AT&T’s $49B deal to buy DirecTV will create a pay-TV behemoth second only to Comcast/TWC. However, Google’s $1B deal to buy Twitch is more forward-looking and potentially way more disruptive.
Assuming the purchase of DirecTV by AT&T is approved, it will create a company with 26M pay-TV subscribers. This will place the joint company second only to Comcast/TWC, which will likely have around 30M pay-TV subscribers after the merger.
Although the synergies between Comcast and TWC are arguably stronger than between DirecTV and AT&T, both deals are about economies of scale and bargaining power, at least from the point of view of pay-TV. The two companies will control over 50% of the pay-TV business in the US. This will give them each huge bargaining power with content providers, allowing them to contain costs better and improve profitability.
What neither deal will do is ignite a huge surge in growth in (US) subscribers. Pay-TV simply hasn’t got any room for massive growth. The best that both companies can hope for is to hold on to what they have, or perhaps to steal customers from each other.
The Google deal to buy Twitch is in a radically different position.
Twitch was founded in 2011 with a very simple goal: to create an online arena where gamers can watch other gamers compete live. The company has worked with game developers and game console makers to allow gamers to easily share any of their game play sessions through their Twitch channel. And millions of gamers are choosing to do just that.
The company is now driving more live video traffic online than any other service. According to Qwilt, the transparent caching company, Twitch now accounts for 44% of live streaming traffic online. That eclipses WWE (17%), MLB.com and ESPN. Twitch is attracting 45M visitors per month, which is as many as other top video sites like Yahoo!, NDN and AOL.
Though both Twitch and pay-TV are anchored by live broadcast, the two experiences couldn’t be more different. Live broadcast TV is rigidly scheduled, without any individual customization. With Twitch, the experience is as diverse as the audience viewing it. Particular interests are catered to explicitly. Like the game League of Legends? You can watch any of 113 thousand people playing that game.* Want to watch your favorite player LegendaryLea? She’s playing right now and being watched by 36 thousand other gamer fans.
Twitch has create a platform where gamers both contribute the content and watch it; and where they and the company can also make money. Google believes it can help Twitch grow that model considerably. With the company’s incredible reach through YouTube, it may well be right.
The difference between the AT&T/DirecTV and Google/Twitch deals is fundamental, reflecting the different stages of the businesses. The former is about protecting markets, retaining subscribers and containing costs. The latter is focused on accelerating market growth, attracting new users and expanding revenue. Looked at another way, this is about where the audiences are, and where many are going.
Why it matters
The deals between AT&T/DirecTV and Google/Twitch highlight the different trajectories web video and pay-TV services are on.
Pay-TV is working to protect markets, retain subscribers and contain costs.
Web video services like Twitch are working to accelerate market growth, attract new users and expand revenue.
*I checked Twitch’s site at 3:17PM PDT on May 19 and 113,840 people were playing the game and streaming through Twitch.