Amazon And Microsoft Pay Big For Twitch And Minecraft

The video game industry has experienced some surprising and high profile business acquisitions lately. The summer started strong in May with rumors of Google purchasing video game streaming giant Twitch. By August, gamers and financial analysts alike were equally surprised when news broke that it would be Amazon, not Google, purchasing Twitch. The price? 970 million dollars. Cash.

Then, just a few weeks ago, Microsoft decided it would follow suit in using deep pockets to gain an even tighter grip on the gaming industry. Microsoft announced it would be purchasing Mojang, the developer responsible for immensely popular title Minecraft, for 2.5 billion dollars. It’s been an expensive summer.

It’s not that exorbitantly expensive mergers and acquisitions are uncommon in this industry. Square and Enix merged in 2002 for over 764 million dollars. Electronic Arts bought Bioware/Pandemic in 2007 for 860 million dollars. Last year Activision Blizzard even bought itself out for 8.2 billion dollars. The video game industry spares no expense. However, understanding why a certain game, developer, or platform is worth a fortune is the name of the game, and what makes the recent Twitch and Minecraft purchases so intriguing.

It makes sense that Amazon bought Twitch. Amazon has had its sights on the video streaming market for some time now. Amazon Instant Video surpassed iTunes and Hulu in web traffic in the U.S. this past March. Amazon followed this success by launching its Amazon Fire TV media streamer box, which also has some gaming capabilities. Acquiring Twitch seems to be the next logical step in cornering the streaming video and gaming market. Plus, Twitch has affiliated itself with Amazon before. In addition to using Amazon Web Services such as Elastic Cloud Computing and Redshift, Twitch also sports an Amazon Fire App that has been quite popular. As more and more people cut the cord to their cable providers, streaming entertainment is really the next big thing.

The Microsoft Minecraft purchase, on the other hand, seems like yesterday’s big thing. 2.5 Billion dollars is a lot to pay for a game that was released in 2011. Now to be fair, Minecraft has sold 54 million copies across multiple platforms and is a merchandising and licensing juggernaut. That doesn’t count for nothing, but Microsoft has stated that it plans to break even on the deal in roughly a year. In the black or in the red, Microsoft is rolling the dice on this deal, and it may have more in common with the Twitch purchase than it seems on the surface.

Minecraft is more than a single game, or even a potential franchise of games. Like Twitch, it is a platform and a community. Gamers have been arguing for decades that gaming is an interactive and social experience and it seems that corporate America is finally getting the hint. Gaming forums, communities, channels, and networks offer an opportunity for advertising and subscription revenues that far outstrip the sticker price of any given game by itself. Maybe that is what Amazon and Microsoft are actually buying here: more direct and extensive access to their current and future target consumer base.

What does this mean for game developers? It means that games that lend themselves to online communities will be highly desirable to financers, distributors, and consumers. They don’t have to have pretty graphics. They don’t have to be expensive. They just have to be engrossing, entertaining, and social. The message underlying the Twitch and Minecraft acquisitions seems to be that the money is in the experience, and the experience is better when it is shared.