How Does Twitch Make Money? Business Model of Twitch


How Does Twitch Make Money

Twitch is a popular social streaming platform often used for video game streaming. The company has a wide variety of creative revenue streams.

Twitch primarily makes money via advertising. The company also makes money from users subscribing to their favorite streamer accounts, selling digital currency, and selling merchandise.

Founded in 2011 by Justin Kan, Emmett Shear, Michael Seibel, Kyle Vogt, and Kevin Lin, Twitch is known as the online platform where users go to watch people stream themselves playing video games. However, the platform also streams things like cooking tutorials, live music, educational content, and other entertainment.

The company started as Justin.tv, a general-interest streaming platform. But Justin.tv later launched Twitch, and that platform took off. In 2014, Justin.tv was shut down, and the company was rebranded as Twitch. Twitch was bought by Amazon that same year for $970 million.[1]

What is Twitch & How Does It Work?

Twitch is an online streaming service that gamers love. In 2021, 9 million users streamed on Twitch at least once a month.[2] On average, Twitch had 2.78 million concurrent viewers that year, and these viewers consumed 22.8 billion hours of content. [3]

Twitch users can either stream or watch streams. People follow other users and get notifications when they are about to start a stream. Some streamers regularly stream at the same times or advertise their stream ahead of time. Others stream at random times.

While Twitch is particularly popular among gamers, the platform also has gained popularity in recent years among musicians. There are also channels where developers give coding tutorials, chefs teach people how to cook, or streamers just stream themselves chatting with friends. Content created on the platform can be experienced live or watched later on-demand.

One of the benefits of Twitch is its interactivity. Users can chat with or message content creators during their live stream. This makes the platform more conducive for streamers to build a relationship with their audience or creating an online community.

Popular Twitch users often have millions of followers. For example, Ninja, Twitch’s most popular streamer, has 18 million followers.[4] Pokimane, who won Best Twitch Streamer of the Year at the Shorty Awards, a social media awards competition, has over 9 million.[5]

Many of the popular streamers are associated with specific games. For example, some streamers are Fortnite players and attract other Fortnite players to follow them. Other popular streamers are eSports players. eSports is the official name for competitive gaming. There are many popular eSports tournaments that are also streamed on Twitch.

The most popular games on the platform by how often streams of them are watched, are League of Legends, Fortnite, Grand Theft Auto V, Counter-Strike: Global Offensive, DOTA 2, Heartstone, Minecraft, World of Warcraft, and Overwatch.[6]

While Twitch is known for its popular streamers with a lot of fans, there are also people with few followers who use the app to start live streaming.

Content creators with large fan bases are able to easily monetize their streams on Twitch. Viewers can donate money to them to thank them for their streams or subscribe to their channel. This often makes the platform very lucrative for creators.

Fans that subscribe to a channel get a customized chat badge when interacting in that channel. This shows the creator and others that they are a subscriber. It also incentivizes people to subscribe to a streamer’s channel.

Twitch also has something called ‘emotes’ that allow users to express emotions in the chat. They are similar to emojis. There is also a custom ‘cheermote’ that users can sent to content creators. Cheermotes are animated and sending one costs money in the form of Twitch’s digital currency.

The digital currency that you buy cheermotes with is called Cheerbits or Bits and can only be used on Twitch to buy cheermotes. The content creator essentially gets a tip when a cheermote is sent that represents a portion of the amount spent to send the cheermote.

Despite Twitch’s popularity, the platform often finds itself at the center of controversy. Some popular streamers have used racist, homophobic, transphobic or other offensive words while streaming and gotten called out for doing so.[7] People like PewDiePie have been accused of mocking disabled people during their streams.[8]

Some popular streamers like DrDisrespect have even been banned.[9] He has since started streaming on YouTube. Suspensions or bans of popular streamer often anger fan communities.

The platform has had to grapple in recent years with a culture of harassment. Something called ‘hate raids’ started occurring on the platform in 2021. Hate raiders would use bots to send thousands of hateful messages to streamers. Many Twitch users felt that the platform wasn’t doing enough to respond to these attacks.

In response, some Twitch streamers and users boycotted the platform for a day in 2021 and coined the hashtag #DoBetterTwitch to express their anger at the culture.[10] In response, Twitch announced that it would require users to have a verified phone number to post in a chat in order to reduce the impact of bots in hate raids.[11]

 

Business Model of Twitch

The business model of most social media networks is to offer free use of their platform to encourage a large number of people to use it daily and then monetizing that audience. Typically, this monetization done via advertising but many companies use other monetization strategies like in-app currency, tipping, and selling physical products.

Advertising is a big part of Twitch’s business strategy. Indeed, Twitch’s CEO announced in 2018 that they wanted to grow Twitch’s advertising to $1 billion a year to catch up with YouTube, Facebook, and Google.[12] At the time, Twitch was making just $230 million in ad revenue. While Twitch’s overall revenue has exceeded that with the company bringing in $2.6 billion in 2020, it is unclear if the company has yet met that ad revenue goal.[13]

If they have, they have not announced it publicly. While Amazon is a public company, Twitch’s revenue is not listed separately in the company’s annual report.

Regardless of whether they have met that goal, Twitch has an enticing value proposition to advertisers. The company’s users include a large proportion of the notoriously hard-to-target demographic of young men. As of 2021, 65% of Twitch’s audience were male. That same year, 41% of Twitch’s audience were between 16 and 24 years old and 32% of Twitch’s audience were between 25 to 35 years old.[14]

Amazon’s purchase of Twitch has created some useful synergies for the company. Amazon also owns Amazon Gaming, a subscription gaming service. Subscribers get a free subscription to Twitch.tv, free games, free in-game loot, and a subscription to Amazon Prime. Amazon uses Twitch to promote Amazon Gaming.

Amazon also uses its significant data on a buyer’s history in order to sell ads on Twitch. These ads, called remarketing ads, use historical purchase history and behaviors on Amazon in order to advertise to users on Twitch.[15] In this way, Amazon is monetizing its customer data to produce better results on ads on Twitch.

The interesting thing about Twitch’s business model is how much it revolves around streamer subscriptions and tips to streamers via Bits. The platform passed along over $1 billion to streamers in the form of payments from fans in 2021.[16] That put the app at number nine in revenue in non-gaming apps according to the app analytics firm App Annie’s revenue report in 2021.[17]

This was, in part, because of the app’s success in penetrating into non-gaming streaming in 2021. There was a surge in sports, entertainment, and music content on the platform that year.[18] Part of the platform’s business model is to, therefore, look to new communities to fuel future growth.

But, even while Twitch looks to other communities to grow, the company has continued to make its core user base happy. While Twitch previously faced competition from YouTube Gaming, Microsoft Mixer, and Facebook Gaming, Microsoft Mixer closed their gaming service in 2020. While YouTube is still home to many gaming streamers, the video platform shut down its gaming site in 2019 when it introduced live streaming to its main app.

While Facebook Gaming is still around, it is not nearly as popular as Twitch. Instagram has a live video feature but that platform appeals to a very different audience. There are also a number of smaller live streaming services but none that challenge Twitch’s dominance in the gaming industry.

The previous heavy competition likely pushed Twitch to make its platform more generous to creators. One of the downsides of having a community with a few streamers who have millions of fans is that if one of those streamers left the platform, that could have a significant impact on revenue.

For example, their top streamer Ninja, went to Microsoft Mixer in 2019 until it closed down.[19] The company likely had to provide additional commissions in order to get him to return to the platform over YouTube.[20]

Unfortunately, given Twitch’s reliance on individual streamers, that likely has contributed to the platform being slow to penalize or ban popular streamers who are saying or doing harmful things on the platform. Which might have turned other non-gaming communities off from the platform.

In 2021, Twitch brought in $2.6 billion in revenue.[21] Compared to other social platforms, that’s relatively low. For example, TikTok brought in an estimated $4.6 billion in revenue the same year.[22] The downside of having such a dedicated community of gamers using Twitch could be that the company is pigeonholed as a gaming site. That might be reducing the company’s overall potential for growth.

Twitch likely has significant costs associated with running and growing the platform. From staffing to hosting to development costs, the company’s expenses greatly reduce its potential profitability. Given how much money the company passes onto creators, Twitch’s revenue figures are also inflated by money that is immediately paid out to creators.

Still, Amazon is likely happy with their acquisition of Twitch. If they can use the platform to acquire new Amazon Prime members, the spending generated from that alone could make the acquisition worthwhile.

 

How Does Twitch Make Money?

Twitch makes money in more than four different ways. These include advertising, user subscriptions to their favorite streamer accounts, digital currency, and merchandise.

Amazon does not break down how much revenue Twitch makes from various revenue streams in their annual report. However, the company sometimes selectively releases some of their revenue figures.

Market research firms have also sometimes estimated how much Twitch makes from various income streams.

Advertising Fees

Advertising is one of Twitch’s core revenue streams. While the company hasn’t said how much it makes from advertising, Twitch’s CEO stated in 2018 that he had a goal of increasing Twitch’s ad revenue to $1 billion a year.

Twitch offers six kinds of ads:

  • Homepage Carousel: These are carousel ads on Twitch’s homepage and are often used by streamers to drive traffic to their streams.
  • Homepage Headliner: Headliner ads are graphic ads that are behind the homepage carousel. They have a prominent place on Twitch’s homepage
  • Medium Rectangle: These ads show on both the homepage and content pages.
  • Super Leaderboard: These are banner ads that appear when people browse content.
  • Twitch Premium Video: These videos appear before a stream and during streams. They also appear during on demand content. They can’t be skipped.
  • First Impression Takeover: These ads play before a user’s first broadcast. Companies buy this ad placement across the platform for an entire day.

Twitch does not keep all of the money that it makes in advertising. Twitch pays its creators for ads run during their dreams and on-demand content. While they used to pay a flat rate for every 1,000 ad views, they now pay 55% of their revenue for each ad to the creator.[23]

Amazon does not list how much they charge for each type of ad on their site.

 

Subscriptions

Users can subscribe to content creators’ channels to show their support and gratitude. Twitch’s subscription model has three tiers that cost $4.99, $9.99, and $24.99 a month, respectively.

Up to 50% of the funds from subscriptions go directly to the streamer. This varies as certain popular streamers have been able to negotiate a higher percentage of their streaming revenue. Indeed, some streamers are rumored to get up to 100% of their subscriber revenue because Twitch wants to keep them on the platform.

Twitch claimed that they sent $1 billion to subscribers in 2021.[24] That means that the company likely made close to $2 billion that year in subscriptions.

The subscriber also gets other benefits. These include ad-free content, a subscriber badge that shows up next to their name in the streamer’s chat room, access to streamer-specific emojis, an Amazon Prime membership, and access to chatrooms reserved exclusively for subscribers.

 

Currency

Twitch sells a digital currency called CheerBits, which is often shortened to just Bits. Fans can use Bits to send content creators ‘cheer’ via an animated emote. To do so, users type ‘cheer’ into the chat and enter the number of bits they want to send. The more Bits sent, the cooler the emote. On some streams, you can earn a Top Cheerer badge if you cheer the most.

Twitch sells bits in packages and the more you buy the less each bit costs. For example, it costs $1.85 to buy 100 bits but just $406.80 to buy 25,000 bits.[25] That’s a discount of 12%.

Creators get a significant portion of the value of the Bits they receive – usually between 50% and 80%. How much will depend on a variety of factors including the creator’s popularity.

 

Merchandise

Twitch sells branded merchandise in the Amazon store. This includes things like Twitch socks, a blanket onesie, and a Twitch bomber jacket. This merchandise can only be bought on Amazon.

Since Amazon is handling all the logistics of selling the merchandise, it likely makes a good margin on the merchandise sales. However, it is unclear how much merchandise Twitch sells.

 

Twitch Funding, Valuation & Revenue

Twitch is currently owned by Amazon, a public company. Amazon (AMZN) trades on the NASDAQ exchange and had a valuation as of August 2022 of $1.43 trillion. While Twitch was sold in 2014 to Amazon for $970 million, the platform is likely worth much more than that now. Unfortunately, Amazon doesn’t break down the valuation of its subsidiaries.

Prior to being bought by Amazon, Twitch raised $35 million in venture capital funding during 3 funding rounds.[26] Notable investors include Thrive Capital and Nelstone Ventures.[27]

Twitch has increased its revenue significantly in recent years. They have gone from an estimated $880 million in revenue in 2018 to $2.6 billion in revenue in 2021.[28]

YearTotal Revenue
2018$880 million
2019$1.2 billion
2020$1.8 billion
2021$2.6 billion

 

Is Twitch Profitable?

It is unclear if Twitch is profitable. While Amazon, Twitch’s parent company, reported a net income of $33.36 billion in 2021, the eCommerce company does not provide the net income of each of its subsidiaries.[29]

While Twitch is steadily increasing its revenue and generated $2.6 billion in gross revenue 2021, it isn’t clear if that means the company generated a profit as the platform’s expenses could easily exceed that figure.

Given the fact that many social networks struggle with profitability and Twitch passes a significant amount of its income to creators, it is very possible that Twitch is not profitable. However, Amazon might get other benefits from Twitch by encouraging Twitch users to become Amazon Prime members. If more people buy on Amazon as a result that increases their sales.

 

Conclusion

We think it’s important to remember that Twitch is a platform where streamers can make money, but it is also a place where viewers can get together, share their interests, and interact with each other. It’s a place for people to connect, be entertained, and share ideas.

It will be interesting to see how Twitch continues to grow as a company as well as what new opportunities arise from their current position in the industry.

We hope you found it helpful, and we look forward to bringing you more in-depth content soon! If you have any questions, please feel free to reach out!

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