Amazon Bets on Content in Deal for Twitch

On Wednesday night, I spent time on Twitch.tv watching people watch people play StarCraft II, Call of Duty and League of Legends.

When you cover media, you get used to meta activities, but staring at my computer watching an audience watch others play streaming video games was a new level of remove. There were funny, eccentric grown-ups, but also a lot of teenage boys talking profane smack on headsets, often with corrosive rap spinning in the background, as they maneuvered through seemingly impenetrable game environments.

After surfing around for 90 minutes, I couldn't help asking, is this really a thing?

Actually, Amazon believes it's a $1.1 billion thing. Last Monday, the company announced it would buy Twitch, which surprised most industry observers because they thought Google had wrapped up a purchase. It surprised me because I had no idea what Twitch was.

My demographic hem is showing. I've always taken pride and interest in staying with the wave, swimming in a sea of devices, apps and new business models. But even as video games threaten to become bigger than Hollywood in terms of gross revenue, I've never caught the bug. Maybe if I had had sons instead of daughters, or taken more of an interest in Madden NFL rather than the actual N.F.L., I'd be in the know. I'm not, but I knew what I needed to do. I called Clark.

Clark is the 17-year-old son of friends of mine at our summer place. I have spent many hours there chatting with him about his custom-built gaming PC, which, he tells me, includes dual Asus GTX graphics processing units, 16 gigabytes of Crucial Ballistix Sport memory and extra cooling units to keep the beast from overheating while he is busy killing targets. He likes Twitch, of course.

'It's a community, or really a bunch of communities within communities, organized around certain games,' he said.

So ... all these people gather online to listen to people discuss the games they are playing as they play them? 'They don't just talk about the games, they talk about themselves, too,' he said. 'You learn stuff and you can see their faces, so you can see emotions and what makes them laugh.'

'It isn't like TV,' he added. 'In gaming, you are the character, you're the one that that's deciding.'

Twitch has built a platform that hosts live events akin to the N.F.L., the United States Open or the X Games - and it has the audience to show for it. Part of the magic is that on Twitch, you are not just watching other gamers, but hyper-talented digital warriors, the Peyton Mannings and Roger Federers of Counter-Strike and Minecraft.

From a standing start in 2011, Twitch garnered 55 million unique users in July who watched 155 billion minutes of gaming and has become the country's fourth-largest user of Internet bandwidth.

Even the gamers on Twitch were surprised how much it was worth. I was watching someone named Sing_sing play Dota 2 - don't ask, I couldn't tell you - and he murmured to the people watching, '$970 million, I don't even understand how that works,' referring to the cash portion of the purchase price. As he tried to destroy something called the Ancient, he added, 'I guess it's because the numbers keep growing and growing.'

They certainly do. According to The Wall Street Journal, last October, more people - 32 million - watched a championship for League of Legends, on various streaming services including Twitch, than saw the finales of 'The Sopranos,' '24' and 'Breaking Bad,' combined.

Amazon's desire to outmaneuver both Google and Yahoo and get its hands on the controller at Twitch probably makes sense. Demographically, it's a bit of a leap - Amazon's user base looks more like me than the young people on Twitch, but then, that's sort of the point. You have to build your next cohort of customers.

And after years of contenting itself as the biggest online retailer of hard goods, Amazon has made its media ambitions clear - part of its future lies in occupying screens of all sorts.

But finding a place in the media hierarchy among the traditional players and digital insurgents like Netflix that have a head start is a long, expensive grind. Just last week, Amazon unveiled a slate of five traditional television pilots with big names attached. But so far, the original programming, created for its Prime subscription service, hasn't caught fire.

The economics of Twitch are compelling partly because it supplies its own content and audience, comparable to an oven that produces its own food. But it wouldn't be streaming all that content to giant audiences if it didn't get the technology right. People who marvel at the growth of Netflix would do well to remember that it cracked the code on the technology side of streaming before it ever competed for Emmys. Netflix caught on because the service worked.

Similarly, Twitch won in a space where others failed because it got the infrastructure right. Gaming is a bandwidth hog, and Twitch is able to host multiplayer games, large events and commentary because the company invested in at least 15 data centers jammed with servers. If that sounds familiar, keep in mind that Amazon became the dominant online retailer on Earth by using technological might to remove friction and frustration from the buying experience. No one has its hands on more cloud capacity than Amazon, so bolting Twitch into Amazon on the tech side - it will remain independently run - will allow it to scale without interruption.

Amazon has made its own investments in gaming, but the costly Twitch acquisition - the second-biggest in its history after the $1.2 billion it paid for Zappos in 2009 - positions the company in a complicated media future where traditional television series will compete for mindshare with game lords, shopping and makeup stars on YouTube as well as celebrities' Instagram feeds.

There is a huge land grab for nontraditional models of programming. DreamWorks Animation bought AwesomenessTV, a popular YouTube channel, last year, and in March, Disney snatched up Maker Studios, a video supplier for YouTube, while Peter Chernin, formerly president of News Corporation, has invested in Crunchyroll, a streaming hub of anime. All of these deals are about content, but they are also a hedge, a way of exploring other production protocols that don't involve prominent stars, agents and expensive producers.

Michael Frazzini, vice president for Amazon Games, framed the Twitch purchase in vivid, simple terms in an interview with Time magazine.

'I think it's fairly safe to say at this point that on anything with a screen, games are the No. 1 or 2 activity,' he said.

Amazon sells those screens - the Kindle, Fire TV and Fire Phone - and buying Twitch, along with deals with HBO, Nickelodeon and other providers, means that it has the software assets - in this case, entertainment - to animate sales of those devices. You need look only at the role of iTunes in the development of iPods and then the iPhone to understand how a ready universe of desirable content can move units.

Say what you want about game nerds, there is clear value in owning so much screen time of a hard-to-reach demographic of young men. Even if I don't get gaming, I am beginning to understand the larger game it represents.

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