Why Twitch is worth $1B to Google

Google wants to buy Twitch — at least that’s the rumor. We don’t know when this will happen or what the deal will look like if it actually goes through, but it’s pretty clear why it might happen.

Twitch has 45 million people coming to its site every month to watch livestreaming gameplay. It is already the world’s largest video website for video gaming, which is a huge subcategory that attracts young people. Those millions of youthful eyeballs are worth a ton to advertisers who are constantly looking for ways to market products to the elusive crowds of teens, twentysomethings, and beyond. Google’s YouTube already does a great job with marketing to young people, but Twitch is potentially even better. That’s why it makes a lot of sense that Google would want to drop $1 billion for the livestreaming company — and that’s why $1 billion is actually a bargain.

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“From Twitch’s perspective, that price seems low,” IDC research manager Lewis Ward told GamesBeat. “Given [Twitch’s] growth path, it just seems like an affordable price for a company that has that many viewers.”

Variety reported last night that YouTube will pay $1 billion in cash for Twitch. The Wall Street Journal countered that story with its own sources who said the two companies are only talking. We’ve reached out to Google and Twitch, but we received “no comments” all around.

The rapid growth of Twitch

Last year, Twitch released a report that found the average age of its audience is 21. More than 76 percent of the viewers are in the fabled “demographic” between the ages of 18 and 49. Those are the people most desired by advertisers as they often have the most disposable income and are still susceptible to influence.

Twitch’s audience also comprises many of the people who advertisers are no longer reaching on television. According to the livestreaming company’s survey, 68 percent of its audience has decreased the amount of time they’ve spent watching traditional TV to instead focus on watching livestreaming gameplay.

And gamers binge on livestreaming.

More than half of the 45 million viewers spend 20 hours per week on Twitch, according to the company. The amount of time people spend on the site is growing, too. In 2012, the average viewer spent 85 minutes per day on Twitch. That number jumped to 106 minutes per day in 2013.

The growing audience is largely attributable to the variety of content gaming fans can find on Twitch.

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The site long ago established itself as one of the top destinations for competitive gaming. Developers like Riot Games, which produces e-sports hit League of Legends (an online strategy game), uses Twitch to broadcast its tournaments. The indie block-building phenomenon Minecraft owes a small portion of its success to the gameplay streams that fans have watched along with on Twitch since it debuted on PC several years ago. Sony and Microsoft have both integrated Twitch into their latest home consoles, the PlayStation 4 and the Xbox One. The fanatical speed-running community, which has players trying to beat games as quickly as possible, has grown bigger every year thanks to Twitch.

The site also made headlines earlier this year with Twitch Plays Pokémon. This livestream enabled thousands of people to simultaneously control the classic Game Boy role-playing game by entering commands into the chat. At points, over 100,000 people were watching and playing.

All of these groups, events, and more have seen the number of individual broadcasters on Twitch grow to over 1 million every month. That is up from 300,000 streamers per month back in 2012.

If this deal goes through at the rumored price, it’ll come just weeks after Facebook paid $2 billion to acquire the virtual-reality startup Oculus VR. Ward thinks that — compared to the Oculus deal — YouTube is potentially getting a real bargain on Twitch.

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“So, Oculus is worth $2 billion? But Twitch is $1 billion? The idea that Twitch — with its huge number of viewers and potential advertising dollars — is worth half of Oculus makes no sense to me,” said Ward.

And it’s not just that Twitch has so many viewers, it’s also that the livestreaming site’s business model is probably worth more to Google than just about any other company.

“This is in-line with where I see Google going,” Ward said. “Obviously, YouTube has been a phenomenal success for it, and Google has made its own attempt to get into live broadcasting, but Twitch is the lead broadcasting site. So this makes sense as the natural evolution of YouTube.”

Twitch hasn’t revealed how much it is making, but it has raised $43 million in funding. That includes $20 million in September. The company said at that time that it expects to turn a profit this year.

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Should gamers worry?

Additional reports claim that Twitch actually chose YouTube over other suitors like Microsoft. The conditions of the deal with Google will likely dictate just how independent Twitch will remain as a subsidiary. For example, while Google owns YouTube, the video site operates as its own company. Twitch may look for a similar deal under the YouTube umbrella.

Still, gamers and the people who stream video regularly through Twitch have some concerns based on the past actions of YouTube. Primarily, the video site’s tendency to favor Hollywood and corporations over its users. This came to a head in December when YouTube started flagging thousands of videos (some with millions of views) for violating copyright. A number of these copyright notices hit gameplay videos and came from companies that did not even own the games in question.

In a few notable situations, several developers’ got copyright notices on their own games.

This is especially troublesome for YouTube creators who make their income completely from the site’s revenue sharing. Once a clip gets flagged, all of the revenue goes to the copyright holder instead — again, even if that copyright claimant didn’t make the game.

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YouTube responded to the concerns of its content creators, but it never addressed the issue that random companies are able to take down videos so easily. This is still an issue for YouTube.

Twitch also has a revenue-sharing partner program, but it hasn’t had the same problem with automatic takedowns. Broadcasters worry that, under YouTube, Twitch may change.

We’ve reached out to some of Twitch’s partners to ask about their specific concerns, but many are staying quiet on the subject. Others have posted their thoughts to YouTube itself:

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In response to those concerns, Ward points out that Google has a pretty good history of giving its acquisitions space.

“Google tends to have a very decentralized structure,” he said. “The acquisitions that they make — it typically isn’t the case that they suddenly bring in new managerial layers to start telling the new company what to do. Google seems very comfortable focusing on solving the problems of its subsidiaries — even losing money in the process — with the assumption that if it gets enough eyeballs, then some business model will end up working itself out.”

Twitch founder and chief executive officer Emmett Shear is fond of telling his team that they can’t stop until gamers can watch live gameplay and broadcast gameplay from every device. It’s likely that he thinks YouTube is the best way to accomplish that, and it’s also likely that he won’t abandon that goal if he makes the deal with Google.