Millennials are becoming a force to be reckoned with socially and economically, to the point where a lot of research focusing on thematic investing has begun to consider millennial psychology, tastes, and trends. A few years ago we read an article in The Onion about a millennial who was eager to explain to anyone who would listen that he didn’t own a television. The present author (a Gen-Xer) laughed, a little sheepishly, having been on the no-TV bandwagon since his 20s. When his 17-year-old son was presented with the prospect of paying for cable television when he gets his first apartment, he also laughed -- saying simply, “TV is dumb. I can get anything I want on the internet. Why would I pay for TV?” This is the voice of the generation that is about to take the reins.
What was humorous has now become a truism -- millennials (considered to be consumers born in the 1980s and 1990s) are abandoning broadcast TV, “cutting the cord,” consuming media through online streaming, and consuming different media than their older peers. As the trend has gathered steam, it has hurt the share prices of companies that deliver cable TV subscriptions. Disney (DIS) has been thought to have more of a moat, since much of its ESPN content can be difficult to stream for those who lack technical savvy or have scruples about piracy. But its empire may become insecure in time as demographic shifts also change sports watching habits.
That came home to us this week when we read about the competition heating up as the result of Google’s (GOOG) launch of YouTube Gaming, a new service to stream live video game feeds from competitions and popular individual players. Last year, GOOG and Amazon (AMZN) were both suitors for live-game streaming site Twitch.tv, which AMZN eventually bought for nearly a billion dollars. Yes, that’s correct -- a website that streams live feeds of gamers playing sold for that much. That site now has over 60 million unique visitors each month, who, as with the owners of YouTube channels, can claim a part of the advertising revenue that their channels generate. The most popular gamers earn millions of dollars a year from these revenue streams, although only 40 percent of professional gamers earn their living from their gaming.
Twitch accounts for 36 percent of visitors to video game streaming sites among U.S. viewers. The balance is made up by a variety of sites competing for their share of the advertising revenue: Dailymotion, GamingLive, Ustream, Azubu, and several others you almost certainly haven’t heard of if you’re over 30.
It’s not just individual gamers gaining viewers on these platforms. Analysts estimate that the global viewership for “e-sports” -- organized, competitive video gaming -- is over 130 million. Competitive video gaming is becoming a powerful marketing strategy for game publishers such as Riot Games, Wargaming, Hi-Rez Studios, Activision Blizzard (ATVI), and Valve. Teams are acquiring the same kind of sponsorship as that acquired by traditional sports teams -- Coke, Red Bull, Nissan, Volkswagen, Intel, NVIDIA, Logitech, Samsung, and HTC have all sponsored teams, league organizers, and publishers. Corporate sponsorships of North American e-sport teams will exceed $100 million in 2015, and merchandise sales (gear with team logos) will reach about $11 million: small, but remember that this is a sporting phenomenon that is only 5 years old and growing dynamically.
Prize pools have expanded dramatically over the past few years, as publishers have begun to realize the power of competitive gaming in cultivating long-term attachment to their brands and franchises.
In short, not only are millennials cord cutting, not only are they increasingly ignoring TV and streaming media online -- their taste in sports, another backbone of pay TV, is also changing. Anyone taking shifting millennial tastes into account in their investment decisions should take note of the arrival of e-sports and what it portends for the cord-cutting trend.
Investment implications: The population of TV viewers is graying even faster than the population as a whole. As investors in traditional media delivery companies have surely noted, cord-cutting is a real thing among millennials. Not only do they find it increasingly absurd to pay for cable TV, their tastes in sports -- a traditional driver of cable viewing and cable revenues -- are shifting. The arrival of “e-sports” (competitive video gaming) as a real phenomenon, with millions of viewers and huge mainstream corporate sponsors, highlights the changes that are afoot.
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