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Okay. So what is Twitch, and why would Google want to buy it?
Twitch is a fast-growing service that lets people — mostly men — watch livestreams of other people — mostly men — playing videogames.
And it is booming: When Twitch started up in June 2011, it claimed five million users a month. In 2012, it was up to 20 million. By the end of last year, that number had jumped to 45 million. Broadband service provider Sandvine says Twitch now accounts for 1.35 percent of Internet traffic during peak hours in North America. That’s more than HBO Go’s 1.24 percent.
As for the rationale, here’s an easy way to think about it: Facebook’s Instagram deal. That is: Google — specifically YouTube, in this case — is Facebook. And Twitch is Instagram.
Like Facebook, Google would be buying a service that it already provides: YouTube has been offering gamers a chance to watch other gamers play games for a while. And it has proven it can do live streaming video at a very large scale, too.
But live isn’t a real focus for YouTube, and live is what makes Twitch work. So does its unambiguous focus on gaming. Twitch started growing fast when it got picked up by serious players using it for competitive “eSports” matches.
Over time, Twitch has moved to make its tools more accessible to non-professional players. The ability to broadcast directly to Twitch is baked into both the Xbox One and PlayStation 4, and the company has recently begun experimenting with mobile game streaming as well.
Today, a top Twitch channel for a game like Hearthstone or League of Legends can easily attract tens of thousands of live concurrent viewers at any time. But there are many, many smaller channels — Twitch says about a million of its users are also broadcasters — that are made for and watched by much smaller audiences.
The site makes money from video ads that can be targeted to certain channels or games, and from paid subscriptions to channels that remove those ads. Subscriptions generally cost about $5 per month, and Twitch says about 300,000 of its viewers are paying subscribers to at least one channel.
This year, Twitch has groomed itself as a potential hub for “interactive game streaming” experiments like Twitch Plays Pokémon, which make it possible for viewers of a stream to control or affect the game by leaving certain types of comments. Although interactive streaming started as a funny viral phenomenon, it has since attracted the interest of the companies behind new games. Twitch has started to characterize itself now as a social network-y place where “cultural creation” happens, rather than just a pipe for video content.
If the deal goes forward, it will be Google and YouTube’s second attempt to invest in the gaming business. In 2012, Google led a $35 million investment in Machinima, a YouTube network that also specialized in videos about videogames. For a while, Machinima looked like one of YouTube’s most powerful properties, and a year ago it was seeking a very big investment round at a very big valuation.
But Machinima stumbled and went through multiple layoff rounds and management changes. Earlier this year it ended up accepting a much more modest debt deal, led by Warner Bros.
Peter Kafka provided additional reporting.