This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
eSports is now global with a market estimated at $747 million in 2015 and expected to reach $1.9 billion by 2018. But how did it all start?
In the latest installment of Olswang on eSports, Daniel Jung of Olswang Asia looks at South Korea, the spiritual home of eSports.
The Early Days: From StarCraft I to PC Bang
South Korea has perhaps the strongest case to say it is the birthplace of eSports.
In the late 1990s, StarCraft I, a real time strategy computer game, was the breakthrough moment for gaming in Korea. At around that time, a number of PC Bang (Internet Cafés) began to appear across the country.
PC Bang proved to be a new social hub for young South Koreans, a place where people, especially young males, could play games with their friends. PC Bang acted as a kind of neighbourhood football field where players practise their skills and compete against each other.
Fast forward to the present day, and eSports has become a fan phenomenon in South Korea. From small competitions between amateur players, it has grown into multiple leagues for licensed pro-gamers, supported by millions of fans and broadcast and sponsorship revenues. Arguably, it has even surpassed real sports. FC Seoul, one of South Korea's most popular football teams, has an average attendance at its stadium of around 20,000. 40,000 fans recently packed out the same stadium to witness an eSports match.
So how did eSports make it so big in Korea? And what can other emerging eSports markets learn from its success??
1. An Infrastructure for eSports
For eSports to thrive, fast, widely-available and competitively-priced broadband internet are essential and South Korea leads the way.
South Korea is known for leading the international broadband speed rankings, with speeds about four times as fast as the global average. It also has amongst the highest levels of internet penetration in the world. The Government’s IT/digital friendly policies have helped establish highly developed internet infrastructure, whilst the highly competitive internet market has lowered its price. This in turn has helped Koreans access online computer games more easily.
2. Government Support
The level of Government support for eSports in South Korea is also a unique factor in its success.
The Korean E-Sports Association (KeSPA), a government related body, was established to promote and manage eSports. KeSPA is supported by the country’s Ministry of Culture, Sports and Tourism. Amongst other things, KeSPA licenses and regulates pro-gamers, eSports teams and content businesses in relation to eSports broadcasting. This support has advanced the eSports market to a different level because (like the governing bodies of other sports, such as the NBA and the IOC), KeSPA has enhanced the professional management of competitions, gamers and teams.
3. Tackling Perception
Critics of eSports point to the sedentary nature of the activity and issues such as gaming addiction.
The South Korean Government has tacked this head-on, developing regulations aimed at ensuring that eSports forms part of a balanced and healthy lifestyle. One of the first regulations was known as the “Cinderella Law” (also called the "Shutdown law"), which restricts children aged under 16 from accessing online games from 12am to 6am. As eSports becomes more mainstream, we expect other Governments to follow suit.
Korean brands quickly realised the commercial benefits associated with eSports, through sponsorship.
Big Korean brands such as Samsung, CJ, SK Telecom etc. are all actively involved in sponsoring players, coaches and leagues. Sponsorship dollars have attracted more players and fans into the sport and eSports-focused marketing activities by established brands have further fuelled fan interest.
5. Broadcasting and TV
During the StarCraft I era, the collaboration with the media industry (especially eSports TV channels) was one of the key success factors in the eSports industry in South Korea.
The growing number of fans and sponsorships was driven in no small part by eSports broadcasting via dedicated eSports television channels. More recently, this trend has shifted towards internet live streaming (OTT) services, which are becoming the main medium for Korean fans to watch eSports. Given the nature of eSports, we expect to see OTT become the main broadcasting medium for eSports in South Korea, although broadcast TV will also have a role to play in delivering eSports to the mass market.
Although eSports broadcasting in South Korea has been a success, there is also an important lesson about the relationship between eSports broadcasting and intellectual property rights. Unlike traditional sports, the intellectual property rights in games typically belong to the game developer. Prior to StarCraft II's release in early 2010, Blizzard Entertainment, developer of StarCraft, and KeSPA had a dispute over the broadcasting rights of StarCraft. At this point, KeSPA had been broadcasting StarCraft matches and leagues. Blizzard entered into an exclusive agreement with GOMTV (a Korean internet streaming service provider) to grant it the exclusive broadcasting rights for StarCraft II. KeSPA criticized Blizzard for signing an exclusive deal, which resulted in an IP lawsuit. The dispute was finally settled but as eSports broadcasting rights become more valuable, we expect to see more disputes over broadcasting rights.
6. Handling Integrity
Match-fixing and illegal betting have been a serious threat to the eSports market in South Korea. In 2010, 11 StarCraft pro-gamers were banned from KeSPA due to match fixing. This incident was a huge disappointment for eSports fans and threatened the integrity and reputation of the eSports.
Although KeSPA imposes a strong punishment on players involved in match fixing or illegal betting by banning them from the eSports market, these issues underline the importance of having a robust system and regulations on gambling in place. Like other traditional sports, the integrity of matches is crucial for the global eSports market to continue to grow.
7. Sports Gambling Regulation
In South Korea, there is only one legal sports gambling operator called “Sports Toto / Proto”, which is a Government monopoly business. Only a few traditional sports are available for betting via Sports Toto such as football, baseball, basketball, volleyball and golf, and eSports does not feature.
However, the illegal sports gambling market is somewhere in the region of USD 14 billion – USD 25 billion and betting on eSports via these operations is increasingly common. This serves to underline the growing interest and commercial opportunity of eSports betting – something that we are starting to see in other markets (and particularly those that have more open regulations on gambling).
Conclusions – from StartCraft I to eSports sensation
eSports has come a long way in South Korea, from StarCraft I to packed-out stadia and multi-million dollar sponsorship and broadcasting deals. South Korea undoubtedly leads the world in eSports – partly because it was first out of the starting blocks but also because of its broadband infrastructure, Government support and robust regulatory framework. But South Korea is perhaps most interesting because it offers a glimpse of the future of eSports in other markets. South Koreans now barely draw a distinction between eSports and traditional sports and eSports has, by some metrics (and particularly those concerning fan engagement), already surpassed traditional sports. Whilst the NBA, the Premier League and the IPL have little to fear at this point, the one big lesson from South Korea is that eSports is here to stay.