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Amazon's $1B deal for Twitch a game changer?

Yahoo Finance
Yahoo Finance

Amazon (AMZN) wants to be a player in the content game. The e-commerce giant is expanding its reach into video games and original content in an effort to compete with Netflix (NFLX) and YouTube for the rapidly-growing audience for streaming video.

Amazon has agreed to buy Twitch, an online video platform and community for gamers, for $970 million in cash. Amazon reportedly could pay an additional $100 million if Twitch hits certain performance metrics. Twitch's 55 million global users either broadcast their gaming matches or watch other users compete. That user-base makes Twitch one of the 15 most-trafficked websites around the world. And that is a big deal for Amazon, as the rivalry for control of online content intensifies by the day.

Amazon’s decision to acquire Twitch proves Amazon wants to be a content player in addition to a retail juggernaut says Yahoo Finance Editor-in-Chief Aaron Task in the video above.

"A billion dollars for this thing?" Task asks. "But when you look at the numbers, it makes perfect sense for Amazon to go in there and buy this because the people who are dedicated to this stuff are so dedicated. That's been the story for years: gamers [are] recession-proof."

For anyone who watched the 66th Annual Emmy Awards on Aug. 25, it was obvious both from the list of nominees and the jokes that streaming content players like Netflix increasingly compete with network and cable television.

While Netflix was shut out of wins in the big categories, the streaming service more than doubled its nominations to 31 this year from 17 last year. Its original series "House of Cards" and "Orange Is the New Black" garnered nominations for best drama, best comedy, lead actor and lead actress.

Yahoo (YHOO) also has a growing slate of original content, including the upcoming shows “Other Office,” overseen by Paul Feig, the writer-producer of "Freaks and Geeks,” and “Sin City Saints” which follows the adventures of a Las Vegas expansion basketball team. Mike Tollin of “Smallville” is the executive producer.

Consumers of content are taking a broader definition of what "television" is and Amazon wants a bigger piece of the action. The company this week also announced a new batch of original programming for kids, a category that fosters a loyal or "sticky" subscriber base. The new pilots include three animated programs and will add to Amazon's three existing children's shows that launched this summer.

The twin efforts to expand into gaming and original content are a strategic move on Amazon's part as more and more eyeballs are focused on streaming video, and as a result, more and more advertising dollars.

“The strategy for Amazon is part of their broader strategy to get you to do so much more of what you’re already doing online at Amazon,” says Task. “They already have a great share of the market for online commerce, and now they want it to be a content play as well.”

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The gaming industry has proven to be extremely lucrative and research firm Gartner predicts the video game market will reach $111 billion by 2015. Twitch will present new opportunities for Amazon to target potential customers. For example, 32 million people visited Twitch to watch the "League of Legends" championship game – a bigger audience than the series finales of “Breaking Bad,” “24” and “The Sopranos” combined, according to The Wall Street Journal.

Related: Radical change to video games to target women

Twitch accounts for 43% of all live-video streaming traffic by volume. Twitch said 58% of its users spend more than 20 hours a week on the site, with the average user watching 106 minutes per day. Moreover, 68% of Twitch’s users report watching less TV to focus their time on game entertainment.

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