The internet is abuzz with the rumor that Google is about to acquire Twitch, the videogame-focused spinoff of Justin.tv. The price? $1 billion.
A lot of the coverage has focused on Twitch's monthly audience of 45 million unique viewers, which is certainly impressive. Just about the only TV program that exceeds that level of audience is the Superbowl, which scored 111 million viewers this year.
Of course, Google's YouTube reaches 1 *billion* viewers per month.
The real value of Twitch, as with other live video services, lies in the broadcasters.
Think about where the switching costs reside. It's not with the viewers. When I'm reading blogs, I barely notice if an embedded video is hosted by YouTube or Vimeo. I might notice if it's on Hulu, just because of the incredibly annoying and unskippable ads.
Anyone who owns a blog knows that incumbency is powerful. Heck, I'm still using Blogger, and that's after I was offered personal help to switch by the folks at Automattic (I swear, Matt, I will get around to it!).
Besides the switching costs, there's the fact that compelling content draws in viewers. Think of the role of professional sports in traditional TV. Each time the various sports leagues renegotiate their contracts, we see new records being set. Owning the TV rights to a major professional sport is a license to print money.
It's not hard to speculate that videogaming, which may very well be the sport of the 21st century, will one day draw similar bidding wars. Google's just getting a jump on the negotiations by locking in broadcasters now.
Further, videogames are nearly ideal for online video--you don't even need fancy cameras to capture the most detailed of closeups!
Of course, videogames are just the beginning. There are plenty of other types of killer content for live video, such as sports, live music, and talk shows. Think about how much Live Nation pays for the rights to a concert tour, or how Oprah made her billions.
Twitch has about 1 million broadcasters per month. $1,000 per monthly broadcaster is a pretty hefty price, one which other live video companies will be hard pressed to refuse.
Disclosure: I own stock in Ustream.tv, a live video service that has 77 million monthly viewers...and 2 million broadcasters.