Why it makes sense for Amazon to buy Twitch?

Today came the surprising news that Amazon will acquire Twitch, a startup best known for live streaming video games. The company has since confirmed the news, and a press release states Amazon will pay $970 million in cash. At first glance this marriage doesn't make a lot of sense. Amazon isn't well known as a gaming service and its video offerings are principally from film and television studios, not user-generated content. But when you look at where these two companies are trying to go, not where they currently sit, the combination of Amazon and Twitch could be genius.

Gamers were upset when it was reported back in May that Google was acquiring Twitch, the video game streaming platform, and planning to integrate with YouTube. The service was tightly linked with the gaming community and many were worried about how it would fare inside a big corporate parent. But it was hard to argue with the billion-dollar price tag, and in a lot of ways Twitch and YouTube were already forming a perfect compliment to one another, with Twitch the best choice for live streams of video games, but most archived videos performing best over time on YouTube.

Amazon is clearly very keen to get into gaming. It created its in-house gaming studio back in 2012 and has made a few lightweight Facebook and mobile games since then. It signaled it was getting more serious with the acquisition of Killer Instinct developer Double Helix Games and hiring of Kim Swift, the designer behind the classic Portal game. The company's new Fire TV offered a selection of games created by Amazon's in-house team and even has a Amazon joystick you can buy separately, hinting at aspirations to compete with consoles like the Xbox and PlayStation. The company already sells everything under the sun, so it only makes sense for them to add games to the books, films, and TV shows they offer, but getting the love and respect of that community is tough. Twitch has gamer support in spades. According to a source familiar with the deal, Amazon is the biggest digital distributor of games after Valve's Steam store, and it believes Twitch could help it to capture even more of that market.

For Twitch, being acquired was always about finding a partner that could help it keep up with its massive growth. As The Verge reported back in May, Twitch was being offered hundreds of millions in new funding from its previous investors, but felt that it simply couldn't scale with capital alone. It needed a company with global infrastructure already in place that it could piggyback on. YouTube certainly fit the bill. But Amazon, with its Amazon Web Services, also has the kind of international presence to ensure Twitch can stream live video to millions across every continent. Twitch in turn could be the live-streaming platform that powers everything from gaming to concerts to sporting events that play on Amazon's family of Fire devices.

Increasingly, Twitch was also running into licensing issues as it grew in size. In recent weeks it's made changes to the way it handles in-game music, muting a lot of copyrighted background tracks when it doesn't have agreements in place to cover for archived video. YouTube has dealt with this issue a lot, and certainly seemed like the perfect partner to ensure a broad licensing deal. Amazon doesn't have the same experience dealing with numerous copyright claims against user-generated content, but it does have the deep pocketbooks and relationships in place with the big record labels who appear on its streaming music service.

Why would Twitch choose Amazon over Google? It's not the money, since Amazon is paying less than Google reportedly offered. A source familiar with the deal suggested Twitch felt Amazon would give it more autonomy and bigger role in growing the gaming and video side of the business. At Google, Twitch would have always been YouTube's little brother. At Amazon, it has the chance to build something from scratch, as Amazon has no user-generated or live video offerings yet.

This deal could radically shift the landscape of live video. With both Twitch and YouTube, Google would have huge stakes in two of the biggest, fastest-growing video platforms on earth. Given Jeff Bezos' ambitions, it's no surprise he's willing to pay a premium to remain a contender for that future. Twitch has recently courted game developers as well, showing signs that it might create its own titles. Given Amazon's reputation for sacrificing profits in favor of ambitious bets, and Google's spotty track record integrating acquisitions, Twitch may have decided the house of Bezos was the best place to keep building.


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