Media Moves

Coverage: Amazon makes another acquisition

August 26, 2014

Posted by Liz Hester

Amazon is moving into the video gaming world. And it’s a move that’s going to cost them nearly $1 billion to capture the attention of gamers. But Amazon is good at sacrificing short-term profits in exchange for long-term gains.

The Wall Street Journal story by Douglas MacMillan and Greg Bensinger offered these details about Amazon’s second-largest acquisition:

As videogames become a spectator sport, Inc. just bought the world’s largest arena.

The e-commerce giant said Monday it agreed to acquire Twitch Interactive Inc., a popular Internet video channel for broadcasting, and watching, people play videogames, for about $970 million in cash.

The deal is Amazon’s second biggest, and underscores the popularity of online gaming. Though little-known outside of tech and gaming, Twitch, founded in 2011, is the fourth-largest source of U.S. Internet traffic, behind only Netflix Inc., Google Inc. and Apple Inc., according to network researcher DeepField Inc.

Last October, 32 million people watched the championship of Riot Games Inc.’s “League of Legends” on various streaming services, more than the series finales of television shows “Breaking Bad,” “24” and “The Sopranos” put together.

Twitch could also help Amazon accelerate a push into Web video that is brought it into competition with Netflix and Google’s YouTube. Twitch seized on the popularity of games like “League of Legends” and “Minecraft,” developing tools to let players broadcast their game sessions to an audience of more than 55 million users and generating revenue from advertising and subscriptions.

The New York Times story by Nick Wingfield pointed out that Amazon is paying up for a company that didn’t even exist three years ago:

The deal for Twitch is the latest sign of the way forms of behavior once seemingly on the fringe can, in the hands of tech entrepreneurs, turn into huge online communities in no time. Twitch did not exist a little over three years ago, and it now has 55 million unique viewers a month globally, helping turn games into a spectator event as much as a participatory activity.

Those millions of eyeballs are valuable to web companies, and Amazon, although usually known for its retailing, is no exception. To win in its bid for Twitch, Amazon had to outmaneuver a who’s who of the tech world, including Google — strongly suggesting that these companies think the era of video-game viewing is just starting. It also underscored Amazon’s growing appetite for controlling and delivering content to digital devices, especially the tablets and smartphones made by Amazon.

Writing for Forbes, Ryan Mac detailed the deal that almost happened with Google:

Google was unable to close the deal, said sources familiar with the talks, because it was concerned about potential antitrust issues that could have come with the acquisition. The Mountain View, Calif. company already owns YouTube, the world’s most-visited content streaming site, which competes with Twitch to broadcast and stream live or on-demand video game sessions. One source noted that because of the concerns, Google and Twitch could not come to an agreement on the size of a potential breakup fee in case the deal did not go through.

Representatives at Twitch could not be immediately reached for comment while representatives at Google declined to comment.

“Twitch has built a platform that brings together tens of millions of people who watch billions of minutes of games each month– from The International, to breaking the world record for Mario, to gaming conferences like E3,” said Amazon CEO Jeff Bezos in a press release. “Like Twitch, we obsess over customers and like to think differently, and we look forward to learning from them and helping them move even faster to build new services for the gaming community.”

Neither Twitch nor Google ever publicly confirmed that it was in acquisition talks, but various publications confirmed the deal was pretty much sealed last month. Monday’s reports suggest that was far from the case, as Amazon looks to add to a growing media empire that it’s established with several online television shows and a set-top content streaming box, Fire TV, launched in April.

Bloomberg’s Adam Santariano and Brad Stone talked about the value the combination could bring to consumers:

As Amazon competes for customers’ attention, the programming adds value to the company’s Prime membership and various devices, according to James McQuivey, an analyst at Forrester Research Inc.

“All of these become that much more valuable when they are populated with Amazon content, whether it’s Amazon TV shows, or live streams of somebody else playing a video game on Twitch,” said McQuivey. “Every minute that you’re involved in an Amazon-led experience is a minute you’re not at Walmart or not with Apple or Google.”

Twitch users watch and share clips of video gameplay, both for entertainment and to learn new ways to advance in a game. Video-game publishers have built the capability to share clips to Twitch directly into their products. Frequent user engagement is why Twitch is valued so highly, potentially giving Amazon opportunities to sell advertising and to steer shoppers to its online store, McQuivey said.

CNET reported in a story by Donna Tam that Amazon still has some work to do in the gaming space:

Gaming is not an area where Amazon has made a lot of progress. Although it launched its Amazon Game Studios two years ago, it has sparse offerings. But, the retailer clearly wants a piece of the video game market. When it unveiled its media-streaming device Fire TV in April, it also rolled out an optional controller for video game play.

Twitch, launched in June 2011 by co-founders Justin Kan and Emmett Shear, made headlines this year for the live streams of a crowdsourced game of Pokemon and goldfish playing classic video games. Videos on the site can also be streamed on Microsoft Xbox and PlayStation 4 game consoles. In the last year, one of Twitch’s biggest catalysts for growth was its inclusion in the two devices.

“Amazon and Twitch optimize for our customers first and are both believers in the future of gaming,” Shear said in a statement. “Being part of Amazon will let us do even more for our community. We will be able to create tools and services faster than we could have independently. This change will mean great things for our community, and will let us bring Twitch to even more people around the world.”

The best part of this deal for Amazon is that it’s getting more information and data about another subset of people. Now the company is moving to get the attention of other types of consumers and strengthen its grip on those who already turn to the site. It’s a smart move — one that isn’t likely to pay-off immediately, but could be highly lucrative in the years to come.

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