Professional esports are just getting started, Take-Two CEO says

Earlier this week at the Barclays Center, 74 men and 1 woman got the chance to live out a dream — they became professional competitive gamers.

The esports athletes were officially drafted for the second season of Take-Two’s NBA 2K League, the gaming giant’s esports league featuring their flagship NBA 2K sports video game franchise. Take-Two Interactive CEO Strauss Zelnick emphasized the excitement surrounding the league’s second season, highlighting the popularity and rising importance of the esports industry as a whole.

“The first season ended with a great result, and everyone’s looking forward to the April second tip-off,” he said Friday on CNBC’s “Fast Money.” “Over 250 million people worldwide consume esports as a form of entertainment. About half of them, 125 million, are avid esports watchers.”

According to research firm Newzoo, esports is projected to generate $1.1 billion in revenue in 2019, marking the first year the industry would reach the billion-dollar mark.

In many ways this year’s NBA 2K League embodies how quickly the space is growing. AT&T is joining the likes of Dell and Intel as a partner for the league, which has also expanded to 21 teams from the original 17 NBA franchise-owned teams that hit the virtual court during last year’s inaugural season.

This year’s draft pool also included 22 international players from outside of the U.S., reflecting the overall industry’s drive to expand globally. Among the players in the draft pool was Chiquita Evans from Chicago, who became the league’s first female player in a time when the esports industry as a whole is grappling with discussions around diversity and inclusion.

Ultimately, Zelnick believes that esports leagues like NBA 2K will boost the video game industry as a whole.

“We’re having a record year with NBA 2K, so one of the things we love is that when there’s more hits in the market, there are more people engaged and the entire market grows,” he said. “So we’re going to sell more units of NBA 2K this year than ever before, we’ll have higher recurrent consumer spending than ever before.”

But the biggest gaming companies are facing stiff competition. While Take-Two and Activision Blizzard have dove into esports, with Blizzard’s Overwatch League being the latter’s most recent investment in the space, they’re still facing the likes of other publishers who have dominated the industry.

For example, Tencent-owned Riot Games’ “League of Legends” events still draw huge numbers of viewers, with last year’s World Championship finals attracting nearly 100 million unique viewers who watched the match (for comparison, this year’s Super Bowl had 98 million viewers). This while Epic Games’ “Fortnite” also continues to dominate online viewership, both recreational and competitively.

Zelnick, however, believes that those same competitors, like “Fortnite,” lift the games industry as a whole.

“We think that ‘Fortnite’ is a great thing for the industry, it has probably brought in a somewhat younger consumer,” he explained. “I’m often asked if it’s something that has hurt us. To the contrary, we’ve seen the market continue to grow at the same time that ‘Fortnite’ has been an extraordinary hit for Epic.”

This despite the fact that some analysts believe game revenues could be set to decline. Back in January, London-based research firm owner Pelham Smithers forecast that video game revenue is headed for its first decline since 1995 on the back of tightening regulations in China, a shortage of big console hits in 2019 and waning player enthusiasm for battle royale titles like “Fortnite.”

But Smithers also made his predictions before the release of Electronic Arts’ “Apex Legends,” which took the gaming world by storm and garnered 50 million players in just one month. The battle royale title is yet another name in the free-to-play ecosystem that has revolutionized the gaming industry in the last few years, allowing users to download a game at no cost. In this case, the vast majority of revenue is made through in-game purchases and microtransactions, which have become dominant sources of earnings for many publishers.

This has led even the biggest publishers to explore in-game monetization. Zelnick notes that not only have microtransactions become the “biggest opportunity” to encourage users to continue interacting with a title, but it ultimately is the biggest measure of engagement.

“Microtransactions is spending, and that’s a reflection in our view of engagement,” he said, adding that they often are a result of “making the highest quality enttertainment” that “[engages] the customer.”

“If we get that right, monetization follows, revenues follow and profits follow, and that’s been our story for the 11 years that we’ve been responsible for this enterprise,” he added.

Additionally, the Chinese government has seemingly eased on their game approval regulations. After freezing game approvals for months last year in a content crackdown on gaming companies, Chinese regulators have since approved 80 new games in January and one more for gaming giant Tencent in late February.

Despite the games industry’s growth, Activision Blizzard and Take-Two Interactive have struggled with both stocks down 9 and 15 percent respective this year. Thanks to its “Apex Legends” sensation, Electronic Arts has outperformed its competitors and surged 25 percent.