Reps for Twitch and Google declined to comment.
Twitch was created by the founders of Justin.tv, a website designed for users to “lifecast” themselves with online video. After a growing number of videogamers began using Justin.tv to broadcast their gameplay, the company launched the dedicated Twitch.tv service in mid-2011.
Privately held Twitch has raised about $35 million in funding — meaning the $1 billion deal is a significant windfall for its backers. Investors include Bessemer Venture Partners, Alsop Louie Partners, WestSummit Capital, Take-Two Interactive Software, Thrive Capital and Draper Associates. Twitch Interactive, which includes Justin.tv, has about 130 employees.
San Francisco-based Twitch says it has more than 45 million monthly users, who watch an average of 106 minutes of video daily. Users can upload and watch free, live gameplay videos from Microsoft Xbox One and Sony PlayStation 4 consoles. Twitch generates revenue through ads and as well as subscriptions, with about 300,000 paying members.
With Twitch, YouTube could extend live-streaming to other categories, including with multichannel network partners like Disney’s Maker Studios and Machinima, which focuses heavily on the male-oriented videogame segment. YouTube’s own efforts to intro live broadcasting have had limited success to date.
Google and YouTube also want Twitch because it has established a proven model for subscription-based video. A year ago, YouTube launched a paid-channel initiative with 30 partners, including The Jim Henson Co., NatGeo Kids, Nelvana Enterprises and DHX Media. But to date, the pay channels have seen very little traction. Meanwhile, the Internet-video leader — which generates a large amount of traffic from music videos — expects to launch a paid music service in the next few months.
One potential issue with Google’s Twitch deal is that regulators may challenge the transaction if they believe the combination of the No. 1 online-video platform (YouTube) and the No. 1 live-streaming Internet service (Twitch) raises anticompetitive issues. Google’s lawyers have been preparing for such an objection, sources said.
In March 2014, Twitch represented 1.35% of all downstream bandwidth on North American fixed-access broadband networks during primetime hours, nearly triple from last fall, according to bandwidth-equipment company Sandvine. YouTube’s share of downstream bandwidth was 13.2%, while Netflix remained the biggest consumer of traffic with 34.2%.