Amazon proves it's serious about gaming with Twitch buy

The online retailer isn't just buying a site that streams goldfish playing video games, it's buying access to the most loyal of gamers.

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Amazon's investment in gaming, which includes a game controller for its Fire TV streaming media box, hasn't taken off yet. Its latest acquisition could give it a push. Sarah Tew/CNET

By dropping nearly a $1 billion to buy video game streaming site Twitch, Amazon is telling gamers that it's no longer playing around.

The move, which includes a price tag of $970 million in cash, may seem odd to the online retailer's main customers, but it indicates Amazon wants a bigger piece of a multi-billion dollar gaming business. Buying Twitch, a site that live streams people playing games like League of Legends and DOTA 2, lets Amazon tap into the most loyal consumers of games -- the hardcore gamers.

"Twitch has fundamentally changed how games are consumed and interacted with, and it's a service that gamers and game broadcasters now find hard to live without," Amazon Vice President of Games Mike Frazzini said in a statement. "Playing video games started with single player gaming, then came multiplayer, now there's Twitch."

The Twitch acquisition is the latest in a series of commitments that Amazon has made to the gaming world. Amazon powers plenty of game makers through its Amazon Web Service cloud computing services, and promises mobile developers easy ways to make more money. In 2012, Amazon decide to make its own original games and launched Amazon Game Studios to create mobile games. It acquired game maker Double Helix in February to bulk up its developer team. In April, Amazon unveiled Fire TV, a media-streaming device with a dedicated gaming controller.

But those efforts have fallen flat where it arguably matters most: dedicated gamers willing to regularly spend their money on PC and console games.

"They've made a number of games and they've put out a number of exclusives on their own devices, and the reception has been mediocre at best," Gartner Analyst Brian Blau said. "When you look at Twitch; what it represents is access to the core gamer community."

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A fish plays Pokemon on Twitch. Screenshot by Nick Statt/CNET

It's a lucrative opportunity for Amazon, a company eager to tap into the estimated $100 billion gaming industry. Hardcore gamers are the ones buying gaming consoles and software, driving around 49 percent of sales, yet Amazon's previous tactics have not reached that audience, Blau said.

Twitch, the top live streaming site in the US, could provide a way in. It's a new media channel that allows Amazon to build a relationship with the most loyal of gamers, and it shows that the Internet retailer is willing to take a risk on a nascent business model. Twitch's approach -- live broadcasts of video game play -- is still in its developing stages. The site originally was a channel of Justin.tv, a live streaming site co-founded by Twitch CEO Emmett Shear and Justin Kan. The pair launched Twitch in 2011 and rapidly gained popularity, garnering more traffic than video-streaming site Hulu in February. Twitch really took off when it struck deals with Microsoft and Sony to power live streaming on the Xbox One and the PlayStation 4 consoles. It made headlines when some users decided to crowdsource a game of Pokemon, and then again for the broadcasting of fishes playing classic video games through the help of motion sensors.

Earlier this month, Justin.tv announced that it was shutting down its site in order to focus its resources on Twitch. The company said Monday its videos are reaching more than 55 million gamers. On average, users watch 106 minutes of streaming game footage a day.

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Twitch's Marcus Graham interviews Twitch CEO Emmett Shear and Amazon VP of Games Mike Frazzini during the Twitch townhall on Monday. Screenshot by Donna Tam/CNET

Twitch live streamed a town hall-style meeting late Monday afternoon, in which users could ask Shear and Franzzini questions. The most popular question? Would Amazon integrate Twitch's subscription program, Twitch Turbo, into Amazon Prime, the e-tailer's popular membership service?

"We have to look at this one closely," Franzzini said.

"It's a very cool idea," Shear said, adding that the companies are just in the beginning stages of their partnership so they don't know what kinds of integrations they will have in the future. Another question focused on the integration of Amazon Payments, which lets customers pay through their Amazon accounts while shopping on other sites.

"That's the kind of integration that we will be looking very deeply at," Shear said.

Twitch makes money by letting users place ads before a stream plays or through subscriptions. It wouldn't say how much revenue these methods generate, but Blau said the amount doesn't matter. Currently, its value is in its unique experience. While it is similar to YouTube, even Google's popular video sharing site hasn't been able to find traction among the live streaming community.

Google was also said to be vying for Twitch, but the deal fell apart because the tech giant wanted more control over Twitch's decision making, according to The Information. Amazon's Franzzini made it clear Amazon is keeping its hands off, for now.

"First and foremost, just keep doing what you do," he said at the townhall live stream. "We don't want to change Twitch at all."

But eventually, Amazon may use the channel to bolster its advertising dollars by controlling what ads appear before Twitch videos, or add premium content. Blau said Twitch represents uncharted waters, which could be a good thing for Amazon.

"It's an unknown path," Blau said. "There's a lot of opportunities."

CNET News Staff Writer Nick Statt contributed to this report.

 

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