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Twitch Could Be a $20 Billion Company Inside Amazon

Amazons Bet on Twitch Was Ahead of ItsTime

In 2014 Amazon surprised many by buying Twitch. Today it has an edge as Facebook, Google and others jockey to own livevideo.

Follow-Up Friday is our attempt to put the news into context. Once a week, well call out a recent headline, provide an update, and explain why itmatters.

In 2015, Twitch viewers watched more than 459,000 years worth of live streaming videos that mostly featured people playing video games. That amounts to 5,800 average American lifetimes spent on social interactions around games.

Outsiders, including many members of the press, struggled to understand how watching gamers game could be entertaining. So when Amazon snapped up the live-streaming site Twitch two years ago, the reaction was not all positive. Yet it turned out to be a key move for the ecommerce giant, placing it on strong footing as live streaming becomes commonplace both in and beyond the gaming world. Since then, gaming as a spectator sport has only continued to grow. This year, the number of people who regularly watch online gaming videos will likely exceed half a billion, according to the market research firm Newzoo.

(Bloomberg / GettyImages)

When Amazon first came calling, Twitch was the undisputed king of its class. In the two dozen months that followed, the rest of Big Tech placed their own bets on live video, and on live-streamed gaming in particular. Most notably, Googles YouTube and Facebook Live are now chipping away at the live-streamed gaming market.

Twitch, meanwhile, is expanding beyond gaming. What may have looked to some observers like an expensive sideshow for Amazon has since emerged as an essential battleground on which the reigning tech titans are jockeying for our attention.

It could have all turned out very differently. Two years ago, Twitch seemed very close to joining the YouTube empire of The Company Formerly Known as Google. YouTube was negotiating to purchase Twitch under a deal rumored to be worth approximately $1 billion, according to an August 2014 Variety news story. The deal made perfect sense on paper: Twitchs live-streaming audience and focus on live professional gaming events would combine naturally with YouTubes video-on-demand platform, which already served up many popular gaming-focused channels.

YouTube/Google would have been a great, synergistic union because so many Twitch broadcasters have YouTube channels, says P.J. McNealy, CEO and founder of Digital World Research, a research and consulting firm focused on tracking young consumer behaviors. But YouTube and Twitch failed to come to an agreement, and the door was left open for Amazon to strike a deal worth $970 million in cash to acquire Twitch.

With more than 55 million unique visitors and 1 million streamers, Twitchs appeal was beyond reproach, even if Amazon seemed an unlikely buyer. But could it expand beyond a diehard gamer audience?

Since the 2014 acquisition, Twitch has come close to doubling its monthly visitors and has greatly expanded its base of streamers. It currently has more than 100 million visitors watching more than 1.7 million streamers each month.

Twitchs live streams still have a much smaller viewership than YouTubes videos, according to Newzoo. But Twitchs viewers stick around longerseven hours per month on average versus less than five for YouTubeand they are more active, posting chat messages and questions for their favorite streamers, buying animated cheer emotes to display in Twitch chat, and even donating money to Twitch personalities as a way to thank them during their live streams.

The active engagement of Twitch viewers can often help boost sales for games that prove popular among live streams. Twitch data scientists have attributed as much as 25 percent of certain game sales to increased visibility through the live streams. The most fervent Twitch viewers, who watch live streams daily, are also among the biggest spenders on games, says Pieter van den Heuvel, eSports Team Lead at Newzoo.

Amazon has already made several moves to leverage Twitchs devoted audience in support of other Amazon services and products. In February 2016, Amazon debuted a free game engine called Lumberyard that enables developers to create new video games with built-in Twitch integration to more easily connect with gamers. For the first time, Amazon also plans to stream the pilot episodes of three original shows on Twitch for 24 hours on August 31likely an effort to lure Twitch viewers to its paid subscription Amazon Prime Video service.

Yet many investors still put little to no value on Twitch, wrote Gene Munster, managing director and senior research analyst at Piper Jaffray, in a March 2016 research note. Munster took the contrarian bullish view by suggesting that Twitch could be worth anywhere between $5 billion and $20 billion in five years. If true, that could more than justify Amazons original $1 billion deal for Twitch.

Twitchs success in live streaming has attracted plenty of competition from rival U.S. tech giants. In 2015, Google launched its YouTube Gaming service as a world of gamers with the broadest mix of games, videos, and live streams all in one place. In June 2016, Facebook announced a deal to enable players of popular Activision Blizzard games to stream through the social networks Facebook Live service. And earlier this month, Microsoft announced the acquisition of Beam, a startup that promises a Twitch-like experience with the bonus of allowing viewers to steer the gameplay of live streamers by creating in-game rewards or spawning virtual enemies.

In the short term, we think Twitch will keep its market leadership position in the eSports streaming market, van den Heuvel says. As for the long term, Twitch holds a lot of the cards, but the past has shown that it is unwise to bet against Facebook. McNealy at Digital World Research took a similar stance by observing that Facebook Live could prove especially tough competition in the future. If I was Twitch, Id be spending lots of time scouting Facebook Live, McNealy says. They would keep me up at night.

Yet Twitchs biggest long-term bet may have nothing to do with gaming at all. In October 2015, Twitch officially debuted a Twitch Creative category for live streams that feature non-gaming content such as body painting, glass blowing, and improv piano playing. In March 2016, it inaugurated a food channel within the Twitch Creative category by airing a marathon of Julia Childs PBS show The French Chef. And last month, Twitch even introduced a a Social Eating category inspired by South Koreas Muk-bang streamers who do live broadcasts of themselves eating.

Twitch has been quick to point out that many of its non-gaming categories go hand in hand with activities enjoyed by gamers anyway. But its clearly a step toward extending the reach of Twitchand Amazonto an audience beyond gamers. It also opens a new front in Twitchs competition with rival live-streaming platforms, which could eventually include Twitters Periscope, YouNow, and Live.ly, among others.

The launch of non-gaming content is actually a blast from the past for Twitch. Its easy to forget Twitchs humble origins as the gaming channel for the live-streaming website Justin.tv in 2011. Founded in 2007, Justin.tv was a pioneering U.S. website devoted to live video content of all types. But Twitchs runaway success led the Justin.tv parent company, reorganized under the name Twitch Interactive, to refocus almost exclusively on gaming by shutting down non-gaming channels and live streams.

The official announcement of the Justin.tv shutdown came shortly before Amazon announced its acquisition of Twitch in 2014. Two years later, Twitch has reawakened the broader ambitions of its foundersjust as live streaming finally blossoms among non-gamers. Not all those who wander are lost.

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