Amazon Has Vision with Twitch

Counter-Strike Could Be Next Orange Is the New Black

On 25 August, Amazon announced it had reached an agreement to acquire Twitch Interactive for $970 million. Twitch provides a platform for gamers to broadcast live video feeds of game play. It recently reported that it has more than 55 million monthly active users who view a combined total of 15 billion minutes of user-generated content on Twitch per month. Its viewership is in line with that of targeted television networks like MTV (according to Nielsen), and is approaching that of CNN. Twitch content can be viewed on the company’s Web site or through its iOS and Android apps. Twitch supports sharing from PC games and game consoles including the PlayStation 4, Xbox 360 and Xbox One.

Amazon’s announcement came as a surprise, as Twitch had been in discussions with Google.

The planned acquisition can be compared with Google’s 2006 purchase of YouTube for $1.65 billion. YouTube had been establishing itself as a central part of the “Web 2.0”, in which user-created content could be easily and freely shared across the Internet. Twitch has created a “Game 2.0” environment, enabling community sharing and engagement for games, and the company has solidified game tournaments as a recognised form of viewing entertainment. However, the service fits well with Amazon’s current business units and the move is consistent with the company’s strategy of complementing professionally produced content with that generated by users. The announcement comes at a time when Amazon is expanding its advertising services, living room presence, device portfolio and entertainment content.

Twitch’s user demographic is currently skewed toward a younger, male audience, but game play is undergoing a generation and gender shift — the first gaming generation is now in its early middle age, and games have become a standard form of family entertainment.

Twitch will provide Amazon with trending modern-day content and places the company in a better competitive position against Netflix, Google and legacy broadcasters. Twitch will round out Amazon’s other content-related units including Amazon Game Studios, Prime Instant Video and Amazon Studios. We expect Twitch to receive special placement on Amazon’s hardware — on the Kindle Fire tablet, Fire TV and the Fire Phone — to provide Amazon with an in-house advertising venue for marketing games and other products to a targeted audience.

Amazon has a solid track record of supplementing its portfolio of services with community supported Web domains. Goodreads and IMDb are examples of semi-autonomous sites owned by Amazon which complement their product sales. Twitch will allow Amazon to provide an even higher level of social engagement with games. Amazon usernames can be expected to work as login credentials for Twitch.tv, providing a wider potential audience. Amazon’s back-end and data centre expertise will help Twitch continue to scale rapidly, but will otherwise be left as an independent unit.

Through services such as Twitch (and mainly Twitch, which has a near monopoly in this area), e-gaming is becoming a new kind of reality television programming: an opportunity for broadcasters to offer content at production cost. The graphics quality of games has increased to such a degree that the video feeds are approaching high-definition video broadcasts. Games have become a new form of social networking and, by some metrics, Twitch is in competition with Facebook and Twitter. The average Twitch user now spends about 4.5 hours per month on the service — this could be what social television will look like.

CCS Insight believes that the planned acquisition of Twitch is an extremely perceptive move by Amazon. Video games have become a sporting event for many, and Twitch has placed itself in an intersection of social engagement and modern entertainment. The move is bigger than it appears: Twitch should be a fantastic asset for Amazon.