A startup tackles Southeast Asia’s hidden esports opportunity

An esports tournament. Image credit: Dota 2 The International.

It may not be long before an athlete wins a gold medal at the Olympics – for playing a computer game. Competitive computer gaming, or esports, has turned from a fringe activity into a genre that’s getting millions of viewers and doling out millions of dollars in prize money.

In Southeast Asia, it may be on the cusp of becoming mainstream. The Manila Major, a prominent Dota 2 competition, filled a stadium and had a US$3 million prize pool.

Alisports, an affiliate of Chinese ecommerce giant Alibaba, will introduce competitive computer gaming as a demonstration sport in the 2018 Asian Games in Jakarta. By the 2022 iteration in Hangzhou in China, it’ll become a medal event.

Entrepreneur Daryl Teo wants to ride on the esports boom. “It’s becoming an industry that’ll stay for a long time,” he says.

Formerly the head of strategic products at Uber’s Southeast Asian rival Grab, he has started Spout Entertainment, a three-month-old startup which is using a unique blend of technology, media, and talent management in a bid to nurture esports in Southeast Asia.

The Singapore-headquartered company has already raised a US$2.1 million seed round exclusively from Reapra, a venture builder and startup investment firm. That’s a large figure considering that the median amount for seed rounds in Southeast Asia is US$578,000.

Daryl is part of the investment committee within Reapra, making Spout an internal project for the investment firm.

Millions of esports enthusiasts

Startups succeed primarily by being in the right place at the right time, says entrepreneur and investor Bill Gross. Start too late and a competitor might own the space first. Launch too early and consumers might not be ready for the product.

Spout believes it’s got the timing right. Although Southeast Asia’s pro gaming market is still small, it’s the fastest growing in the world in terms of audience size, says gaming market research firm Newzoo.

It estimates that the region had 9.5 million esports enthusiasts in 2016, and predicts that the figure will grow 36 percent annually in the next three years.

If these projections hold true, Spout will have a total available market that’s about the size of Malaysia’s population – around 30 million – by 2019.

Daryl hopes to turn that audience into a lucrative market.

The Spout360 website.

Its first plank is Spout360, which aims to be the ESPN-Twitch hybrid of Southeast Asian esports. While the site only has textual content for now, it’ll incorporate video in the near future, particularly live coverage of gaming competitions.

A key obstacle to Spout360’s success is language: a large swath of people in Southeast Asia don’t read or listen to English. Daryl plans to employ near-instantaneous translation and captioning of live English video content – enabled by machine learning and human help – to solve this.

The technology can translate and caption videos within five to 10 seconds, but Daryl hopes to bring it down further.

Besides video, Spout360 will launch a fantasy league featuring esports athletes, and that involves building a database about their performance.

A pro gamer in action. Image credit: Wikimedia.

Its second plank is Spout Agency, which will help manage the career of pro gamers – who are often teens – and negotiate and retain sponsorship deals with corporations on their behalf. It’ll also educate them on how to represent brands properly.

“These athletes need it more than physical athletes. They’re of a much younger profile. If you look at the top esports gamers, they start young. Because they don’t need to be physically mature to compete.”

The agency will employ some proprietary tech. It’s creating a tool to scan videos, livestreams, and articles in real-time to help brands protect their image. It even hired a data scientist to predict which e-sports teams will perform better  – think Moneyball for pro gaming. The predictions can be used to inform brands about the right teams to put their advertising dollars on.

These measures are meant to help Spout Agency nurture the Lionel Messi of esports and in the process turn pro gaming into a viable career. “The typical career length of a Southeast Asian professional esports player, compared to that of our counterparts in the US and Europe, is shorter. We’re looking at maybe 20 to 30 percent shorter,” says Daryl. He declined to disclose the number of athletes in its stable.

Spout’s media and agency arms complement each other. Media gives more exposure to athletes, while the agency helps pro gamers manage the business aspects of their careers.

The third plank

Most startups in Southeast Asia avoid Myanmar as it’s underdeveloped relative to Indonesia or Thailand.

Not Spout. What convinced Daryl to focus heavily on the country was that Spout360 is seeing substantial traffic from there, forming 20 percent of its user base.

Myanmar has evolved rapidly since it opened up to the world. Internet penetration stands at over 70 percent, up from about 4 percent in 2014. A SIM card used to cost hundreds of US dollars four years ago. Now people can get one for US$10.

Spout approaches Myanmar differently from all its other markets, creating a startup-within-a-startup. It’s investing US$600,000 into the country to tackle online education, specifically, to create a localized Coursera.

Daryl thinks that it’s feasible. Both Spout360 and Cite (the e-education venture) will use the same video captioning and translation technology. Both ventures are also targeting the same audience: teenagers and young adults.

If Cite works, he believes there’s room to expand into all kinds of online content in Myanmar. It’s a market that’s just opened up, which means online media is an open field.

Events are also part of Spout’s repertoire in the country: it’ll collaborate with local partners to run esports competitions.

How far can esports go?

Spout’s fate is tied directly to the future of esports. A huge unknown would be how big the genre can get, and that’s left to the imagination. Could virtual reality, for instance, make pro gaming even more mainstream or blur the lines with physical sports? Anything’s possible.

The reality, though, is that pro gaming still has a lot of catching up to do to match physical sports in popularity, even among youngsters in the US.

Image credit: Newzoo.

And within esports, there are a variety of games vying for attention. An Overwatch enthusiast, for example, may not be interested in Hearthstone or League of Legends. A fragmented audience may not be as easy to monetize.

Daryl counters that this is no different from physical sports where fans would follow their favorite teams in specific leagues. As the top teams rise, they become lightning rods that will attract the most fans and advertising dollars.

Another reason for optimism is that an enthusiast of a particular title is probably likely to be interested in other games. Gaming is a lifestyle, and computer accessory maker Razer has found success in that mantra, just as Nike has become a sporting lifestyle brand.

While Razer is primarily a hardware brand serving the gaming community, Spout is more about building up an entire industry.

“When football first started, you hear parents tell their kids, don’t play football, you can never make a career out of it. Today, look at the likes of your global superstars. It is a legit career. Even if you don’t hit the top, there is enough in the market,” says Daryl, who once wanted to become a footballer.

Now, he dreams of taking a company to an IPO.

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