Video Games

Watch me play video games! Amazon's Twitch platform draws users and dollars

By Matt Greco, "Squawk Box" producer
Students react to the video game during 'The Twitch Club' at a middle school, November 23, 2015.
Ricardo DeAratanha | Los Angeles Times | Getty Images

It's noon on the East Coast and Matthew Beardsley, known as Probly_ovr_9000 on the popular streaming website Twitch, is ready for his daily stream. He turns on his Playstation4 console and makes sure his mic and camera are working. When he goes live, he sees the numbers in his viewer count light up.

On an average day, over 100 people watch him stream Activision's "Destiny," a first person shooter game that has a huge online following. He gets a donation, and then his screen lights up with a subscriber. He gives a shout out and continues on his mission to go flawless to the lighthouse.

Beardsley is just one of thousands who stream on Twitch every day—looking to reach internet stardom.

Twitch was purchased by Amazon about 2 years ago. At the time, not many investors knew of the company or what it did. More importantly, people thought Amazon was crazy paying almost $1 billion for a video game streaming company. 'Who wants to watch people stream video games?' was a common refrain.

The numbers don't lie

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As it happened, however, lots of people do.

According to Piper Jaffrey's Gene Munster, Twitch had 100 million unique monthly users, two million active streamers, and more than 240 billion minutes of gameplay last year. By 2020, he believes, Twitch could be worth $20 billion, generating $1 billion in revenue.

Twitch has about 14,000 high profile streamers, or elite gamers, who generated $60 million in revenue last year through ads and subscriptions.

"Amazon believed in it enough to buy it for what they did. Gaming has been around for over 30 years and continues to grow worldwide," Beardlsey told CNBC in an interview.

"Streaming video games for a living is no less of a real job than that of someone who broadcasts sporting events, WWE wrestling matches, or even reports on news. At the end of the day we are all painting a canvas of creativity and adding color commentary to something we are interacting with," Beardlsey added.

Streaming video games for a living is no less of a real job than that of someone who broadcasts sporting events, WWE wrestling matches, or even reports on news.
Matthew Beardsley

Twitch, part of the Amazon Web Services division, is a fast growing part of that business, helping drive down the cost of Amazon's retail segment. Its success proves that yes, people will pay to watch video games after all.

Partnered streamers get a "sub button" on their page. Subscribers pay a monthly fee of $4.99 to that specific channel and get special features. About half of that $4.99 goes Twitch, while the other half goes to the streamer.

Noted venture capitalist and Social Capital founder Chamath Palihapitiya told CNBC that Twitch's success is part of a "virtuous cycle of retail to anoint services at scale, and then [Amazon CEO Jeff Bezos] turns around and gives them other services and businesses to use. It's really a fascinating company, and none of that was obvious even a few years ago."

But is there room to grow further?

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Beardsley says one of his inspirations is another streamer David Alen, otherwise known on Twitch as GuardianOutpost. He's the creator of #SupportSmallerStreams.

While not yet partnered, his channel is huge with smaller streamers who are looking to grow on Twitch. He provides advice, does a daily streamer spotlight, and often runs a podcast once a week.

"If I couldn't play the game, watching someone else play it was the next best thing. Plus I was able to interact with the broadcaster which to me was really, really cool," Alen said. "As an ex-radio broadcaster being able to interact and get instantaneous responses blew my mind. After watching for a few days I told myself 'I can do that.'"

David Alen, a.k.a GuardianOutpost, streams on Twitch.
Source: Twitch

Alen's channel has over 7,200 followers and more than 58,000 views. He's currently in the process of building a "stream team."

"People may think streaming is easy that we just flip a button and that's all that it takes, but it's so much more. For each person that visits my channel that's hours of work dedicated just for that one person. Even if it's 5 minutes, it's worth it because they chose to give me those 5 minutes," says Alen.

On average, pro-streamers can make between $3,000 to $5,000 per month playing 40 hours a week, just from the "sub button." That number doesn't include ad revenue, which averages about $250 per 100 subscribers.

I believe niche programming like Twitch is the future of entertainment. ... If you want to watch people play 'Destiny' all day you have a place to go.
David Alen

While nobody says exactly what they make, it's rumored that some of the biggest streamers are making over $300,000 per year playing video games. If Piper Jaffray's estimates are right, streamers like Probly_Ovr_9000 and GuardianOutpost can continue to grow—and the numbers could be huge.

"I believe niche programming like Twitch is the future of entertainment," Alen said.

"Traditional media will always be around—radio, TV, Movies. But with the emergence of Netflix, Hulu, YouTube, podcasting, and Twitch, these places have given the power and the control to the consumer," he added. "If someone wants to listen to a podcast that is all about 'Game of Thrones' they can go out and find it. If you want to watch people play 'Destiny' all day you have a place to go."

Amazon stock hits all-time high

Just this week, Amazon's stock hit an all-time high, and it announced a new service to directly take on YouTube, part of the Google unit of Alphabet. That has heightened expectations that the Web giant can evolve into a hub that offers a little something to everyone.

Only time will tell if Twitch can become the behemoth for Amazon that some predict. But Wall Street and streamers have bet big on the company's revenue sharing model.

"Twitch is so much more than just gaming. There is cooking, music, and creative channels and there are more channels coming that will make Twitch a place for everyone not just gamers," Alen says.