eSports Insights: Meet Us On The Digital Battlefield

Please refer to page 19 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. GLOBAL Macquarie’s eSports Thesis 1. eSports is becoming an important part of game developers’ R&D and marketing strategy. 2. eSports to gain mainstream traction advertisers and capitalize on growing and engaged viewers. 3. Professionalization of eSports will lead to industry consolidation and greater media rights. 4. Pro sports teams to invest in eSports to hedge against the decline in traditional sports viewing. 5. eSports could gain Olympics status as the IOC looks to add events that have global appeal. 6. Mobile eSports will drive industry growth by catering to a broad audience with mass appeal. 7. Virtual reality will likely enhance the eSports viewing experience and competitive dynamic. Thematic Reports Link 1, Link 2, Link 3 Analyst(s) Macquarie Capital Markets Canada Ltd. Jiang Zhang +1 416 848 3549 jiang.zhang@macquarie.com Greg MacDonald, CFA +1 416 628 3934 greg.macdonald@macquarie.com Macquarie Capital (USA) Inc. Ben Schachter +1 212 231 0644 ben.schachter@macquarie.com Ed Alter +1 212 231 1272 ed.alter@macquarie.com Macquarie Capital Securities (Japan) Limited David Gibson, CFA +81 3 3512 7880 david.gibson@macquarie.com Damian Thong, CFA +81 3 3512 7877 damian.thong@macquarie.com Macquarie Capital Limited Allen Chang +852 3922 1136 allen.chang@macquarie.com Macquarie Capital Limited, Taiwan Securities Branch Jeffrey Ohlweiler +886 2 2734 7512 jeffrey.ohlweiler@macquarie.com Kaylin Tsai +886 2 2734 7523 kaylin.tsai@macquarie.com 27 February 2017 eSports Insights Meet Us On The Digital Battlefield We recently met with Battlefy (private) to hear their view on the emerging eSports theme. Battlefy is the world’s leading eSports technology platform that allows both amateur and pro organizers to manage, scale and promote eSports tournaments and leagues on a global scale. The company has powered 75k tournaments since its founding in 2012 for a growing base of 35k organizers that serves >10m eSports fans and gamers. Details on Battlefy can be found on p3, but the key conclusions are: 1. Game developers have significant leverage on the industry economics given their IP ownership and prospect of monetizing eSports media rights. 2. Developers’ pursuing of a closed ecosystem at the pro level (ie, Tencent’s LCS, Activision’s Overwatch League) while pursuing an open-platform approach at the amateur/grassroots level to maximize fan-base are equally critical to elevate eSports’ mainstream status and drive future economics. 3. Digital distribution to grow in importance given the secular decline in traditional media and eSports’ digitally-focused audience. We are hosting a lunch in our New York office on March 17 with Battlefy’s Carlos Alimurung, Chief Business Development Officer, and representatives from NYU Polytechnic’s eSports team. Macquarie is the only bank globally that has conducted extensive research on eSports and this is a good opportunity for investors to learn about eSports from industry insiders. Please reach out to your Macquarie account manager if you would like to attend. Elsewhere, eSports investment by pro sports teams accelerate. The NBA made headlines with its Take-Two partnership (LINK), which we believe will have a broader implication on the overall eSports theme (LINK). We also believe that other professional leagues such as the NFL and the NHL could follow suit judging by the recent investment in the eSports franchise Splyce, which fields 9 pro teams across key titles such as League of Legends, Call of Duty, and Overwatch, by Delaware North, owner of the Boston Bruins (NHL hockey) and TD Garden (LINK). Finally, the Miami Heat doubled down on their eSports investment with the addition of Vainglory (LINK), which underscores our bullish view on the potential for mobile eSports. In Asia, we published two MacVisits from our Taiwan tech team that are exposed to gaming PC demand and eSports. MSI (2377 TT, non-rated) is the world’s leading gaming PC, motherboard, and graphic card brand with No.1 market share (~19%) in global pro gaming notebook (LINK). The other, Gigabyte (2376 TT, non-rated), the world’s second motherboard brand with 13% market share and an emerging AORUS gaming PC brand. Though the PC industry is likely to see another year of shipment decline, our Taiwan analysts are positive on the gaming PC subsector (LINK). Key call within Macquarie’s Global Coverage Activision, EA, Take-Two, Capcom, Nintendo, CyberAgent, NetEase and Tencent among developers given their IP and benefits from eSports media rights. Asustek, Sony and Lenovo in hardware & technology as key beneficiaries of higher demand for gaming PCs and game console. Facebook, Amazon, Google, and theScore in digital media due to rising viewership and ad dollar flow into eSports