Google Could Expand Into eSports if YouTube Buys Twitch.tv for $1 Billion

Google’s YouTube is reportedly acquiring top video game streaming site Twitch for $1 billion. What does this mean for the future of eSports?

May 19, 2014 at 10:34AM

Google's (NASDAQ:GOOG)(NASDAQ:GOOGL) YouTube has reportedly reached a deal to acquire video game streaming platform Twitch for more than $1 billion, according to Variety.

Twitch, which lets users upload and watch live gameplay videos streamed from PCs and consoles, has over 45 million monthly users and over 1 million active members who upload videos monthly. Combining that kind of traffic with YouTube, the most popular video streaming site in the world with over a billion unique monthly users, could help Google tap into fresh new sources of advertising revenue.

Image

Source: Author's screenshot.

Although neither Google nor Twitch have officially confirmed the report, the deal could provide a big boost for YouTube. Back in February, Twitch was ranked fourth in peak Internet traffic in the U.S. by analytics company Deep Field, putting it ahead of Hulu, Facebook, Valve (Steam), and Amazon. Only Netflix, Google, and Apple generate more peak traffic than Twitch.

The business of watching video games
Twitch's astounding growth is a testament to the rising popularity of eSports (electronic sports), in which professional video game players duke it out in popular games like League of Legends, Starcraft II, and Call of Duty: Black Ops II. With higher-bandwidth connections and mobile viewing apps, eSports viewership is skyrocketing.

Last month, Super Data Research and Newzoo reported that eSport viewership doubled in 2013 to 71.5 million viewers worldwide. In the U.S., one in four gamers have watched or participated in eSports, and an average viewer watches 19 times per month for an average session length of 2.2 hours. 34% of eSports viewers are women, and over half are between 21 to 35 years of age.

Image

The 2011 Blizzard Cup. Source: Wikimedia Commons.

That impressive year-over-year growth, retention rate of viewers, and popularity among both sexes all clearly indicate that eSports are getting too big for advertisers to ignore.

How Twitch generates revenue
Taking note of that growth, CBS (NYSE:CBS) Interactive signed a deal with Twitch in April 2012 to exclusively sell advertising, promotions, and sponsorships on its site.

That deal ended in June, and Twitch set up its own in-house advertising team to book full profits from ad sales. Meanwhile, Electronic Arts, Ubisoft, Valve, and Tencent's Riot Games have directly integrated Twitch into their gaming platforms to make broadcasting and viewing games a seamless experience. Microsoft's (NASDAQ:MSFT) Xbox One and Sony's (NYSE:SNE) PS4 also offer built-in Twitch features.

Like YouTube, Twitch offers its partners (popular streamers) a cut of the advertising revenue that they generate for the company. Twitch partners are required to have an average concurrent viewership of more than 500 viewers and must broadcast at least three times per week. Twitch's primary competitor, MLG, has started poaching some of Twitch's top partners with promises of higher cuts of ad revenue. However, MLG is only a fraction the size of Twitch with 9 million registered users.

Advertising accounts for the lion's share of Twitch's top line, with the remainder generated by subscription services and premium accounts, which offer users new badges, emoticons, and an ad-free experience for $8.99 per month. It's unknown how much revenue Twitch actually generates, but the company notably secured $20 million in Series C funding last September.

What's Google's play?
Google does not disclose how much revenue it generates from YouTube alone. Back in 2008, Forbes estimated that YouTube generated approximately $200 million in annual revenue. Over the past three years, that growth has accelerated considerably. Research firm eMarketer estimates that YouTube's gross ad revenues were $2 billion in 2011, $2.7 billion in 2012, and $5.6 billion in 2013. YouTube generates revenue in two main ways -- pre-roll advertisements and banner ads.

That impressive growth indicates that YouTube's growth is becoming much more important to Google -- nearly doubling from 5.5% of its top line in 2011 to 10% in 2013. That rapid growth can be attributed to the spread of Google's ecosystem among mobile users worldwide. At the end of 2013, Google Android claimed 78.4% of the global smartphone market and 61.9% of the tablet market, according to Strategy Analytics and Gartner. 80% of YouTube's traffic originates from outside the U.S.

Image

Twitch for Google Android. Source: Google Play.

Google wouldn't need to completely integrate Twitch into YouTube -- that would be costly, technically difficult, and possibly cause Twitch partners to flee to MLG. Instead, Google will probably let Twitch continue generating revenue on its own, then use YouTube to broadcast pre-recorded Twitch highlights to boost its own advertising revenue. Moreover, Twitch's current partners in gaming would become Google's partners as well.

The bottom line
Google clearly wants a stake in the growing field of eSports. Twitch is the most direct way to invest in the industry, and a $1 billion investment might seem like a steal later on if eSports viewership continues rising at its current trajectory.

However, Google might run into a few problems. First and foremost, federal regulators aren't going to just let Google acquire the fourth most-trafficked site in America without asking some major questions. MLG could raise antitrust concerns on grounds that no smaller competitor in eSports streaming could compete with one backed by Google's cash hoard of $57 billion.

So what do you think, fellow gamers? What will Google do with Twitch, and how will it affect the growing eSports industry? Let me know in the comments section below!

The biggest thing to come out of Silicon Valley in years
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Leo Sun owns shares of Google (C shares). The Motley Fool recommends Google (A shares) and Google (C shares). The Motley Fool owns shares of Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers