In one of its biggest deals to date, Amazon is buying Twitch for more than $1.1 billion, including $970 million in cash. What does it get for all that dough?
Two things: A video audience that’s deeply engaged, and a media company that’s making money in an unconventional way.
Let’s start with the viewers. Amazon knows there’s a big, growing and likely sustainable audience for videogame livestreaming. In 2013, Twitch viewers watched an average of one hour and 45 minutes on the site per day; more than half of them watched an average of 20 hours per week.
Those viewers, according to broadband networking company Sandvine, represent 1.35 percent of all downstream traffic in the U.S. during peak times. That’s not far behind Amazon Video’s 1.9 percent. Bear in mind that Amazon is likely spending more than a billion dollars a year on its video content, and that Twitch gets all its content for free.
And that makes the fact that Twitch is already making good money even more interesting. By our estimates, Twitch is already on a run rate of more than $72 million.
About a million of Twitch’s 55 million monthly users are also broadcasters, and a small percentage of those participate in its Partner program, which lets them take a cut of video ad revenue and offer their fans premium subscriptions, typically priced at $5/month. Those subscriptions don’t really do much, other than offering access to a members-only chat room or an HD video stream. Everything you can see on Twitch, you can see for free.
Twitch does not currently disclose its revenue or that revenue’s composition. But a source familiar with the company said the site currently has about 600,000 active subscriptions, which would be $36 million a year. However, the source added, advertising currently represents the majority of overall revenue. That would put the total at more than $72 million at minimum, though the source said the gap between the two monetization types is still significant.
The success of those subscriptions has come as a surprise for the site. If the number of subscriptions keeps growing as it has since they were introduced in February, the source said, subscription revenue will have overtaken advertising by this time next year.
So, what’s driving that growth? The subscriptions may have little impact on the Twitch viewing experience, but viewers primarily buy them as an act of charity or patronage. They chip in for a popular broadcaster like MANvsGAME or Cosmo Wright, a “speedrunner” who tries to complete games as fast as possible, as a token of appreciation.
After all, those broadcasters often create days of viewing material every month.
That’s a far cry from Amazon’s other video offerings. Some video is available on the Netflix-esque Prime Instant Video service, which is bundled in the $100/year Amazon Prime shopping subscription. The rest is sold or rented at premium prices, in line with the fact that it costs a good chunk of change to produce in the first place.
YouTube initially wanted Twitch. Now, by buying Twitch, Amazon has its own little YouTube.
This article originally appeared on Recode.net.