55 million viewers for a very profitable niche is arguably much better than a wildly diverse 1 billion viewers with few common characteristics.
Compare 55 million hardcore viewers to the top viewed broadcast television programs.
The gaming industry is profitable but I don't think Twitch has been massively profitable so far. They've had about $35m in investment funding that valued the company at around $100m:
Those investors will have made out well at around 10x increase in 3 years. It has higher viewer engagement than Youtube (58% of viewers watch more than 20 hours per week):
so it has the potential to be monetized. Youtube has 1 billion users with 6 billion hours per month so each user is at 6 hours per month or ~1.5 hours per week. Back in 2009, Youtube was reported to cost $700m and made $240m in revenue but there's an estimate of $5.6b in revenue last year:
The costs will have gone up too but it's still possible Google could have bought Twitch with the profit they make per year on Youtube. They obviously wanted Twitch too as well as Yahoo so they similarly saw the monetization potential. As Youtube and Apple's App Store shows, it takes time for the revenue to exceed operating costs but if they can keep costs under control, it's a good investment. Amazon has their EC2 server setup and they can perhaps make better use of resources they are already paying for.
I think video game streaming is a good alternative to game demos. I pretty much always watch game walkthroughs before buying a game. I've never watched someone playing a game live though, I don't get why that's so popular. You can do this with video game streaming services like OnLive and watch people as they play but playing a game already requires very little physical movement so watching someone else doesn't seem very entertaining, it would be like inviting over another person to sleep with your partner - watching can be fun sometimes but surely not as good as participation. I can see how it might be better than reality TV but that's a pretty low bar.
There are high points like when rival gamers call a local SWAT team to raid a player's home:
or when a live streamer falls asleep, forgets the camera is on and starts watching porn:
or when a home gets robbed live:
but those moments are rare. That video shows one reason why it might be popular because the girl is quite attractive so I guess it's the ultimate fantasy for a gaming guy meeting an attractive girl who is also wasting away hours playing video games.
I know Amazon has outbound streaming but do they have uploading too?
You mean for the video chat example? Every streamer has to upload data so they need to have upload capability.