Watching other people play video games…that’s esports

Jean Chung | Bloomberg | Getty Images

In a mythical forest, a fluorescent green monster is attacking a snake queen while millions of people look and cheer the fighters on.

This is the world of esports, where teams of players play each other in video games while avid fans around the world watch the duels take place online.

Season three of the League of Legends World Championship, a tournament where teams compete with each other in the "League of Legends" battle arena strategy game for the world title, was watched by 32 million people on Twitch, a live video streaming platform dedicated to video game content.

Esports appeal

The viewership is staggering for a niche sport which is now beginning to enter the mainstream. According to Twitch, the average viewer watches 90 minutes of video when they access the site, equivalent to one full soccer match. But what is the appeal of esports?

"When you watch something that you play yourself, whether sports or a video game, there is something magical that happens when watching people who are phenomenal at the game you know and love," Twitch founder and CEO Emmett Shear told CNBC in a phone interview.

(Read more: Video games for the holidays)

The concept of watching other people play games is not new. In arcades, punters used to watch the best players do well on the machines. But the ease of streaming and spread of the internet has allowed esports to start to reach greater numbers.

Esports has been around since the late 90s with South Koreans and Chinese dominating the viewership and gamers. U.S. teams are also a prominent force while some European teams have also become involved as the sport has picked up in popularity.

Where did it come from?

The trend of watching other people playing games online grew in places like South Korea and China because the leading consoles from Sony, Microsoft and Nintendo were either too expensive or scarce, according to Heloise Thomson, gaming analyst at Enders Analysis.

"This emerged from the internet café culture where people couldn't afford a console, so what people did was go into internet cafes and play for hours. People would then watch them play. So tournament started up in this organic way and then grew," she said in a phone interview.

(Read more: 10 must-have video games this holiday season)

"League of Legends" is not the only esports game. Titles such as "Dota 2" and "Starcraft", other so-called "multiplayer online battle arena" games are popular.

Eports is also set to grow in emerging markets such as Turkey and Brazil, Dustin Beck, VP of Riot Games, the company behind League of Legends, told CNBC in a phone interview.

"In a competitive country like Brazil or Turkey where sports are big like soccer, this is really what has latched on to the millennial generation," he said.

Happy PS4 & Merry Xbox-mas: Retail pro

Big bucks on offer

Top players can earn over $250,000 per tournament through prize money and sponsorship, making esports and attractive career choice for young gamers. In a further sign of how popular esports have become, large corporations such as Coca Cola, American Express and Samsung have sponsored tournaments.

Twitch broadcasting is available on Sony's new PlayStation 4 and could be set to come to Microsoft's Xbox One too. This could be a driving force in the growth of esports, according to Piers Harding-Rolls, head of Games at IHS.

(Read more: Grand Theft Auto V shoots video game sales to recovery)

"It has always been PC based, so with the ability to stream more directly from consoles, we will see the consoles becoming more entrenched in the competitive E Sports sector, so that is an interesting dynamic," he said in a phone interview.

But analysts question whether esports will ever be as broadly popular as, say, athletics or motor racing.

"The sport will never be mainstream like physical sports – or at least not for many years – but it's certainly growing into a small but thriving mini-industry," Sam Gee, technology analyst at Mintel, told CNBC.

—By CNBC's Arjun Kharpal: Follow him on Twitter @ArjunKharpal