Amazon is taking direct aim at YouTube as the e-commerce giant grows into a digital media Goliath, agreeing to acquire video-streaming service Twitch for $970 million in cash, the company said Monday.
The Information first reported news of the deal earlier on Monday.
YouTube had reportedly been in talks to buy the company, whose ad-supported service lets people stream live video of their video game play.
Amazon has traditionally focused its media efforts more on rivaling Netflix, with its subscription-based Amazon Prime video service offering movies and TV shows without ads. But over the last year the company has made several moves that put it in more direct competition with YouTube for online video audiences and ad dollars.
In February Amazon opened up its video ad business when it began running pre-roll spots against pilot episodes of several of its original series. And in July -- after courting several YouTube networks last year -- Amazon added an ad-supported short-form section to its online video service, which includes content from YouTube networks such as Vevo and Maker Studios.
Amazon makes the majority of its money from e-commerce, but it has built up a significant ad revenue stream over the years. Amazon generated $750 million from advertising revenue in 2013 and is expected to notch more than $1 billion this year, according to eMarketer estimates. The bulk of that money comes from display ads.
Now Amazon has clearly its sights set on the more lucrative video ad business, which made up the majority of YouTube's estimated $5.6 billion in revenue last year.
Amazon's short-form video push appears to be taking advantage of YouTube's biggest vulnerability. While companies like Vevo and Maker Studios have been able to build multimillion-dollar businesses thanks to YouTube's free, ad-supported distribution, many have struggled to strike a profit and cited YouTube's 45% ad-revenue cut as a big reason why. That has led online video networks and creators to seek other distribution avenues in addition to YouTube in order to grow their revenue. Yahoo has been among the more aggressive companies in trying to woo YouTube's top creators. Last August, however, influential venture capitalist and Maker Studios investor Mark Suster called Amazon the biggest threat to YouTube.
$137.8B U.S. ad spend for top 200 advertisers
Amazon might already have an advantage in courting YouTube creators. In an attempt to become one of YouTube's main rivals, Amazon is buying one of the Google-owned video service's first rivals. Twitch originated in 2007 as Justin.TV, an online video service focused on live feeds, in contrast with YouTube's on-demand library of pre-recorded clips. Many YouTube stars like Justine Ezarik, better known as iJustine, grew their early audiences on Justin.TV, but YouTube still eventually trumped the service.
Buying Twitch won't immediately put Amazon in YouTube's weight class. Twitch counted 55 million monthly viewers in July, which is a fraction of the billion-plus people who check out YouTube each month. But it has grown to become one of the top video-streaming services: Last year Twitch topped HBO Go's share of North American internet traffic, a proxy for time spent watching, according to network infrastructure provider Sandvine.