Twitch: It’s More Than a Game

YouTube’s rumored $1 billion acquisition of videogame streaming site Twitch may not be getting the same level of scrutiny as the Apple/Beats deal, but it certainly is getting a great deal of attention for all the right reasons.

Much of the speculation so far is focused on the surface benefits: 45 million users acquired over the course of only three years, a foothold into the videogame community (which YouTube surely knows is a high-volume source of its streaming activity), and of course…the advertising dollars that come with both.

But there are bigger, more interesting reasons why this acquisition makes sense. Key among them is the live-stream capability that Twitch brings to the table. YouTube’s world is full of millions of archived user-generated videos and official “professional” content. Yet we’ve seen the company struggle to monetize all this content with advertising. Live events, while fewer in volume, have something that the millions of archived videos don’t – scarcity.

Scarcity raises the cost of any adverting set against it. And live events are the ultimate provider of this valuable asset. And YouTube wants it. Look, for instance, to YouTube’s partnership with music video provider Vevo. While YouTube is the technology partner that allows Vevo to stream its exclusive content across the Web, the two compete directly against each other to lock in the exclusive rights for live music events. Three years ago, Vevo stole away the exclusive rights to the popular Bonnaroo music festival, previously hosted by YouTube. Meanwhile, YouTube continues to hold the live-stream rights for Coachella (dubbed “Couchella”).

With viewership reaching between 5 and 10 million, the advertising behind live events can reach into the mid- to high seven figures. There’s also the option for pay-per-view models (which Phish did with its New Year’s Eve run a few years back for between $15 and $55).

While great potential, live-streaming can be a bit…janky, with buffering, poor video quality, and other bugs potentially degrading the experience. Twitch has done a lot of work on this on the quality end, while YouTube has the servers to handle the volume that Twitch has lacked.

The second, and related, interesting opportunity Twitch holds for YouTube is its integration with next-gen game consoles like Xbox One and the PS4. Gaming videos may be the content than brings Twitch to those game platforms, but both consoles are eyeing usage beyond gaming to other forms of entertainment content, and Twitch gives YouTube the stepping stone needed to deliver exactly that.

Nearly a quarter of the overall time spent on videogame consoles is accounted for by video-on-demand and streaming video services, and has been growing by the year as more services find a home on these devices. To grow this, it’s only natural to target gamers using game consoles to not only play games but watch live-streams of other gamers playing their games. Getting them to watch live-streams or videos of other things is a far shorter leap. Video is a multiplatform world, so establishing a presence on game consoles is a nice way to shore up that link of the chain.

Taking these factors into account, it’s clear YouTube isn’t playing around. This game goes far beyond gaming, and YouTube would gain a great deal of muscle if this Twitch acquisition goes through.