Twitch Business Model | How Does Twitch Make Money?

Twitch is an American video streaming service that was launched in June 2011 by Twitch Interactive.

This site focuses primarily on live video game streaming and broadcasting games and esports and developing content. 

The site’s content can be accessed either via video on demand or live streaming. The website attracted more than 45 million unique visitors in 2013.

According to statistics for only the United States, Twitch ranked fourth for the number of users visiting its website. 

The parent company of Justin was renamed Twitch following a recent acquisition by Amazon; it was rebranded for its new focus in 2014. 

Amazon acquired the company for US$970 million in the same year, which resulted in Amazon Prime, the corporation’s subscription service. 

Twitch later bought Curse and added the ability to purchase games directly from streams.

Streamers and viewers on Twitch topped 1.5 million in 2015 and over 100 million in 2016. 

GamingLive.com, which surpasses YouTube Gaming as the leading video streaming service for gamers in the United States and other countries, is the most popular live streaming service.

 It offers over 27,000 channels of collaboration and has 7.16 million active streams as of June 2020.

What is Twitch?

Twitch is an online video streaming platform where creators can share audiovisual content.

The platform’s primary purpose is to broadcast video gameplay live. Music, art, live cooking, and channels devoted to simply talking round out the list of categories.

Twitch earns money by charging subscribers a monthly fee and offering their digital currency (called Bits), displaying video advertisements, and selling merchandise. A portion of the money is then distributed to the platform’s content creators.

Twitch was purchased by Amazon for $970 million in 2014. Two former Yale graduates launched the company in 2007, and it has been a significant success so far. More than 150 million people watch Twitch content each month.

Company NameTwitch TV network
Company TypePrivate
FoundersJustin Kan; Emmett Shear; Michael Seibel; Kyle Vogt; Kevin Lin
ProductTwitch.tv
OwnerAmazon
Founded DateJune 6, 2011
HeadquarterSan Francisco, CA, USA
Location ServedWorldwide
Websitehttps://www.twitch.tv/

How Does Twitch Work?

Twitch is a live video streaming platform where creators can share their work. 

This website offers content on various subjects, including music, art, culinary content (food and beverages), and channels for just chatting.

The platform offers a variety of content in real-time and on-demand (similar to YouTube). 

The Twitch service is available via its website, mobile apps (Android and iOS), gaming consoles (PlayStation, Xbox, and others), and smart TVs.

Twitch Business Model

Platform users can directly interact with content providers (also known as twitchers). 

The creators’ channels offer subscribers the chance to subscribe, chat with them live, or simply donate to them.

The following is another form of societal validation:

  • Emojis (similar to emoticons) are used to express emotions in a conversation.
  • The Cheermotes Customized feature lets viewers donate bits (Twitch’s emote currency) to a content creator with animated emotes.
  • Subscribers have the option to display a customized chat badge as a statement of their devotion to the channel.

You can get started making video content on Twitch as soon as you have a working camera, microphone, and gaming console. The fact that Twitch has over 5.8 million monthly streamers is no surprise as a result.

How Does Twitch Make Money?

Twitch earns money through premium memberships, a digital currency (dubbed Bits), video advertising, and merchandising.

Streamers and viewers of Twitch videos can use the platform for free. The ability to use more sophisticated features is unlocked through a premium subscription. Twitch is, therefore, a freemium service.

A freemium model is beneficial to them since it enables them to acquire and retain people faster. Twitch also has a large user base of teenagers and young people with limited purchasing power.

Twitch, however, has carved itself a slew of revenue streams over the last few years, with an expected annual sales of around $500 million. Amazon’s ecosystem allows them to expand their sales potential.

Next, we’ll analyze Twitch’s revenue streams in greater detail.

Subscriptions

You can support content creators on Twitch by subscribing to their channels. The subscription concept is separated into three tiers, priced at $4.99, $9.99, and $24.99, respectively.

Memberships on Twitch are a way to support Streamers financially and provide several other benefits. A few of these are:

  • Advertising-free content
  • Subscribers have access to emojis specific to that channel
  • Channel chat rooms display subscribers’ badges alongside their usernames.
  • Chat rooms are only available to subscribers.
  • Subscriber-only competitions on the streamer

… Among many others. Twitch makes money by sharing revenue with content creators. Twitch receives a 50% cut of every subscription sold through its website.

Streamers with the most popular on Twitch tend to get a better cut of the revenue. The platform retains 60% to 100% of subscription revenue, thereby incentivizing them to stay with it.

Bits

Streamers may use Bits (also known as Cheer Bits) to cheer on their peers and support the platform.

You can ‘cheer’ in the chat by sending an animated emote – the more Bits you use, the more noticeable the emotion becomes.

Twitch Business Model

You can purchase Bits on Twitch. You can choose between several different price packages, ranging from 100 bits (equal to $1.40) to 25,000 bits (equal to $308).

The creators will receive a percentage of the money earned from each bit, just as with the subscription model. Bits revenues go to the creator to the tune of 60% to 80%.

Actual percentages are determined by various factors, including the number of Bits received and the creator’s fame.

The average age of a Twitch user, according to Statista, is 21. A person in this age group, by definition, has less disposable income than a person in the same age group. Thus, a large number of Twitch users cannot afford to subscribe to the premium features.

The streaming service allows video advertisements on pre-recorded videos and live streams to cover the costs of providing free services.

CPM (Cost Per Mile) refers to how much advertisers pay publishers for every 1,000 unique visitors who watch their ads. This is the basis for streamer compensation.

Advertisers (like Nike, Nintendo, and any other company willing to advertise) would initially negotiate advertising deals with Twitch. A percentage of the advertising pool is then paid to the content author based on the CPM performance. The rest is grabbed by Twitch.

Twitch creates customized contracts for each content provider that detail their prices and incentives. The agreement also contains a confidentiality clause, making it challenging to identify the specific amount of money streamers earn from advertising.

The content creators decide when the video advertisements will play. The most common types of ads are pre-roll (ads that appear before video/stream begins) and mid-roll (ads that appear throughout video/stream).

Costs for CPM ads vary dramatically by season (from $2 to $10 per 10,000 views), and payouts for CPMs are very seasonal. Marketers traditionally pay the most for advertising space in June, October, November, and December.

Merchandise

The retail section is really where Amazon and Amazon’s cooperation shines. Streamers can now purchase Twitch-branded items through the Amazon shop, which launched in October 2017.

The goods are Amazon-exclusives, meaning that they can only be purchased on Amazon. The platform can offer its items at a higher profit margin because of the (severe) fandom displayed by a large portion of its users.

Additionally, Amazon offers payment and delivery services. A Prime member can frequently complete the purchase in just a few clicks if they are an Amazon customer.

You can also buy gifts cards and dog accessories along with clothes. There are Twitch merchandise options in nearly every country where Amazon operates and sells.

Partner Programs

Platform-based broadcasters can participate in partner programs that feature popular and consistent streams. 

Streamers can collaborate on the streamers’ stand to join Twitch and serve their users quickly. 

Twitch partners must meet various conditions, including high-quality content, regular stream frequency, and average concurrent viewership.

Partner channels on Twitch can monetize their audience through paid channels, advertisements, and merchandise. 

Twitch Business Model

Advertisements aired on partners’ channels generate a defined percentage of cost per thousand impressions (CPM). 

Twitch allows its partners to integrate their merchandise with the platform and earn a percentage of each sale made through their merchandise.

Subscribers to paid channels can show their support to streamers and are typically compensated with a 50% cut from subscribers. 

A few emoticons and chat options are provided to users in exchange for their support. Twitch doesn’t charge an additional fee for donations made by partners via PayPal.

How Do Twitch Users Make Money?

A Twitch partnership program allows broadcasters to earn a share of Twitch’s revenue collected through advertising and subscriptions. 

There are a few criteria for acceptance, such as minimum viewer numbers and weekly broadcasts, which determine if a program is approved to participate in the program.

Twitch also partners with businesses that develop games for prizes and scholarships for exceptional gamers. The Twitch platform offers rewards for successful players in regular E-tournaments.

What is the Funding and Valuation of Twitch?

Crunchbase reports that Twitch has raised $35 million in venture capital funding. Companies like Thrive Capital, Bessemer Venture Partners, Y Combinator, and Draper Associates invested in the company.

The company’s last known value was revealed in 2014 when Amazon purchased Twitch for $970 million in an all-cash deal. According to Wall Street experts, its valuation grew to almost $3.8 billion five years after its acquisition.

What is the Revenue of Twitch?

This corporation struggles to reach its sales targets in terms of the bottom line. Twitch earned approximately $230 million in revenue in 2018, and mid-year forecasts indicate that it will earn $300 million in 2019.

How Does Canva Make Money?

The company plans to reach $1 billion in revenue by the end of 2019, with revenue ranging from $500 million to $600 million.

However, like a market leader in game streaming continues to be Twitch, which holds 73 percent of the market, according to StreamElements.

Success Story of Twitch

Justin Kan and Emmett Shear founded Twitch in 2007 as Justin.tv. The couple grew up three streets apart in Seattle’s Capitol Hill area.

They both went on to study at Yale University, where they founded their first firm together in 2005. The product, dubbed Kiko, was an online calendar that allowed users to manage their time more effectively.

However, fortune was not on their side. One month after announcing Kiko, Google launched Calendar, an online calendar tool.

Another lesson from those periods, as Kan emphasized numerous times, was that the founders were not themselves power users. 

Additionally, they rarely engaged with relevant customers, resulting in a lack of product-market fit.

Nonetheless, the crew made a remarkable exit after 14 months of operations through eBay’s internet marketplace. They sold the device for $258,000, enough to fund their next enterprise.

After failing to sell glow-in-the-dark gene-spliced roses online and launching a family social network, they would strike gold with an idea. 

The concept: A reality show dedicated to live-streaming Kan’s life on the Internet 24 hours a day.

The business, which was named after Kan, eventually became Justin.tv. The concept soon gained traction. 

Kan was featured on NBC’s The Today Show and ABC’s Nightline and even received a $50,000 investment from Paul Graham, founder of Y Combinator.

The lack of drama and action on Kan’s show began to irk users over time. Rather than that, they continued to inquire about how they created and broadcasted their live videos on the platform.

Justin.tv then opened its doors to other broadcasters months later, in October 2007. It became an instant hit with people all around the world. A year into existence, Justin.tv housed over 30,000 broadcasting stations.

By 2010, the team had received $7.2 million in venture capital and attracted about 31 million unique monthly visitors. 

Around that time, the company began developing two additional side projects to grow the Justin.tv network.

One of the ventures, a Justin.tv mobile initiative directed by Michael Seibel, would branch off into Socialcam, an Instagram-for-video business acquired by Autodesk for $60 million in 2012.

The other effort, led by Shear’s task force, attempted to expand the user base for video content. That project would eventually evolve into its platform: TwitchTV.

Meanwhile, Kan struck out on his own while serving on the Twitch board of directors. 

The company he started in 2012 called Exec offered service outsourcing, which he later sold to Handybook. Y Combinator made him a partner in 2014 after the sale. 

As CEO of Atrium, where he currently serves as CEO, he founded a full-service law firm specializing in fast-growing enterprises three years later.

Twitch, on the other hand, was firing on all cylinders. Within two years of operation, it had surpassed the user base of its predecessor. 

CRED Business Model

There are over 45 million visitors a month, 600 million videos being created, and 12 billion minutes viewed on the company’s website.

The company’s ongoing success culminated in Amazon’s acquisition of the company in 2014. 

Online retailer Amazon paid a record $970 million in cash for 100 percent ownership of the company.

That same year, Justin.tv announced its indefinite closure. The team cited significantly stronger user engagement and growth to justify Twitch’s efforts and abandoning Justin.tv entirely. 

Furthermore, by that time, Kan (for whom the company was initially called) had been out of the company for two years.

Twitch’s platform continued to grow in terms of features and users over the years. Each month, approximately 140 million users tune in to Twitch streams, consuming over 10 billion hours of video.

Key Takeaways From Twitch Business Model

Twitch is a service that allows you to broadcast live videos. It was founded by Justin Kan and Emmett Shear. The video game streaming site was created after Kan and Shear recognized the popularity of Justin.tv.

Amazon purchased Twitch in 2014 after it becomes the fourth largest provider of peak internet traffic. Music broadcasts, affiliate programming, and other creative materials soon became part of its product line.

How Does Zalando Make Money?

Twitch generates revenue by charging creators a subscription fee. A fan can also spend proprietary cash to use proprietary emoticons to show their support. Additionally, Twitch earns money by selling high-margin unique products.

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