Tobias M. Scholz is an Akademischer Rat (equivalent to Assistant Professor) for Human Resource Management and Organizational Behavior at the University of Siegen in Germany. He has been involved in esports since 2001 and recently published the book “Esports is Business – Management in the World of Competitive Gaming.” He is also the founder of the Esports lab at the University of Siegen.

In some ways, esports has changed a lot in recent years, but also remained the same. That sounds contradictory and it should sound that way. I have been a part of the esports scene since around 2001, starting with a report about a regional LAN party. For nearly ten years now, I had the opportunity to research esports and there are two striking things I have observed: First, many people involved in the space suffer from historical amnesia; and second, people tend to categorize it as something unique and disruptive. That leads to an environment in which people believe everything is always novel and groundbreaking. Think about it: Counter-Strike just turned 20 years old.

Furthermore, we hear discussions about a bubble (D’Anastasio 2019) and despite highlighting crucial aspects, esports has experienced several bubble-like events (e.g., the downfall of the Championship Gaming Series). We are, potentially, at the height of a hype cycle, but that is the good news, because every downfall has led to more growth for the industry. However, some companies will vanish and we already see it with OpTic Gaming (Immortals Gaming Club 2019). The Green Wall may have fallen, and currently it seems that the brand will only be used for Call of Duty (Lewis 2019).

The big question is: Are any of the big players in danger of falling? Remember the fall of the Championship Gaming Series devastated the Counter-Strike scene for nearly a decade (Li 2017). A potential candidate for such a role may be Activision Blizzard, or more precisely the Blizzard part of Activision Blizzard, and that would be quite devastating.

[perfectpullquote align=”left” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]”Activision Blizzard is putting a tremendous wager on the OWL trying to become the new NBA or NFL.”[/perfectpullquote]

Activision Blizzard is putting a tremendous wager on the Overwatch League trying to become the new NBA or NFL. Consequently, they are focusing on geolocalization as well as franchising, creating a seemingly unique and novel product. The sales team at Activision Blizzard did an extraordinary job in selling the franchise slots for a staggering price. Furthermore, they succeeded in generating interest from outsiders of the esports industry. That led to franchise prices ranging from supposedly $10M USD up to $60M as well as many big players joining the league like the Kraft Group (owner of the New England Patriots).

Twitch is paying at least $90M for streaming rights (Baccellieri 2018). It becomes evident that Activision Blizzard sold a vision and many bought this vision, however, as the former commissioner said: “We didn’t know what we didn’t know before we launched the season” (Valentine 2018). Saying that as a company that played an integral role in the esports evolution with StarCraft and Warcraft, this can be seen as a confession of failure.

It is necessary to describe in general the role of the game-developer in the esports industry before showing the chosen strategy of Activision Blizzard. The esports industry, with its various stakeholders, can be seen as an interwoven network. Esports is business and, consequently, any stakeholder is part of the value creation. Therefore, any individual business model and strategic decision influence the business model of any other linked stakeholder. The business model network thereby goes beyond the understanding of value creation based on the five forces defined by Porter (1985).

The business model network focuses on value integration with an emphasis on cooperation rather than a threat. There are threats of new entries, buyer and supplier power, a risk of substitution, and competitive rivalry, but there is also a need for cooperation to utilize synergies. The core of this business model network is the audience and the monetization of the customer. Following general market rules, some balance is achieved in this business model network over time based on legitimate stakeholders, negotiations, power, and, subsequently, successful strategic decisions. There is a need for coopetition (cooperation and competition) as well as an underlying co-destiny that is shared with everybody in this business model network (Scholz 2019). However, this business model network is unique for every esports title, so there are differences in Counter-Strike and Rainbow Six as well as League of Legends and Overwatch. A generalistic business model network is depicted in the following figure.

The role of the game-developer is often discussed as the gatekeeper of esports and this potential power is one of the main criticisms of traditional sports. Nobody owns “football,” but the game-developer owns Overwatch. This comparison is wrong, as nobody owns the genre “team shooter” and Activision Blizzard cannot forbid anybody creating a “team shooter.” However, what is correct, within Overwatch Activision Blizzard can regulate everything. Other game-developers like Valve Software follow a more laissez-faire strategy, Activision Blizzard is over-regulating Overwatch:

It creates the game and the rules.

It chooses the franchise and dictates the regulations.

It enforces the player rules and transfer system.

It creates the content and streams the broadcasts.

In management theory, this strategy can still be successful, but any organizations should know any potential risks that could harm the strategy. There is extreme pressure to succeed, consequently, the stakes are high. Maybe that is the reason why the Overwatch League is nearly an exact copy of the typical North-American franchise system down to the Overwatch logo that resembles the MLB logo. Although Activision Blizzard is over-regulating, in general, the strategy is consistent. However, there are several predetermined breaking points, that may lead to the situation that Overwatch may be an Angel of Death for Activision Blizzard.

First, we should take a look at the game itself. I, myself, play Overwatch quite a lot and have spent over a week playing Mercy (stats). However, the game is not easy to watch. The prevailing strategy at the moment, called GOATS, consists of three tanks and three support, which led to less entertaining games to watch. This is due to the fact that tanks are hard to eliminate and the support characters make it even more difficult. Everything could be fixable from the game development perspective, but as a recent leak revealed Activision Blizzard is not trying to fix it, but rather enforce a 2-2-2- rule (2 tanks, 2 DPS and 2 support) and if they change the role between games on stage the players have to change their seats at the devices (Ring 2019). That is a significant sign for the organizational culture within Activision Blizzard; rather than solve a game design problem to make it more esports-friendly, it simply regulates the teams into a certain direction.

Second, there is an imbalance between geolocalization and regional unlocking. This topic is probably the most striking one for Activision Blizzard. Teams have a home-town and they have a home crowd, especially in North America; this may be helpful to create a community. However, more than 50% of all individual players in the Overwatch League are Korean. Teams such as the Vancouver Titans and New York Excelsior are Korean. How is it possible to relate with those players, if they do not speak any English at all. This problem is not novel for Activision Blizzard as they have been struggling with this Korean dominance problem for decades in StarCraft and get to a point where there is a positive balance observable.

Third, the location of franchises is focused on North America and China. At the moment, 13 teams are from North America and four teams are from China. Only two teams are from Europe and one from South Korea. In the case of Europe, both teams are owned by a North American organization. The product Overwatch is presented as being a global league, but it becomes evident that the decision for cities is purely industry-driven. For the global phenomenon, the important region of Europe is vastly neglected.

[perfectpullquote align=”right” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]”It becomes evident that playing in the Overwatch League is not a healthy lifestyle and not sustainable. “[/perfectpullquote]

Fourth, the devastation of the Tier 2 system. Activision Blizzard actively downgrades the second-highest league in Overwatch to a farm league for the OWL teams, a situation that encourages Contender players to leave their team to become free agents and hope they will be picked up: if not, “there will be no trouble in finding a new Contenders team to join” (Carpenter 2018). There is no incentive for any other organization to participate in this league and consequently, besides some academy teams, there are only temporary teams that may see it as some form of proving ground. However, recent downsizing measures will make the Contenders league even more irrelevant (Lewis 2018). Furthermore, there is no space for any other professional esports organization to participate as there is no possibility to become part of the OWL. In the long run, this will lead to a massive de-professionalization of Tier 2 and fewer possibilities to draft talented and well-formed players.

Fifth, how the league is dealing with their players. Salary and prize money is the core income of players, and even though teams have to set up a retirement savings plan and provide health insurance, a significantly higher number of players quit the game. For example, the player Brandon ‘A_Seagull’ Larned quit playing Overwatch for Dallas Fuel to return to streaming full time (D’Orazio 2018a). In some cases, this could be a less stressful way to make more money without extreme training regimens and competitive pressure. Several players highlight that they are getting tired, and some even quit because of burnout (D’Orazio 2018b). It becomes evident that playing in the Overwatch League is not a healthy lifestyle and not sustainable. Even though the topic of unionization is discussed in the press, it is not discussed openly in the OWL (Garst 2019). Especially with the overregulation strategy, it is nothing that Activision Blizzard will openly encourage.

Sixth, employees are leaving the ship. In recent weeks, several key employees have left Activision Blizzard. Commissioner Nate Nanzer is moving to Epic Games and long-time esports head Kim Phan recently departed from Activision Blizzard (Mamiit 2019). There are many other rumors of other critical esports employees leaving the company in the next few weeks. This is a recent trend within Activision Blizzard that many long-time figures within the Blizzard team are moving away from the company. However, Activision Blizzard also laid-off several essential employees, with the most prominent being the producer and esports figure Jason “Alchemister” Baker (Mary-Justice 2018). Consequently, talent and knowledge are draining away from Activision Blizzard.

Finally, the numbers are underwhelming. As pictured in the following graph (a more in-depth analysis can be found here), the hours watched in Overwatch are not experiencing any growth at all. Even more, the data reveals that the spikes are solely contributed to the times when Overwatch League games are played. That highlights the dominance of the Overwatch League in the Overwatch ecosystem, but also highlights the non-existence of anything beside OWL. Furthermore, it seems that Overwatch has a certain threshold that it cannot overcome. It is also questionable, when OWL is moving to their home-cities, the turn-out of local fans continuously be high over the whole season. For comparison, the Overwatch League Arena in Los Angeles has only 450 seats available.

The Overwatch League is struggling and with the high-stakes of franchise fees and extreme success of the sales team in acquiring an extraordinary Twitch deal, OWL is a short-term success, at least in form of the shareholder value. However, this success highlights the importance that OWL needs to be a success for Activision Blizzard, especially as it is copying the same concept for its Call of Duty franchise strategy with an alleged franchise fee of $25M (Brockwell 2019).

At the moment, the return on investment is highly questionable and many risks are still unknown. There is no long-term case available for esports that a city-based league can work in this global industry, or that people like to make a pilgrimage to every game every week as it is observed in traditional sports. It may even sound incomprehensible in times in which European football teams are neglecting their home audience and fans in the arena for their international television audience. The strategy from Activision Blizzard also proves that franchising may be harmful without an overarching strategy for the whole talent-pool and the whole ecosystem. In general, the overregulating strategy is not, per se, deemed for failure, but overregulation also needs complete knowledge of all risk, a holistic strategy, and a business model that will lead to a return on investment in a short period. However, Activision Blizzard is in a lock-in and has to make the Overwatch League work; it has to succeed or its role as a Tier 1 game developer for esports titles is in danger.

[perfectpullquote align=”left” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]”It seems that there is no Plan B available.”[/perfectpullquote]

As Nate Nanzer said, “The train has left the station” (Valentine 2018). Activision Blizzard failed to make Heroes of the Storm work, Hearthstone is struggling, and StarCraft is sustainable, but far from its once glorious times. World of Warcraft works somehow, but that is mostly because of the enthusiasm of teams like Method to promote PvE content as esports. It seems that there is no Plan B available.

Everything leads us to the question: What made Activision Blizzard confident that its version of the Championship Gaming Series concept will work successfully in the current evolution of the esports industry?

Maybe Activision Blizzard should follow its slogan and “begin your watch.”

The article should not end with only criticism, so here are some potential strategic solutions:

Reevaluate the strategy , is Overwatch a Tier 1 game? What does it need to become a real Tier 1 game? Is this reasonable or is being in a niche economically sufficient.

Focus on its core markets by creating a North American division and an Asian or Chinese division. The NBA is internationally successful, but it has no European teams.

Abandon the other regions and allow anybody else to create their own operations outside of North America and Asia to foster talents. The internationalization strategies of the NHL could be helpful to establish such an environment.

Foster the university league system to create a draft system in North America to have a solid Tier 2 environment. Again, Activision Blizzard has some experience in that with the Heroes of the Dorm.

Focus on the needs of the players until this draft system is viable. Any quitting player hurts the teams and the league overall. Pay competitive salaries and allow them to form a union to express their interests.

Commit to regional talents to foster their brands. If Activision Blizzard sticks to its overregulation, it can enforce a rule of one player from their respective region in any line-up.

Fix the game in-game as meta changes all the time. Design new heroes that are easy to watch. Don’t take the easy path, as this may hurt Tier 2 or any other amateur level where these rules are not enforced.

Learn from your past . Every experience in StarCraft , Warcraft , World of WarCraft , Hearthstone , and Heroes of the Storm makes Blizzard the most knowledgeable game developer team in the industry.

In the end, there is still time to turn around and as Mercy says: “Heroes never die!” and in its Witch form with the extension “for a price.”

Full disclosure: The author owns a few shares of Activision Blizzard and has spent too much time in the worlds of Blizzard.

References