Tencent Holdings:LoL World Championship showed eSports outpacing the game itself

Riot Games, a Tencent company, recently reported statistics for the 2016 League ofLegends (LoL) World Championship which ended on October 29, 2016. LoL WorldChampionship is the annual climax of the LoL eSports season and has the largestprize pool in LoL tournaments. LoL was the largest PC game in the world by revenuein October 2016, according to SuperData.

We highlight the following key takeaways from the reported numbers:Viewer population growth rate is outpacing the game’s 1. DAU: Riot reported14.7mn peak concurrent viewers during the tournament, up 5% yoy compared to+25% in 2015. This reinforces our view that Tencent’s PC gaming population ispeaking, which is also evidenced by a 9% yoy decrease (stable qoq) in Tencent’sPC gaming DAU in 3Q16;2. PC gamers’ engagement and ARPU on the rise: Total unique viewers was at43mn during the tournament, up 19% yoy compared to +33% yoy in 2015.

Meanwhile, in the OverwatchWorld Cup which ended on November 5, 2016,total viewership was 100k as reported by Polygon, less than 1% of LoL’s number.

We see this healthy unique viewers growth signaling Tencent’s success in drivingup user engagement by focusing on broader game related content engagementactivities such as eSports and video streaming. We expect user engagementimprovement to drive continuous ARPU growth going forward.

3. Fan contribution fueled threefold prize pool growth: Riot introduced a fancontribution mechanism to LoL World Championship this year, and as shown byExhibits 2 and 3, the total prize pool increased to US$6.7mn from US$2.1mn foreach of the last four years, with fan contribution (team icon share included)accounting for 69% of the total prize pool. Compared to the US$20.8mn prizepool and 92% fan contribution in Dota 2 The International 2016 tournaments, webelieve there will be further growth potential in the LoL World Championship’sprize pool given the significantly larger gamer population of LoL compared toDota 2. While prize money in itself does not appear to lead to higher userengagement, we view this as incremental to LoL’s eSports ecosystem, which isbeneficial to the game’s longevity and ARPU.