To have a broad understanding of the business and strategic ramifications of Amazon's purchase of Twitch in 2014. An ideal response would include the financial, strategic, and larger business reasons for Amazon's acquisition of Twitch.
According to this Forbes article, "Amazon will be able to make incremental profits by monetizing Twitch’s video streams through pre-roll ads. It will leverage the platform to promote its own merchandise sales by gauging viewer preferences. Before the purchase in 2014, Amazon had seen a slight slowdown in the growth of its media segment and the acquisition presented an opportunity to rejuvenate that growth."
"Amazon paid nearly $1 billion ($970M) for Twitch which implied that the company was expecting the acquisition to generate incremental cash flows of roughly $50 million in 2015, growing annually at a CAGR (compounded annual growth rate) of 15% in the foreseeable future." (This calculation is based on Forbes assumption of weighted average cost of capital of 12% and terminal growth rate of 2.5%).
This paywalled source states that it has the larger picture surrounding the reasons why Amazon acquired Twitch. While we do not have access to it, we thought we would present the link in case there was interest in paying for it.
In 2016,Twitch Prime was introduced and then added to the growing family of Prime benefits. "This set of benefits is aimed specifically at gamers and includes discounts on game pre-orders and new releases, free digital titles, in-game bonuses, and a no-ad option on Twitch, along with a free monthly Twitch channel subscription. Twitch Prime is available to Amazon Prime members in the US, Canada, Italy, France, Germany, Belgium, Austria, Spain, and the UK (as well as customers in countries where Amazon Prime isn’t offered, but monthly Prime Video subscriptions are available). Essentially, Amazon is providing existing Prime customers the benefits of Twitch, as well as marketing Amazon Prime to a new group of customers who might purchase a Twitch subscription and eventually become regular Amazon customers."
"Unlike traditional online retailers, Twitch offers several incentives to encourage Twitch users to buy from its site, including a free “Twitch Crate” containing items that can be used on the site while watching streams and interacting with other users."
Getting a foothold in the content broadcasting game appears to have been the real reason for the acquisition. And Amazon has been taking further steps to do that since acquiring Twitch.
"First, Amazon has been challenging YouTube with its tech, according to Ars Technica, adding tools that “make it easier for loyal fans to never miss a new video.”
According to Recode, Twitch partnered with the NBA on a trial aimed at younger audiences that may want “a reinvented take on sports TV.”
"In 2014, Twitch accounted for 40% of the live streaming traffic in the United States and 1.8% of all internet traffic, second only to Google, Netflix and Apple. In 2017, it surpassed legacy network ESPN in audience size and live streamed more content than ESPN, WWE, and ML combined."
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