The Reason Amazon Bought Twitch
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Amazon bought Twitch at a price of more than $1.1 billion, which includes cash of $970 million. So, what does Amazon get for all of this money?
Two things: They'll get a deeply engaged video audience as well as a media company that is already making money in a very unconventional way.
As for the viewers, Amazon knows the audience for live streaming video games is very large and growing. Twitch viewers, in 2013, watched an average of 1 hour and 45 minutes per day on the site.
Currently Amazon spends over a billion dollars each year for its video content; however, Twitch obtains all of its content absolutely free. Clearly the fact that there is already a hefty profit being made by Twitch is certainly interesting. We estimate that Twitch is already making in excess of $72 million on its run rate.
While Twitch does not disclose its current revenue or even the composition of its revenue, a source close to the company says that there are currently approximately 600,000 active subscribers that would bring in more than $36 million each year. However, when you add in the revenue brought in through advertising, which is the biggest part of their overall revenue, the total revenue would be, at a minimum, $72 million.
So, what is driving this phenomenal growth? Twitch viewing is not significantly tied to subscriptions, but many viewers buy a subscription as a way of showing support. They contribute support for popular broadcasters such as Cosmo Wright, MANvsGAME or Speedrunner" as an act of appreciation.
These broadcasters, after all, typically create many days' worth of viewing materials each month.
That is certainly a long way from the other video offerings from Amazon. Amazon's Prime Instant Video does offer some video, but it is bundled with their Amazon Prime subscription which costs $100 per year. Other video is either rented or sold at premium prices.
Initially, YouTube wanted to purchase Twitch. Now, with its purchase of Twitch, Amazon has something similar to its own version of YouTube.