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Amazon and the $1-billion esports empire

If you’d told most people in 1994 that in 2014 there would be a website dedicated to watching other people play video games, they would have laughed at you. And yet on Friday Amazon concluded a deal to buy Twitch, an electronic sports broadcaster, for nearly $1-billion. 

This is less insane than it might sound. Electronic sports (esports) tournaments are already watched by tens of millions of people around the globe. The larger tournaments have prize money in the millions of dollars, and the most successful professional players earn more than $1-million per year

One of the most popular games – League of Legends – is hosting the finals of this year’s world championship at South Korea’s 67 000-seater Sang-am Stadium. Only a few thousand tickets remain available for the event, starting at R350 per person. The higher priced tickets were sold out within minutes. The prize money for the winning team? $1-million. Not bad if you’re a 17-year-old nerd.

Esports is a burgeoning sector of the world’s fastest growing form of paid entertainment: multiplayer online gaming. The global games industry is on track to hit $100-billion in revenues this year. That’s more than the world’s entire film and TV industries put together. 

But how on earth can video games be considered a sport? Simple: the games in question demand timing, teamwork and strategy. They have rules and limits. They require lightening fast reflexes, preternatural awareness and a cool head. A novice playing against even moderately skilled opponents would not just be beaten, they would be obliterated.

It’s this component of objective skill and ability – a factor only present in video games since the late 1990s – that makes for compelling viewing for millions of ordinary gamers. In that sense it’s no more strange than the millions of middle aged men watching the Ryder cup this weekend. It may seem like a silly game to some, but players know how difficult and unforgiving it can be.

The appeal of esports is unquestionable – Twitch alone has 55-million viewers in a single month. But does this deal make sense for Amazon? On the whole, yes it does. Twitch, unlike many other young online companies, appears to be making a profit. Although it does not share its revenue numbers publicly, analysing its advertising sales and subscription numbers suggests revenues of around $72-million in 2013.  

Twitch also has a clever affiliate strategy, similar to YouTube’s. Both professional players and gifted amateurs can broadcast their own games via Twitch and earn a cut of the advertising revenue. This community content drives Twitch’s revenue throughout the year, so that it does not rely entirely on large professional tournaments. 

Whether Twitch will fit comfortably in Amazon’s stable is another question. Jeff Bezos, Amazon’s reigning emperor, is famously irascible and domineering. The freewheeling geekiness of Twitch may be at odds with Amazon’s laser focus on efficiency and logistics.

But in many other ways the fit is ideal. Amazon has enormous depths of expertise in affiliate management, the marketing of user generated content and computing infrastructure. It has a global payment network and the kind of scale that allows you to relentlessly drive down input costs. The reach and resources it can provide Twitch could put it in the same league as YouTube (which flirted with buying the company earlier this year).

But mere facts will not be enough to convince most people that Twitch, and esports in general, is anything more than a fad. These scoffing dismissals remind me of people’s attitude to Facebook in 2006. And who remembers that company anymore?

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Alistair Fairweather
Alistair is the founder of PlainSpeak, a technology consultancy based in Cape Town.

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