Twitch Business Model - How Twitch Makes Money

Twitch Business Model – who they are, what they do and how they make money.

How many industries do you know that are currently booming more than the gaming industry? I am afraid you might not know a few.

The industry is actually turning impressive figures every financial quarter. And at the rate it is going there is every likelihood that this industry is going to hit the sky soon.

Current numbers suggest that the industry in 2021 is approximately worth around $300 billion and is still improving the total revenue generation. In fact, it is estimated to hit $321 billion in 2026.

And streaming platforms look set to play a major role in the industry. And when you talk about streaming platforms a major player that easily comes to mind is Twitch.tv. This is a streaming platform that is now on a league of its own as long as competition is concerned. It is completely dominating the market right now. But the question is what exactly is Twitch business model and does it make money from it?

This and other important aspects of the Twitch business model shall be the focus of this post. But first, let’s understand what is Twitch.

What is Twitch?

Twitch is the largest live streaming service in the world with major focus on esports broadcasting and video game streaming. It also offers music broadcasts and creative contents. Twitch provides a platform for gamers broadcast and to also watch other skilled gamers or entertainers play.

Users can do the following on Twitch.tv:

Create personal or brand channels
Live stream their gameplay,
Upload recorded clips
Watch other streams
And comment in real time on other streams.

With a variety of games being streamed, Twitch’s popularity is on the rise and with the present market’s pace, the streaming platform has no plans to gear down its motion. As a matter of fact the subscriber base on Twitch is expected to hit 5.68 million by 2023.

Twitch was founded by Justin Kan and Emmett Shear as a spin-off to Justin.tv. But the founders later found out that the gaming category on Justin.tv was the most-watched category on the site. Twitch was launched as a separate brand from Justin.tv in June 2011. And today, Twitch is a subsidiary of Amazon having been acquired in 2014 for nearly 1 billion dollars.

Twitch Business Model – Key Stats

Twitch currently gets 140 million unique visitors every month.
The Twitch app has been downloaded over 100 million times.
League of Legends is the most-watched title on Twitch, with video game streams accumulating 42.55 billion watch hours.
As per TwitchTracker, Twitch is watched in 30+ languages, with English making up 48%.
As at 2021, there were 8.4 million unique creators and 2,790,000 average concurrent viewers streaming each month.
Twitch made an estimated $2.6 billion revenue in 2021, mostly from advertising
22.8 billion hours of content was consumed on the platform in 2021

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Twitch Business Model – How it Works

Is it possible that you are a gamer and you have not tried Twitch? Then I am tempted to ask where you have been. Well, just know that you are missing a lot. Maybe, you know about Twitch, but you don’t know how it works. Let me share all you need to know about how Twitch works so you can consider if it is something you will like to explore.

First, Twitch is a live-streaming platform for gamers and other lifestyle casters. It supports building communities around a shared and streamable interest. Twitch streamers “broadcast” their gameplay or activity by sharing their screen with fans and subscribers who can hear and watch them live. So fans, followers and people with similar interest from around the world can view the broadcast live.

But as Twitch grows and expands with more subscribers and people of different interest groups joining, it is no longer a platform for gamers alone. In fact, it also features a wide variety of content geared towards live and recorded broadcasts. And it covers people playing music, talk shows, sports, travel, and even cooking of delicious meals.

The length of a stream depends on the streamer or broadcaster. As a matter of fact, the platform supports streams from one minute to 8 hours.

Twitch also regularly hosts e-tournaments. In the tornaments various players compete for millions of other viewers to watch amid live commentary. It equally hosts events and demos of new upcoming games.

Accessing Twitch and Finding a Stream of Your Choice

If you are on Twitch and need to find any stream of your choice, all you have to do is browse the various categories, including specific games. If you find a streamer you like, you can decide to follow their channel. By so doing you will get updates and notifications on their future activities.

The service has both free and paid versions.

If all you want is to view and enjoy the games on Twitch, you can do that just by visiting the site and no registration is required.

But if you will like to broadcast yourself or as a viewer to chat or ask questions when people are broadcasting, you need to register. With the paid registration there are also no ads. It is this interactive chatting features that makes for a more robust social experience in the virtual world. And that is how many broadcasters develop a personal connection with their audiences.

Another powerful advantage the paid version gives is that it allows users to save videos and watch it any other time in the future.

What Sort of Device can One Use to Access Twitch?

With PCs you can have a great viewing experience in Twitch. But it is not limited to that. Twitch contents can actually be accessed through multiple devices and mediums. Apart from PCs, one can access them through gaming consoles, and all smart mobile devices. It also offers access through a web browser and dedicated Twitch apps on different app stores. Finally, it also has a dedicated software for improved streaming of videos.

Twitch Business Model – The Value Proposition

An easy way to understand the Twitch business model is to view the platform as a marketplace. And in that marketplace there are three major constituents that makes the Twitch business model a viable one. They are:

The Streamers
The viewers
And the game developers or publishers

Each of these contributes significantly to the success of Twitch.

The streamers or broadcasters are the ones that produce the contents that populates the Twitch platform. On the other hand, the viewers or users are the ones that engage with and consume those contents. So without viewers the contents are useless. In fact, the whole Twitch business model is predicated on the idea that there is demand for viewing live digital gaming content. And the final constituent being the publishers are the ones that supply the games that gamers play.

Value Proposition for Streamers

Twitch Business Model provides a very powerful value proposition for streamers that keeps them stuck with Twitch. Some of the attractions for streamers are:

Twitch provides them a community of over 140 million monthly active users.
Gamers see the revenue they generate by streaming as purely incremental
It provides very strong social motivations for them to share content and experiences, especially when competition is involved
The SDK integration allows gamers to automatically share additional metadata such as their virtual goods inventory, weapons used, level achieved, location along with the streams

Value Proposition for Users

User can view broadcasts free of charge and even without a simple sign up
Can choose from over 107,800 live Twitch broadcasts to watch at any given time
Can have real chat chat with broadcasters
Can save and watch same broadcast anytime in the future

Value Proposition for Publishers

Publishers view Twitch as complimentary to their own efforts to engage with their audiences and not as a competition
A big opportunity to sale their games to game addicts
The Twitch SKD integration can bring more users direct to publishers platform
Publishers earn from in-stream ads and merchandise

Twitch Business Model – How They Make Money

The business model of Twitch is a mix of both freemium and advertising model. It offers a couple of revenue streams. From advertising, to subscription to merchandise there are a couple of options for making money.

The three base principles of making money for Twitch are Advertisements, Subscriptions and Partner Programs.

Twitch makes money by advertising and by collecting a portion of funds used to purchase digital products or services such as Bits and subscriptions, which are described below. Advertisers include various gaming companies, game portals, game developers, and game event organizers, all of which cultivate an audience base that is more or less addicted to video games.

1. Advertisements

Like most other free video streaming platform, twitch runs its model on advertisements. This is even more relevant here seeing that majority of the Twitch users are between the ages of 18-35 (usually with less purchasing power). So most of them are not likely to afford the premium versions of Twitch.

So to compensate for such low subscription to premium services, Twitch has to incorporate advertisements on its business model.

What Twitch does is to first negotiate ad deals with popular advertisers such as Nike, Nintendo, or any other company willing to advertise. And a portion of the money goes to content creators while it keeps the rest.

2. Subscriptions

Watching broadcasts or streams on Twitch is free. However, there is also a paid version known as Twitch Turbo. It is a way through which users on Twitch can subscribe to a channel to show their support for the content creator. It is the pro version of the service and it attracts a monthly subscription. By paying for Turbo one gets a smoother viewing experience devoid of ads interruptions in addition to other superior features.

The subscription model is divided into three tiers, which come in at $4.99, $9.99, and $24.99 per month.

3. Partner Programs

Partner programs are for big time broadcasters on the Twitch platforms. Such broadcasters have the opportunity to partner Twitch and earn through various ways as we shall explain later in this post.

But our interest here is that Twitch gets a share of every money that partners earns.

4. Merchandise

Merchandise is another means of making money from the Twitch business model. And that is where Twitch gains a serious advantage for been a part of the Amazon group. How it works is that fans of the platform can buy Twitch-branded merchandise via the Amazon store.

The merchandise is usually an Amazon-exclusive. This means that it can only be bought on Amazon and nowhere else. Because most of the platform users are die-hard fans, they don’t even mind the cost of those merchandise. And this also means that Twitch can sell them at higher margins, resulting in more revenue.

The merchandise on sell can range from clothes, to foot wears, to gift cards and even down to dog accessories.

Amazon Prime integration makes these purchases exceedingly easy.

5. Cheer Bits

Bits is Twitch’s in-stream currency which users can use to show appreciation to the streamers. These Cheer Bits (cheer is an in-stream chat message) act as a monetary cheer to the streamer. And each bit a user sends is equivalent to 1 cent. The more bits you send, the more ‘actual money’ the streamer makes.

But not all the bits goes to the streamers. As a matter of fact, information available shows that Twitch actually gets most of the share of these bits. And the reason is that the exact exchange of one bit does equate to precisely 1 cent – it is usually more.

How Does Twitch Streamers Make Money?

One of the reasons Twitch has become the biggest live streaming platform by a a thousand mile is that broadcasters don’t only broadcast for the fun. The Twitch business model makes provision such that as one becomes more popular and produce more engaging contents the person can apply to become a Twitch partner. By becoming a partner a content creator can earn substantial amount on Twitch.

But there are some basic requirements which one must fulfill to become a partner. And here are they:

Quality contents
An average concurrent viewership and a stream frequency of at least three days per week.
At least 500 total minutes broadcast in the last 30 days
At least 7 unique broadcast days in the last 30 days
A minimum of 50 Followers as at the time your application was made

Once accepted into the partnership programme, as the name implies you becomes a Twitch partner. And with that you can a share of almost all the monetization strategies discussed above. Twitch can monetize their viewership by the means of advertisements, merchandise and paid channel subscriptions. As a partner you get a share of each of this.

But how exactly does partners earn?

1. Advertisement

Partners get a cut from the Cost Per Mile (CPM) from the advertisements shown on the partners’ channel page. As explained earlier, it is Twitch that negotiate and receive the money from advertisers. But 50% of that amount goes to the partners on whose channel the advert is shown. But the 50% is not final. More popular creators get to earn more than that. In fact, some get to keep the entire 100% as an incentive for them to remain on Twitch.

2.Subscription

To show support for their popular streamers, viewers can go for paid channel subscription. The streamer gets 50% of the subscription cost.

Users can also donate money to Partners through PayPal. The good news for Partners is that Twitch doesn’t claim any percentage of these donations. All of it goes to the streamer whom it is donated to.

3. Merchandise

Partners can also integrate merchandise with twitch and they get a cut from every partner merchandise they sell.

4. Affiliate Programmes

Twitch also allows users to purchase games through affiliate links on streams. With this, streamers get to receive sales commissions.

5. Cheer Bits

This is another unique way Twitch business models allows creators to earn money.

Like the subscription model, the creator will receive a portion of the revenue for every bit that he receives. The creator takes home around 60 to 80 percent of the Bits revenue.

The actual percentage though depends on a couple of factors. One of factors that decides that is the number of Bits received. Another one is the creator’s popularity by number of subscribers. Geographical location can also be a factor.

How Much Does Twitch Streamers Make?

The Twitch business model does not give make provision for a specific amount that a streamer will have to earn. The amount earned actually depends on a couple of factors:

The number of viewers
Number of broadcasts
The popularity of the broadcaster
Percentage of subscription amount received.

But on the average most full-time Twitch streamers earn between $3000-$6500 per month.

PewDiePie with over 100 million subscribers earns an estimated $40 million in revenue to top the list of Twitch highest earning streamers.

Is Twitch Making a Profit?

There have been this question about the profitability of Twitch. Most people believe it’s making profits, while others believe it is not. But a detail analysis by CreatorHype shows Twitch revenue in 2019 to be approximately $1.54 billion. While the cumulative expenses was $1.8 billion. That means it fail just short of breaking even. That means as at 2019, Twitch was yet to break even according to that analysis.

However, by 2021, Twitch revenue has grown to an estimated $2.6 billion. So baring any astronomical increment in the overall expenses, Twitch should be making profits by now.

Who is Twitch Biggest Competitor?

Twitch is clearly the market leader in the live streaming industry. But there are other platforms that are giving it a hot chase. The following are the biggest competitors by popularity and number of users:

YouTube Gaming
Mixer
Facebook Gaming
Caffeine
Metacafe
Smashcast

What Makes Twitch and its Business Model So Unique?

Twitch has really proven to be a unique platform, carving out a niche for itself in the live game streaming industry. It is designed to be a platform for contents, including esports tournaments, personal streams of individual players, and gaming-related talk shows. The platform hit 3.2 million users per month within its first year of launch.

Some of the unique features in Twitch include:

It’s ability to serve as a teaching tool for video game tutorials where learners can interact with each other and the instructor in real-time.

Twitch is also used for software development learning, with communities of users streaming programming projects and talking through their work.

Twitch and The Future

Rumour had it that Google was the first company that wanted to acquire Twitch in 2014. But the deal which was supposed to be for 1 billion dollars ultimately fail through. But Google’s loss eventually proved to be Amazon’s gain as Amazon eventually acquired Twitch for 970 million dollars.

Today, Twitch has an estimated valuation of $15bn. This gives Amazon more than 1400% ROI already.

While Netflix, Disney, and Prime competed for streaming TV, Twitch maintained its dominance in streaming games. Not even Youtube Gaming nor Facebook gaming could out muscle Twitch yet.

The success in this space is a function of two factors: the user’s interest in playing online games and the user’s interest in watching content.

But guess what?

Twitch is just starting. The future looks very bright judging by the projections.

The global video game market was valued at $151.06 billion in 2019 and is expected to grow at a Compound Annual Growth Rate (CAGR) of 12.9% from 2020 to 2027. And this sort of exponential growth is driven by technological proliferation and innovation in both hardware and software are the key factors driving the growth.
On the other hand, the global online streaming services market is expected to grow by $149.96 billion, also at a CAGR of over 18% during 2020-2024.

Nevertheless, Twitch has the unsaid advantage of being the first mover with all the loyal userbase and functionality. But the competition with YouTube Gaming is going to be an interesting one in the years ahead.

Kachi Ogbonna

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