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Google's YouTube Live has been badly beaten by Twitch.tv in the streaming video niche

Twitch.tv is reportedly about to become a part of Google's YouTube arsenal, with Google acquiring it for roughly $1B USD, according to reports in The Wall Street Journal and Variety.  Twitch is a service that allows gamers to post real-time videos of their gameplay.  It boasts over 45 million users (mostly watchers) and 1 million broadcasters.  It is a much used app on both the Sony Corp. (TYO:6758) PlayStation 4 and the Microsoft Corp. (MSFT) Xbox One.
 
I. The Purchase
 
The WSJ was the first to report on the impending purchase, posting on Sunday that Google had entered into serious acquisition talks.  Variety followed up with an announcement on Monday that a deal has been reached.
 
While word of the purchase has yet to be confirmed by either company, the deal -- while expensive -- seems a sage one from Google.  Twitch.tv was found in June 2011 by Justin.tv co-founders Justin Kan and Emmett Shear (the latter of whom served as its CEO).

Twitch.tv
Twitch.tv is the internet's top gaming live streaming video service.

Essentially a spinoff of Justin.tv's much-used gaming channel, the rebranded service grew by leaps and bounds thanks to $20M USD in seed funding.  One early backer was Thrive Capital, a venture capital fund for Princeton Univ. and other institutional investors. Thrive had already struck gold with its Instagram investment (following the Facebook, Inc. (FB) acquisition).  Rockstar Games publisher Take-Two Interactive Software, Inc. (TTWO), Bessemer Venture Partners, Alsop Louie Partners, and WestSummit Capital rounded out the group of early investors.
 
II. It's All About the Live Streams, Baby
 
As of this month, Alexa ranks Twitch.tv the 180th most visited site in the U.S. and the 252nd most visited site in the world.  In terms of traffic by bandwidth, the site is the fourth largest in the U.S., trailing only Google, Apple, Inc. (AAPL), and Netflix, Inc. (NFLX).
 
In February it accounted for 1.8 percent of peak U.S. internet traffic, according to a report in The WSJ which cited statistics from DeepField.com.  Notably, Twitch was slightly ahead of Hulu (1.7%, 4th), Facebook (1.5%, 5th), Valve (1.3%, 6th), and Amazon.com, Inc. (AMZN) (1.2%, 7th).  Network-equipment vendor Sandvine reported that Twitch in March 2014 represented roughly 1.35 percent of all downstream peak traffic bandwidth in the U.S., triple its usage from a year before.

Twitch Banner
Twitch.tv is the fourth largest internet traffic source in the U.S., at present.
[Image Source: EvilGeniuses on Twitter]

By contrast YouTube has 1 billion users uploading over 6 billion hours of video per month -- enough to earn it 13.2 percent of peak traffic (2nd place) in the March report, just behind Netflix (1st place).  
 
But YouTube's weakness is Twitch.tv's strength -- live streaming.  YouTube already has a live-streaming service -- YouTube Live -- but it has trailed Twitch.tv in usage.  As of March, according to Qwilt, Twitch was responsible for 44 percent of video streaming traffic, putting it well ahead of YouTube Live.

YouTube Live
The move should help with monetizing Twitch.tv's large user base.  While current ad revenues are unclear, it is obvious that with a user base that large, Google can turn those clicks into dollars.  YouTube already has extensive experience monetizing gaming-themed content channels such as gaming personality Felix "PewDiePie" Kjellberg, who with 27 million subscribers is YouTube's most watched personality.  YouTube has over 100 gaming themed channels with a million subscribers or more.
 
Twitch is not the only Justin.tv spinoff to be scooped up by investors.  As one of the oldest sources of (mostly) legal streaming video content, Justin.tv has produced a number of spinoffs since its 2006 launch.  A social-video-sharing app called SocialCam was acquired by AutoDesk, Inc. (ADSK) for $60M USD in 2012.  Exec, a spinoff relating to housecleaning services, sold for $10M USD earlier this year according to The WSJ.
 
Google had previously invested in Machinima, a network of gaming-themed YouTube posters that largely focused on so-called "playthrough" videos.  That stake was for a minority share, not a full acquisition.  YouTube itself is a Google acquisition, purchased in 2006 for $1.65B USD.  Google also made a number of high-profile robotics and high-altitude drone acquisitions in recent months.

Sources: Variety, WSJ





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