This Market Is Bigger Than Esports, and Amazon Already Has a Slice

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In recent years, video games have sort of broken the stereotype of the loner teenager cooped up in his or her room all day twiddling thumbs on a controller. And, yes, you have to mention "her" -- that's another stereotype broken. As you'll read about in this article, there are almost as many women as men interested in video games. In fact, 41% of gamers are female. Also, 67% of gamers 13 and older play games to be social, according to a study by Nielsen

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This is reflected by the tens of millions of gamers tuning in to watch others play games on Amazon.com's (NASDAQ: AMZN) Twitch.tv -- a social network for gamers -- which makes Amazon a crucial gateway to the rapidly growing esports market, as well as a crucial bridge for advertisers to connect with cord-cutting millennials.

The Game Video Content market

It might seem strange why anyone would want to sit around and watch someone else play video games -- but trust me, in some ways it is more fun than playing games yourself. What's known as the Game Video Content (GVC) market doesn't get as much attention as esports, but it's much bigger than the $696 million esports market, and it's growing just as fast.

SuperData estimates that between YouTube and Twitch (which are the two main game streaming sites), over 600 million people watch others play games. Out of this audience, Twitch captured 185 million viewers in 2016. The total GVC audience doubles the current esports fan base of over 300 million, and both esports and GVC viewers are estimated to grow at roughly the same rate over the next three to four years -- 20% to 21% per year.

The massive GVC audience generated $4.6 billion in revenue last year, according to SuperData, mostly from ads and sponsorships. While Twitch only has 16% share of GVC viewers, it's able to capture 37% of GVC revenue. This is likely due to Twitch's subscription feature, which allows viewers to pay a monthly fee to support their favorite streamers. Additionally, Amazon recently launched the ability for viewers to buy certain games directly from Twitch streams. Amazon is clearly milking Twitch for everything it can get, which should allow Twitch to continue generating a disproportionate share of GVC revenue in the future.

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The advertising opportunity

No doubt, as the GVC market grows, it will attract more advertisers wanting to connect with millennials who are generally a difficult audience for advertisers to reach. That difficulty is most likely caused by cord-cutting -- and millennials are estimated to be the biggest cord-cutters on the planet. SuperData estimates that 20% of GVC viewers are cord-cutters, which is more than double the general population.

According to market researcher GfK, people between the ages of 18 and 34 totaled 43% of the cordless population. That is the core age range of the GVC audience, where the top streamed games are generally hyper-competitive games. These games appeal to esports fans, which are primarily a millennial demographic. Twitch and YouTube attract many of these esports fans with exclusive deals with esports organizers to stream live tournaments.

What's more, GVC viewers have a higher female viewership than you might believe, with women making up 46% of the viewer base. So, not only is the GVC market attracting cordless millennials, but it has roughly equal viewership between men and women. Not only that, GVC viewers have an average annual income over $50K. What more could advertisers want?

SuperData perfectly expresses the opportunity in its report:

It's an audience that will be ignored by brands and advertisers only to their detriment.

Twitch is a powerful weapon for Amazon to battle competitors

We're starting to see the brilliance in Amazon's move to pay nearly $1 billion to acquire Twitch a few years ago. GVC is both a gateway to esports and also a crucial gateway for advertisers to reach millennials.

The GVC audience already surpasses ESPN and HBO in audience size, according to SuperData. This makes Twitch very much a part of Amazon's competitive offering against other entertainment providers, such as Netflix and Hulu, and gives the online retailer a valuable piece to the puzzle of reaching the most coveted demographic for advertisers.

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John Ballard has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Netflix. The Motley Fool has a disclosure policy.