The room is large, the seating tightly packed, the giant screens on the front wall displaying every moment of the action to the rapt, packed audience. At the front, two five-strong panels focus intensely on the task that the audience is watching: playing a video game.

This is the visible face of eSports, a fast-rising category of video gaming in which it is not just about playing the game or getting a high score; it is about being seen, known and performing in public, just like chess or darts players – but with a far younger, more excited demographic.

Video gaming is a global phenomenon that has just seen its biggest deal – the $970m acquisition by Amazon of Twitch, the platform favoured by gamers to play and watch live streams.

Explaining the move, Amazon founder and chief executive Jeff Bezos said: "Broadcasting and watching gameplay is a global phenomenon and Twitch has built a platform that brings together tens of millions of people who watch billions of games each month."

It's hard to grasp the magnitude of what's going on – but it's a tectonic shift in which games and gamers online are recreating the thing that has made TV so gigantic and well funded: the must-watch live event, against which lucrative ads can be sold.

Twitch offers live streaming (or archived footage) of people playing video games such as the multiplayer battle scenarios of Call of Duty or League of Legends (the most popular PC game in North America). Naturally, Twitch has a young, principally male demographic. League of Legends has "events" on Twitch: about 32 million people tuned in for the Season 3 World Championships. Yes – the third season of the world championships. It's video games as event TV.

"If you've been to a major sporting event, you'll feel exactly the same atmosphere at an eSports tournament," says Chris Trout, producer of the Gfinity eSports tournaments. "In my honest opinion, it's far better, the crowd never stops. If a team goes down a few rounds, it's not even close to being over, there's always the chance of a comeback. At the G3 Call of Duty final, the crowd was incredible; at the League of Legends LCS event at Wembley arena, the atmosphere was indescribable."

Jonathan Beales, an eSports organiser and commentator, says the crowd is part of the experience. "They get behind their teams in the same way people do at football games. The crowd will roar when a map or level is completed, there's a sigh of disappointment for a mistake. Make no mistake, this is a spectator sport. The demographic is aged between 12 to 45, some with ambitions of making it as a pro player. Then when a team comes offstage there's a clamber for selfies and signatures as fans look to get their shirts and posters signed by the pro players. The players love the adoration, and the fans get to see and talk to their heroes close up."

But the physical venues are the merest tip of the iceberg compared to Twitch, which has more than 55 million visitors a month, each of whom spends an average of 106 minutes viewing it every day, and more than 600,000 people generating content. It doubled in size between 2012 and 2013 and it isn't slowing down; in February, a study in the US suggested that at peak times Twitch was responsible for 1.8% of all online traffic – well behind Netflix (32%) and Google (22%), but ahead of the US TV catchup service Hulu (1.7%), Facebook (1.5%) or Amazon (1.2%). Why? Because like Netflix and Google's YouTube, Twitch delivers video, which consumes huge amounts of bandwidth compared to simple photos or text.

"Twitch is absolutely integral to the eSports scene. It's the platform that gave it a voice; to imply it created eSports isn't much of a stretch. It was certainly one of the leading factors to eSports blowing up as a spectator sport," says Rhea Monique, co-founder of Lolking, a League of Legends fansite. "Additionally, you can watch events overseas you would never be able to see. OGN is a great example of this. Twitch has a subscription service set up where you pay monthly to be able to see the Korean eSports scene for League of Legends. As Korean teams are formidable opponents that usually juggernaut European and American teams, this allows people unique insight into how different the meta is there and how each team plays out the game."

Twitch is not alone. Major League Gaming, which organises big videogame tournaments in the US, was formed in 2002 to focus on eSports, holding live tournaments and events that have been broadcast on standard TV. But it too is creating its own streaming service, mlg.tv.

The thing that should have conventional broadcasters worried is that Twitch and Major League Gaming have rediscovered, and recreated, "event TV" – but on the internet. And unlike broadcast TV, Twitch offers a "chat screen" where people can write their comments on the action.

What has made online gaming into a spectator sport? Faster connections, faster computers, better software for handling millions of video streams at once (because they aren't "broadcast" like a TV signal, but sent individually to each receiving computer), and the growing awareness among gamers of each other's existence.

Holding live events on the internet recreates exactly the condition that TV channels have exploited for years to make their money: scarcity. There's only one time that you can watch an event live. That pushes up advertising rates and therefore the sites' revenues.

Spectating and "kibitzing" – offering commentary (wanted or not) – has always been a part of games culture. In the heyday of the amusement arcades in the early 1980s, teenagers would gather around the screens of top players watching them compete for high scores in games like Defender, Donkey Kong and Pac-Man and televised eSports tournaments had their start at around the same time. The US show Starcade and Britain's long-running GamesMaster series featured competitive gaming as a major component.

The modern kibitz-style version has its roots in South Korea in the early 2000s, where strategy games became hugely popular in the many "PC Bang" online gaming cafes. By 2006, science fiction sim Starcraft was in effect the national sport – that year's pro-league final was attended by 50,000 people packing out an outdoor arena on Seoul's bayside; millions more watched from home, via cable channels dedicated to pro-gaming. The top players became celebrities, complete with screaming fans and hugely profitable endorsement deals.

South Korea had one key advantage: widespread high-speed internet, which meant huge numbers of people could watch the action without video dropouts or stutter. Since then, other countries' infrastructure has begun to catch up – and video-sharing and especially streaming on a gigantic scale has become not just possible, but routine.

"The popularity of eSports grew from about 2004 – as bandwidth increased, so gameplay quality increased across continents to create a village of competitive gamers," says Beales. "eSports and the technology which supports and drives it all grew and evolved together. Things changed dramatically when Call Of Duty 4 arrived in 2007. The map designs and playability made it a perfect platform for an eSports game. Call Of Duty is an annual event – there's always huge excitement when the [new version of the] game is released in the middle of the year, but the real focus is on the multiplayer element. Gamescom [in August] in Germany is always a big event when the latest Call of Duty multiplayer is unveiled."

There are now several national and international eSports leagues and tournaments – Major League Gaming, European Gaming League, the Electronic Sports League. Currently, League of Legends and Dota 2 are the most popular competitive titles for the "multiplayer battle arena" games. Last year the League of Legends final packed out the 20,000-seater Staples centre in Los Angeles, while more than 30 million gamers watched from home via Twitch.

In August the global Dota 2 championship boasted a crowdsourced top prize of $10m – more than three times the Wimbledon top prize.

Twitch is central to the scene. All the major eSports events are broadcast through it, and pro-gamers regularly stream their own practice and tutorial sessions, giving fans insight into key games and tactics – often at a cost: stars can supplement their incomes by setting up subscriber-only channels.

Another vital role fulfilled by eSports is "game balancing", the art of improving games to make them fair for everyone. "Professional gamers are the fastest to master the game so they're the first to recognise weaknesses, exploits, or weapons that are too powerful," says Michael Condery, co-founder of Sledgehammer, the developer of Call of Duty: Advanced Warfare. "By working with them, it makes the game better for everyone – no one wants to get their ass kicked because a certain character class is over-powered."

But in the end, Twitch and other live gaming sites fulfil the one essential role that any service must: bringing the fans and the players closer together, while keeping the ecosystem healthy. "Fans show their support [for pro teams] by purchasing merchandise," says Gfinity's Trout.

"They will donate and pay a monthly subscription to the players to continue what they are doing on Twitch." And if there were any doubt that Twitch is here to stay, he adds: "I've seen a few fans go as far as to get tattoos."