Twitch Buy Highlights Amazon’s $20B Bet on Technology & Content
Forget all the corporate intrigue about how Amazon outfoxed Google in its head-turning $970 million acquisition of video-game broadcasting site Twitch.
If you want to be truly impressed by the Seattle retailer’s ever-increasing ambitions, just take a look at how much it’s sunk into digital infrastructure and media projects over the past few years.
Amazon has dramatically ramped up its spending on a category it calls “Technology and Content” in that time, from a mere $680 million in 2009 to more than $6.5 billion last year. Add the more than $4.2 billion spent in the first half of 2014, and you’re looking at more than $20 billion in spending over just five and a half years.
As with all things Amazon, it’s hard to tell what exactly goes into making up that growing expense. The company is infamously tight-lipped about its plans and tends to hide the exact shape of its financial trends by lumping together relatively unrelated projects in its regulatory filings.
But we can say for sure that Amazon’s spending in this area reflects its drive to make money all over the digital content landscape—from the books, movies, TV shows, and games that people consume, to the Internet infrastructure it takes to deliver them, and the devices they use to access it all. Oh, and throw in digital advertising for good measure.
Big Bucks for Media
Analysts who follow Amazon for Wall Street investment banks have a difficult time pinning down how much money the company is spending on its digital content initiatives, which compete with Netflix and Hulu, among others. But it’s certainly a big pricetag, and only getting bigger.
Amazon picks up digital video in two ways: by licensing it from outside producers like HBO, and by paying to create its own programs, such as the political series “Alpha House.”
Some of that licensing revenue is folded into the catch-all “cost of sales” category in Amazon’s financial reports, particularly for video bundled with its Prime annual subscription package. But other digital media expenses are part of the “technology and content” segment.
In any case, there seems to be a rough consensus that Amazon probably spends $1 billion-$2 billion a year for digital video, and that figure is growing—the company recently disclosed that it plans to spend more than $100 million this quarter on original content alone, a figure that has “ramped up considerably” from last year.
Amazon also has existing content offerings in the video game world, where it’s established its own studio after a few years of stealthily building up a development team. Those games can be played on its Fire TV device, along with tablets and smartphones (Amazon sells its own Fire brand of those devices too, although its not clear that they’re putting much of a dent in the market).
By purchasing Twitch, Amazon is also staying true to its longstanding mission of competing with the middlemen who have traditionally profited from producing the media that consumers enjoy. This meta-project started in the world of book publishing and has moved into the TV and video game worlds. Owning a big source of streaming video just means there’s one less provider Amazon has to pay to attract an audience.
Building the Digital Plumbing
Amazon has also spent heavily on growing Amazon Web Services, its pioneering cloud-computing business. This expense also isn’t broken out on its own, but is included in the “technology and content” section that reached more than $6.5 billion last year.
The company has long said these expenses will increase as it seeks to “invest in several areas of technology and content such as Web services, expansion of new and existing product categories and offerings, and initiatives to expand our ecosystem of digital products and services.”
That also helps to explain why Amazon wanted to pony up for Twitch. The young company not only brings Amazon a bunch of eyeballs—it claimed 55 million unique monthly visitors in July—but also the technology that makes it possible to stream live video-game play to users all around the globe.
Amazon hinted at that technological advantage in the news release announcing the Twitch acquisition: Amazon CEO Jeff Bezos said his company would “look forward to learning from them and helping them move even faster to build new services for the gaming community.”
Industry analyst Jan Dawson of Jackdaw Research also notes that Twitch’s livestreaming technology could be used for more than video games in the hands of a big infrastructure player like Amazon, especially considering its move into smart TV devices and its “Mayday Button” live tech-support system.
“Twitch could be a very interesting addition to the Fire TV proposition, both from a broadcast and a viewing perspective, and Amazon could also build some of the same functionality into Kindle Fire tablets,” he wrote. “Given Amazon’s investment in Mayday, which is also a one-way live video connection, there may be other things that could be built on the back of the infrastructure.”
Here’s a chart that tracks Amazon’s reported spending on its “technology and content” category since 2009, with a projection for the rest of this year based on the rate of spending through June 30.
In its most recent annual report, Amazon said the increase in this spending is “primarily due to increases in payroll and related expenses, including those associated with our initiatives to expand our ecosystem of digital products and services, and increased spending on technology infrastructure, including AWS.”