Tyler "Ninja" Blevins might be an unfamiliar name to investors who don't follow esports, but the 28-year-old is the world's most popular gamer. Blevins was the top streamer on Amazon's (AMZN -0.16%) Twitch (a live video platform popular with gamers) with over 14 million followers and an average of 40,000 weekly viewers.

Blevins, who previously played for several professional gaming teams, rose to fame after he started streaming Epic Games' Fortnite: Battle Royale two years ago. His massive fanbase, which includes over 22 million subscribers on his YouTube channel (which doesn't feature live streams), attracted major sponsorship deals -- including an appearance in an NFL ad and a $1 million payment for promoting Electronic Arts' Apex Legends.

That's why esports viewers were recently stunned by Blevins' decision to abandon Twitch and move his live streams to Microsoft's (MSFT 0.23%) Mixer. The Verge claims that Microsoft paid Blevins over $50 million to make the switch -- a whopping amount for a single celebrity gamer. Let's see why Microsoft paid such a massive amount for Ninja's channel, and whether or not it will hurt Amazon's gaming ambitions.

A gaming keyboard, mouse, and headset.

Image source: Getty Images.

Mixer is still a tiny underdog

Microsoft launched Mixer (originally called Beam) in January 2016, but the service never gained much momentum. Mixer accounted for just 3% of all game streaming hours in the second quarter of 2019, according to StreamElements, putting it in fourth place behind Twitch (72.2%), Alphabet's YouTube (19.5%), and Facebook Gaming (5.3%).

Mixer was integrated into Windows 10 and the Xbox One, but it struggled against Twitch and YouTube for two reasons. First, Twitch arrived in 2011, giving it a big head start and making it the preferred platform for top-tier gamers like Ninja. YouTube also leveraged its lead in streaming videos to expand into the gaming market. Second, Amazon started bundling Twitch memberships with Prime memberships after it acquired the company in 2014.

Mixer makes money with subscriptions to individual channels, "embers" (bought with real money) for tipping streamers, and "sparks" (earned for passive viewing) which can also be used for tips. Twitch monetizes its streams in similar ways, with channel subscriptions and "bits" for tipping.

A gamer plays a PC game.

Image source: Getty Images.

What is Microsoft's game plan?

Microsoft doesn't disclose how much revenue it generates from Mixer, but it's likely a tiny amount relative to its total gaming revenue -- which rose 10% to $11.4 billion in fiscal 2019 and accounted for 9% of its top line.

Microsoft generates most of its gaming revenue from sales of Xbox One consoles, games, and subscription services like Xbox Live and Xbox Game Pass. However, its hardware sales turned negative in recent quarters as the console cycle matured. Its software sales, which previously offset its hardware declines, also slipped in the fourth quarter as Fortnite generated less revenue.

Microsoft's hardware sales could rebound next year when it launches its next-gen Xbox, and it's aggressively expanding its software and services ecosystem with the development of xCloud, its cloud gaming answer to Google's Stadia and Sony's PS Now.

Microsoft realizes that streaming video platforms serve as crucial hubs for the gaming market. Amazon can integrate its other gaming efforts, including games from Amazon Game Studios, into Twitch. Google is integrating Stadia into YouTube, turning it into an all-in-one platform for playing and watching video games. Many PS4 gamers also stream their games to Twitch and YouTube.

That's why Microsoft was willing to pay Ninja more than $50 million (over an unspecified period) to join Mixer. Microsoft desperately needs to build up a streaming video foundation for games before its next-gen Xbox and xCloud arrive, or it could be left behind the tech curve as Amazon and Google pull ahead.

But will Microsoft's strategy pay off?

Ninja's Mixer channel topped a million subscribers just five days after he left Twitch. However, Mixer also gifted free two-month subscriptions to Ninja's channel, so some of those subscribers could leave after the free period expires. Waning interest in Fortnite could also throttle the channel's subscriber growth.

Poaching Twitch's top star represents a major coup for Mixer, but it's unclear if other major Twitch streamers will follow suit. Some Twitch users are already calling Ninja a "sellout" for abandoning the platform, and Microsoft might need to write even more massive checks to attract top-tier streamers.

For now, this battle doesn't matter much to Microsoft or Amazon, both of which generate tiny slivers of their sales from streaming platforms. But if Microsoft fails to expand Mixer, its gaming business could lose a potent tool for locking in gamers and viewers.