival television? During the Sunday of Valve’s DOTA tournament, Twitch recorded 4.5 million unique viewers, each of whom watched an average of more than 2 hours.
"Right now eSports has a relatively small viewership, something along the lines of America’s Cup," says video game analyst Michael Pachter. "But if it keeps growing at this rate, it will be the size of NASCAR pretty soon, and while that’s still a niche audience, it’s definitely nothing to sneeze at."