The ESPN Of Video Games

Twitch has big-league audiences watching e-Sports online. They've got big advertisers' attention, too.

On the night Korea's SK TelecomT1 beat China's Royal Club to become world champions of the multiplayer online videogame League of Legends, Korea's Lee "Faker" Sang-hyeok turned in the performance of a lifetime. At a sold-out Staples Center in Los Angeles his expert Gragas helped score the first dragon of the game and secure early map control, thus assuring his place in history as one of the best midlaners ever. "We put in so much work, and we really trained well," he said. "We expected to win."

If all that sounds like gibberish, that's not surprising. Professional videogames, played live for an audience, are still a niche form of entertainment. But that niche is growing: Several million viewers tuned in for the League of Legends championships, suggesting that e-Sports could one day rival second-tier American spectator sports like soccer and hockey--and a website called Twitch may be what makes it happen.

"Watching live games instantly is one of the most important elements of a world-class sports experience," says Dustin Beck, vice president of e-Sports at Riot Games, the publisher of League of Legends. "Twitch brings the action to players across the world."

Like YouTube, San Francisco-based Twitch provides a platform to watch and share user-generated videos. But Twitch is focused on live game content and the booming e-Sports scene. The site has become most famous for hosting live games--as many as 10,000 video streams at any given time, ranging from professional tournaments to ordinary people playing games at home.

The audience for these games is massive. In October Twitch attracted over 45 million unique viewers, each watching, on average, 100 minutes of video a day. Those are outrageous numbers for a company that's just two years old. Six-year-old Internet video service Hulu--backed by Disney, NBCUniversal and 21st Century Fox--attracts just 30 million viewers a month, who watch for 50 minutes per session.

Twitch got its start with Justin.tv, a website originally conceived as a platform for streaming live video from a camera worn by Internet entrepreneur Justin Kan. The "lifecasting" concept never took off, but users were interested in the technology that allowed Kan--or anyone else--to broadcast live video on the site. "We realized we weren't good at making content, so we had to invite other people in," says Justin.tv cofounder and Twitch CEO Emmett Shear. "And people hooked up their Xboxes and started broadcasting. We had never even thought of that."

Live streams of people playing videogames began to take over the site, and in June 2011 Justin.tv spun off Twitch into its own company. "We needed a place that was dedicated to gaming," says Shear. "So we basically started over. We used a lot of the Justin.tv infrastructure, but I really tried to go back to square one and say ... What's right for gaming and not just live video?"

The Twitch formula emphasized the democratization of live broadcasting--anyone who figured out the software could have their own show--and promised to share in the wealth, too. Successful "streamers" could join a partner program that gave them a cut of ad revenue from their videos. Twitch also offered interactivity that other sports fans could only dream of--like the ability to chat live with other fans and with the hosts of the show.

"Twitch had a solution to something people hadn't identified as a problem, which is that there's a large demographic of Internet users who are used to real-time text and real-time information," says Michael Pachter, an analyst at Wedbush Securities. "Twitch provided a video solution to those people, where they're able to spectate and interact in real time. Nobody had done that before."

At the end of its first month of operation Twitch had 8 million monthly unique viewers and 17 million after its first year. "I don't think we realized how big it was gonna be," says Shear. "The response was phenomenal."

As the audience grew and Twitch became a go-to destination, others in the game industry began to take notice. In November 2012 Sony Online Entertainment released PlanetSide 2, a multiplayer online game that featured in-game Twitch integration--all players had to do was click a button in the game and it would start broadcasting live on the video service. In January 2013 Activision Blizzard's 's blockbuster Call of Duty franchise followed suit. Over the summer both Microsoft and Sony announced that their new videogame consoles, due this month, would include built-in support for streaming on Twitch: Just press a button on your controller and you are broadcasting to the world.

"We're big fans of what they're doing and the community they've been able to build," says Chad Gibson, program manager for Microsoft's Xbox Live service. "Twitch has really allowed games and players to have a larger stage... I think it's something that's going to help the entire industry."

Console integration will certainly help Twitch keep growing. Peter Warman, CEO of research firm Newzoo, says that the streaming features built into Microsoft's Xbox One and Sony's PlayStation 4 could double the traffic and time spent on Twitch's site. New advertisers, including Intel and American Express , are already sponsoring e-Sports tournaments broadcast on Twitch, and media companies like Wired, IGN and Joystiq have launched Twitch channels, creating original content to reach the site's audience.

But all that new video content will come at a high price. In September Twitch announced that it had raised $20 million in order to build up infrastructure in advance of the anticipated boom in new users. Twitch won't talk about its costs or revenues, but analysts believe it's profitable on an estimated $30 million in revenue. The company has raised a total of about $42 million in three rounds from such investors as Draper Associates, Bessemer Venture Partners and Thrive Capital and has probably spent much of it on the costly development and implementation of its video system. Twitch has about 100 employees and is on track to hit 150 by the end of 2014; the company just upgraded offices to a 26,000-square-foot space in San Francisco's Financial District once occupied by Standard Oil.

Still, observers are bullish about Twitch's prospects and say once the company completes its initial technology build-out it could quickly become one of the hottest media properties on the Web. "I don't think it's a fad--I think it's gonna grow," says Pachter. "I don't think that 50-year-olds are going to start watching League of Legends tournaments, but I think that the 20-year-olds watching now will still keep watching and that there are new 10-year-olds who will start watching. It's probably going to be a very sizable niche, and pretty stable."

Want to know how a pen-and-paper role-playing game gave birth to the video game industry? Order my book, Of Dice and Men: The Story of Dungeons & Dragons and The People Who Play It. And follow me on Twitter, Facebook or Google +.

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