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Image: Forbes/YouTube

Explainer: Why did Amazon spend $970 million on a site that livestreams videogames?

Turns out watching people play videogames is more lucrative than you think.
Aug 26th 2014, 11:12 AM 5,926 7

IF YOU’RE A gamer, then the news that Amazon bought gaming site Twitch for $970 million last night will have been of significant interest.

For those following the site’s progress, it’s a surprise that it wasn’t Google that bought it, especially since many concluded that the deal was already done.

For everyone else, you may be confused as to why Amazon would pay so much for a site that’s all about watching people play games. So what exactly is Twitch and why would Amazon pay so much for it?

So what exactly is Twitch?

Twitch is a livestreaming gaming site which was founded three years ago by the people behind Justin.tv, another livestreaming site that was recently shut down.

The majority of video content consists of players streaming playthroughs of games while commentating, but there are also live shows and livestreaming esports events.

Multiplayer games like Defence of the Ancients 2 (DotA 2), an online battle arena game, are incredibly popular and sees a number of competitions held around it, the latest one in July having a prize pool worth $11 million.

Source: Forbes/YouTube

Some of the most popular games featured on it are non-linear, mainly games like Minecraft – a sandbox game that encourages so much creativity and originality, it deserves its own explainer – and online multiplayer games like League of Legends and Counter-Strike.

Watching someone play a game may not sound captivating, but there’s a significant audience there. Last month, the site had more than 55 million visitors and more than one million users uploaded video content to the site last month.

All content on the site is user-generated (something we’ll touch upon later) and can be viewed later, making it like a specialised version of YouTube.

While livestreaming games like Minecraft is the site’s bread and butter, the site has had a number of breakaway hits in recent times. The most popular example was Twitch Plays Pokémon, which had viewers control the protagonist of Pokémon Red game through chat commands.

1.16 million people participated – 121,000 people being the most playing at the one time – and the game was completed after 16 days (although not before the creator introduced a democracy mode to help progress).

With videos like that, no wonder Amazon paid so much for it!

I’m detecting sarcasm in that statement.

But seriously, do you not think it’s strange that Amazon spent almost a billion dollars on a site that’s about watching people play video games?

If you never heard of it before, then the confusion is understandable, but gaming on video has developed significantly in recent years.

On traditional media, there were few, if any, opportunities for gaming to have a space. Normally, their inclusion was limited to a very general explainer of what videogames are, or discussing controversies surrounding certain games like the Grand Theft Auto series. In short, public perception on it has been narrow.

Twitch games Some of the more popular games being livestreamed through Twitch. Source: Twitch.tv

Online, that stigma doesn’t exist and through sites like Twitch and YouTube, gaming and the people who play them have been given a platform to grow and develop. As a result, many gaming personalities and channels have emerged and have developed significant followings.

The obvious one would be PewDiePie who has 30 million subscribers, but there are many others channels like Sky Does Minecraft (10.3 million) StampyLongHead (3.5 million) Game Grumps (1.7 million) JonTron ( 1.19 million) and Cinemassacre (1.5 million) just to name a few.

If a person or group is entertaining or interesting enough, then it turns a normal gaming feed into something more, and if a game is non-linear, it allows a degree of unpredictability which adds to the fun.

Source: PewDiePie/YouTube

There’s a very good reason why gaming is one of the main categories on YouTube and why Google was reportedly close to buying it.

People aren’t watching livestreams simply because a game is being played, it’s usually because they’re watching someone experienced play, or a group who are able to joke around and enjoy the game.

So why go for Amazon, and not Google?

Since Google already had YouTube, which is a more recognisable brand than Twitch, the fear that the latter would be absorbed and integrated into YouTube was likely a concern. The CEO of Twitch, Emmett Shaer, said in a statement that (emphasis our own):

We chose Amazon because they believe in our community, they share our values and long-term vision, and they want to help us get there faster. We’re keeping most (sic) everything the same: our office, our employees, our brand, and most importantly our independence. But with Amazon’s support we’ll have the resources to bring you an even better Twitch.

Considering how long Google was reportedly in talks with Twitch and how it was going to pay $1 billion as well, it more likely that Twitch opted for the company that will allow it to better stick to its original vision.

IMG_7533 One of the world finals for DotA 2, where the top teams globally competed against each other. The competition provided a prize pool worth approximately $11 million. Source: Jakob Wells/Flickr

And what does Amazon get out of this?

To understand that, you need to realise that for years now, Amazon has been trying to position itself not only as an online shopping destination, but as a major media organisation.

The company already has Prime Instant Video, its rival to Netflix, and what Twitch adds to this is an entry to another lucrative market, the gaming industry, where it’s expected that sales will reach $64 billion globally.

Also, take into consideration that the breakdown of male and female gamers isn’t as lopsided as you think – in a recent study in the US, it found that female gamers made up almost half of all gamers in the country – and Twitch’s reach is broader and more diverse than you would initially expect.

And how does that tie into Amazon’s own products?

Since all the content on the site is user-generated, it means that Amazon has access to hours upon hours of gaming content, which could be used to market games.

Modern games are expensive and while gamers are an audience with disposable income, watching someone they like play a game could easily convince them to buy it themselves, or if they are unsure, gives them a feel for it.

Most game developers already realise this and offer previews or beta versions of their games to the most popular gaming channels as a way of generating interest.

It’s not unreasonable to think that Amazon might want to go down this path eventually, especially since it has an in-house gaming studio and a console in the form of Fire TV.

Source: AmazonGameStudios/YouTube

Ok, so what happens now?

Well, it’s business as usual for Twitch so you could probably watch one of the livestreams happening now. Might we recommend Fish Play Street Fighter, where two goldfish play Street Fighter II? It’s strangely entertaining.

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Quinton O'Reilly

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