Prepared for Charles L. | Delivered September 1, 2020
Amazon's 2014 Acquisition of Twitch
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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
, "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 (
) 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
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%).
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
in paying for it.
Amazon is notorious for keeping its strategic plans under wraps. This is why their
announced plan to purchase Twitch
caught a lot of experts off guard. "Amazon acquired Twitch after
Google had regulatory
concerns over adding Twitch to their long list of assets."
, Amazon’s Twitch buy “
was an investment in bolstering
Amazon Web Services (AWS), the company’s $7 billion-plus cloud-computing juggernaut.” It provided Amazon the opportunity to add game development to AWS’s business. This is a plausible explanation, but providing startups and developers with a low-cost development platform was in fact a secondary reason for the purchase." Twitch
was also acquired with a broadcasting-specific end result.
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."
TechCrunch, in late March 2017,
Twitch added game sales to its business. This move made sense given that
Twitch is an independent subsidiary of Amazon
, its loyal customers spend hours watching game play on Twitch and would likely have been purchasing merchandise and games from another business prior to the introduction of this offering."
"Unlike traditional online retailers, Twitch offers
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."
that Amazon was
allowing partners and affiliates
to sell to Twitch customers. Being able to drive additional revenue from loyal customers ensures that Twitch becomes sustainable and less dependent on Amazon’s investment.
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
with its tech, according to
, adding tools that “
make it easier
for loyal fans to never miss a new video.”
Amazon was also tapped by Activision to stream an eSports league. "
According to Bloomberg
, Activision Blizzard Inc will
English, Korean, and French
for its new professional league for players of the video game Overwatch on Twitch."
, 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
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."
"Much like YouTube, Twitch
from advertisements, which it integrates into its streams; it also makes
money from subscriptions
. Twitch also makes money through its
two subscription models
, the Amazon-affiliated
, as well as
Twitch also earns a cut of the site's in-app currency called "Bits;"
viewers buy Bits to fund live shout-outs to streamers they like."
Summary Of Our Early Findings Relevant To The Goals
Our initial hour of research was spent ensuring that the research question could be answered with publicly available sources, and then providing relevant and salient data points that set the table for future research.
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