Amazon said it’s paying $970 million in cash for the online gathering place for gamers. The deal, which trumped Google Inc.’s pursuit of the startup, is worth about $1.1 billion when including retention-related payouts, said a person familiar with the deal, who asked not to be identified because the talks are private.
The acquisition gives the Web retailer an online forum of more than 55 million monthly active users, where people discuss games or watch others as they play. Bezos, Amazon’s chief executive officer, has made video games a focus of a strategy to add more entertainment services. The company operates a game studio in Seattle and has been luring software developers to build more video-game titles for its Fire TV set-top box, Fire Phone and Kindle Fire tablets.
“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,” Bezos said in a statement yesterday.
Bezos is spending on other media as well, including $100 million to produce TV shows to watch through Amazon’s Instant Video service, a music-streaming service and a book-subscription plan. Amazon also struck a deal with Time Warner Inc. to carry HBO shows.
As Amazon competes for customers’ attention, the programming adds value for users of its Prime membership and various devices, according to James McQuivey, an analyst at Forrester Research Inc.
“All of these become that much more valuable when they are populated with Amazon content, whether it’s Amazon TV shows, or live streams of somebody else playing a video game on Twitch,” said McQuivey. “Every minute that you’re involved in an Amazon-led experience is a minute you’re not at Wal-Mart or not with Apple or Google.”
As any parent who has seen a group of teenagers sit around taking turns playing video game knows, they enjoy watching each other play. With Twitch, users can view and share clips of gameplay virtually, both for entertainment and to learn new ways to advance. Video-game publishers have taken note of the trend and are now building the capability to share to Twitch directly into their products.
Twitch is highly valued because of its engaged audience and gives Amazon opportunities to sell advertising and to steer shoppers to its online store to buy a game, controller or other accessories, said McQuivey.
“It’s a community of passionate fans who spend money on video games and that’s what makes it a valuable audience for Amazon,” he said.
Amazon wasn’t the only suitor. Google and Twitch were in talks earlier this year on a transaction that valued Twitch at about $1 billion, a person familiar with discussions said in May. As the deal with Google was being discussed, investment banker Frank Quattrone introduced Twitch to other potential bidders, one of the people said. Sally Palmer, a spokeswoman at Quattrone’s Qatalyst Partners LLC, didn’t return a call for comment.
Amazon and Google are in the midst of an intensifying rivalry. In addition to battling for customers watching an increasing amount of video through the Internet, the two companies also are competing for business in online data storage and Internet advertising.
“A lot of companies were really excited about what Twitch was doing, and Amazon made the most compelling offer,” said Ethan Kurzweil, a partner at Bessemer Venture Partners, an investor in the company.
Twitch is Amazon’s second-biggest acquisition, following the $1.19 billion purchase of Zappos.com Inc. in 2009. When the Zappos deal was announced, it was worth $817.9 million and involved stock, which increased in value because of a jump in Amazon’s share price. Amazon hasn’t been as prolific a deal maker as Google or other large technology companies, buying 18 companies since 2012, according to data compiled by Bloomberg.
Instead of acquisitions, Bezos has been pouring money into other elements of Amazon’s business, including same-day delivery, fulfillment warehouses and new products like its Fire Phone smartphone and Fire TV. The spending has crimped the company’s profit, with the Twitch deal roughly matching Amazon’s total net income from the past three years.
The interest in Twitch also shows that as people move more of their entertainment habits online and away from traditional television, the value has increased for online video companies with large user bases. Walt Disney Co. recently agreed to purchase Maker Studios, an online-video distributor, for as much as $950 million.
“Cracking the code on how to build an audience with online video is increasingly hard to do,” Kurzweil said. “That is what Amazon is going after.”
Twitch, which is based in San Francisco and run by CEO Emmett Shear, is available via online streams and consoles such as Sony Corp.’s PlayStation 4 and Microsoft Corp.’s Xbox One. Started about seven years ago as Justin.tv, the service has evolved to where 1 million people shared videos in February.
The company was initially billed as a way for people to share live videos of themselves. According to Alsop Louie Partners, one of Twitch’s earliest investors, co-founder Justin Kan broadcast his life 24 hours a day, 7 days a week, wearing a head-mounted camera and a backpack containing a computer and several cellular modems to stay connected to the Internet.
(An earlier version of this story was corrected to show that the Twitch acquisition is Amazon’s second-biggest.)
To contact the editors responsible for this story: Pui-Wing Tam at email@example.com Reed Stevenson