Tuesday, October 21, 2014

Why Amazon spent $970 million to buy Twitch

The Twitch logo. Bloomberg via Getty Images

On Monday, Amazon announced it will acquire Twitch for $970 million.

For many people, the purchase probably poses a bunch of questions. The big one: What the hell is Twitch?

1) What is Twitch?

Twitch is a startup best known for Twitch.tv, a live streaming platform that lets people stream their favorite video games. So it is, in essence, a service that allows people to watch other people play video games.

Does that sound odd to you? Well, consider that much of television is a service that allows people to watch other people play sports.

Although Twitch isn't very well known outside of gaming communities, it is absolutely enormous among gamers. As Amazon described in its press release, Twitch in July had more than 55 million unique visitors and over 15 billion minutes of content produced by more than 1 million broadcasters. Twitch gets more peak broadband traffic than giants like Facebook and Hulu.

The service gets its name from twitch gameplay, or game scenarios that require quick reaction time.

Here is a screenshot of a popular channel on Twitch:

twitch example

2) Why is Amazon buying Twitch?

A press release from Amazon characterized the acquisition as an opportunity for the company to show its belief in the future of gaming.

Indeed, Amazon has increased its commitment to gaming in recent years. As the Verge reported, the company created an in-house gaming studio in 2012 and created a few Facebook and mobile games since then. It also acquired Killer Instinct developer Double Helix Games, and hired the designer behind the popular Portal.

On top of its extensive library of movies, books, and TV shows, Amazon is also one of the top video game vendors in the world. It is second only to Steam, a popular PC gaming platform, when it comes to the digital distribution of games.

twitch gamescom guild wars 2

Twitch can sometimes make appearances at game conferences to help showcase online games like Guild Wars 2. (Bloomberg via Getty Images)

Amazon's rising prominence as a video game vendor provides a powerful incentive for the company to better integrate itself into gaming culture and promote itself in services commonly used by gamers. Twitch helps accomplish both those goals.

"Broadcasting and watching gameplay is a global phenomenon and 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. And, amazingly, Twitch is only three years old," Jeff Bezos, founder and CEO of Amazon, said in a statement. "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."

3) Is Twitch really worth $970 million?

Link The Wind Waker

The Legend of Zelda: The Wind Waker is a very popular game to speed-run. (Nintendo via Polygon)

Google and Amazon certainly think so.

Google reportedly offered a flat $1 billion for Twitch back in May — even more than Amazon offered. But Twitch, for reasons discussed below, ultimately turned down Google's offer for Amazon's.

Twitch reportedly felt that Amazon would give it greater autonomy and support, according to a source familiar with the deal who talked to the Verge. If Twitch had gone to Google, it would always play second fiddle to the Google-owned YouTube. But for Amazon, Twitch provides a unique service that the company obviously wants to get behind.

Anonymous sources told Forbes that Google backed out of the deal due to concerns about antitrust laws. Since Google already owns YouTube, the acquisition could have run into legal trouble if regulators deemed the company's simultaneous ownership of YouTube and Twitch as unfair. When Twitch and Google couldn't agree on a break-up fee in the event antitrust laws got in the way, the entire deal fell apart.

4) If it's so successful, why is Twitch being sold?

Twitch's main concern, according to the Verge, is that it couldn't handle its explosive growth. Twitch's previous investors actually offered hundreds in millions in new funding, but the company felt the big investment alone wasn't enough. Instead, Twitch decided it needed to piggyback on a much larger company to scale its technology and infrastructure to match its growth, and both Google and Amazon offered that possibility.

The acquisition could also help Twitch deal with the rising tide of copyright claims on its growing service, as more and more gamers stream, record, and archive footage with copyrighted music in the background. As a small company, Twitch doesn't have the partnerships and finances to deal with many of the claims. But Amazon, with its massive network, does.

5) This is a lot of words. Can we take a break to watch some video games?

Sure. Watch a fish play Pokémon:

6) Why do people stream on Twitch?

There are a variety of reasons gamers stream on Twitch, ranging from personal profit to pure entertainment.

Many of Twitch's top broadcasters stream for money. Viewers can either subscribe to individual channels for varying amounts, or they can make direct donations. (One viewer reportedly gave a popular World of Warcraft streamer a $10,000 contribution.)

These donations aren't always for personal profit. Some charities, such as Extra Life, run events with the help of Twitch. These charities typically challenge people to solicit donations through video game marathons that can last 24 hours or more, and it's fairly common for participants to stream the event to raise more money for their cause.

world of warcraft raid

Players can stream themselves and 24 other players taking down bad guys like this one on Twitch. (Blizzard Entertainment)

Game developers have also used Twitch to promote their games and announce major changes or new releases. Some companies, such as ArenaNet, even use the service to address their communities on a weekly or biweekly basis.

Beyond the money, Twitch offers a chance for competitive gamers to establish a reputation. As gaming tournaments grow into $10 million affairs, more and more people are trying to get into the competitions. Through Twitch, gamers can show off their skills, network with other gamers, and advertise themselves to team recruiters.

Of course, a lot of people stream on Twitch just for fun. Many gamers like to stream whatever they're playing at the moment while they interact with a live chatroom.

7) What kinds of games do people stream on Twitch?

Dota 2 international championship

Commentators prepare at the Dota 2 international championship, which is streamed live on Twitch. (Suzi Pratt / FilmMagic via Getty Images)

The most popular games on Twitch are competitive games like League of Legends, Dota 2, Counter-Strike: Global Offensive, and Hearthstone: Heroes of Warcraft. The top two games in particular are enormous entities with tournament prize pools in the millions of dollars, so Twitch gives many professional gamers a natural place to show off their skills.

A smaller group of broadcasters on Twitch also participate in what's called speed-running. These broadcasters try to clear classic titles, such as Super Mario 64 or The Legend of Zelda: The Ocarina of Time, as quickly as possible.

Besides the competitive, many people stream all sorts of games just for fun. Almost anything, from MMORPGs like World of Warcraft and Guild Wars 2 to sports games like FIFA 14 and Madden NFL 15, can be found on Twitch.

8) Are gamers happy with the sale?

bowser car super mario 3d world

Newer games like Super Mario 3D World can get a lot of recognition on Twitch. (Nintendo via Polygon)

Since rumors began circulating that Twitch would be sold, there's been a wide range of responses from gamers.

Gamers and broadcasters alike were very cautious of a Google acquisition. Some top broadcasters told Polygon in May that the acquisition would diminish competition, since it would leave the two major video streaming and recording options — Twitch and YouTube — under Google's control. They also argued that Google, already known for coming down hard on copyright infringement on YouTube, could go too far with copyright claims on Twitch.

"What it's going to do is very quickly shine a light on the murky nature of what a lot of streamers on Twitch do in regards to using content that doesn't belong to them," John "TotalBiscuit" Bain said. "Considering YouTube's ham-fisted approach to fair use and its frequently inaccurate automated Content ID system, I doubt any tightening up of the rules for streaming on Twitch would be without a lot of collateral damage to innocent content producers."

The sale to Amazon, however, received more positive reviews on NeoGAF, a popular online forum for gamers, journalists, and developers. Although many remain skeptical and cautious of a big corporation taking over Twitch, the general consensus seems to be that an Amazon acquisition is better than a Google one.

9) What's next for Twitch?

Twitch example

Not much should change about this service, according to Twitch's CEO. (Bloomberg via Getty Images)

In a letter to the community, Twitch CEO Emmett Shear said not much will change.

"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," Shear wrote. "We're keeping most 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."

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