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Why Google Wants to Get Hitched With Twitch

NEW YORK (TheStreet) -- Emmett Shear may shortly be a very rich man. If the media buzz about Google's (GOOG) (GOOGL) plan to buy out live-streaming site Twitch for a rumored $1 billion is on the money, the founder-CEO of the three-year-old start-up just made it big.

Google is eyeing Twitch because of its huge popularity in the area of live streaming content -- especially video gameplay, a strong and growing niche. YouTube might rule the social video scene, but this is an opportunity to boost both its own live streaming service, as well as eliminate the competition, all in one stroke.

The deal is at an early stage, with both companies avoiding formal comment. But Twitch has been attracting the interest of myriad suitors, including Microsoft (MSFT) for some time now. Microsoft's Xbox, apart from Sony's (SNE) PlayStation have both partnered with Twitch to allow their users to broadcast their video game sessions on the Web site.

Twitch's popularity has led to it racking up some impressive growth numbers. It had 45 million unique monthly visitors in one month alone, and accounted for 44% of all U.S. live-streaming traffic during peak days. It's also been picking up awards along the way.

Twitch users tend to be hardcore gaming buffs who spend long periods of time watching content, as opposed to YouTube users who typically watch shorter chunks of content. Advertisers, especially those willing to pay for premium ads, are much more likely to pay top dollar for Twitch's levels of user engagement than YouTube's.

For Google, advertising is fundamental to its business model. It has maintained a dominant position with YouTube, so it's necessary to keep in sync with fast-changing user trends. Google's aggressiveness on acquisitions demonstrates that philosophy.

For Twitch, which has raised close to $20 million in venture capital funds in 2013, this is an ideal scenario. Hold out for a lucrative exit by continuing to stay independent, or cash out now when issues of scale haven't yet hit home.

The rumored price of $1 billion is the same as what Facebook (FB) ended up paying for photo app Instagram. That acquisition has worked out really well for the social network, which was struggling to get a toehold in the photo sharing space. Facebook acted similarly when forking out $19 billion for WhatsApp.

Gamers, who tend to regard themselves as an elite, far removed from the general entertainment audience, have also largely been positive about the planned acquisition by Google. Games like "World of Warcraft" and "Counter-Strike" are now part of mainstream popular culture, and with Google's marketing muscle behind Twitch, the number of converts to this pastime can only grow.

For the stock markets, it seems like a summer of high profile acquisitions. Apple's (AAPL) rumored plans to buy Beats and AT&T's (T) purchase of DirecTV (DTV) will keep the market buzzing as stocks react to these developments. Stakeholders in these buyout-target companies will be laughing all the way to the bank, including, by the looks of it, Emmett Shear and his billion-dollar baby.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff


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