How can Twitch be profitable?
10 years and a round of layoffs later - Twitch still isn't profitable. If I was the CEO of Twitch, what would I do to make it profitable?
Introduction
Amazon had acquired Twitch in 2014 for $970 million in an all-cash deal. 10 years and a round of layoffs later, Twitch still isn’t profitable and is at risk of becoming a “zombie brand” at Amazon. At Amazon, zombie brands are initiatives or acquisitions that have been sidelined because of unfulfilled expectations.1
The profitability concerns were so much in the news that I decided to do a thought exercise to understand Twitch’s customers, highlight their problems and provide solutions to make Twitch profitable - as if I were the CEO of Twitch.
Twitch and its origins
Justin Kan, Emmet Shear, Michael Seibel and Kyle Vogt started Justin.tv in 2007 where the premise was to livestream Justin’s life and allow anyone on the internet to view and comment on the stream via a public chat room. As the popularity of the site grew, Justin.tv allowed anyone with a mobile phone to start their stream and started generating tens of millions of monthly views.2
The platform was facing legal issues as streamers were streaming copyrighted content and it was getting difficult to police the content. Moreover, YouTube started live-streaming in 2010 and there was intense competition in the streaming space as well.
In order to avoid legal issues and to differentiate themselves from the competition, the founders started a separate platform called Twitch, which was a live-streaming platform for gamers. Twitch became insanely popular and over one billion minutes were viewed on Twitch within a few months of its launch.3
Amazon Acquisition and beyond
Amazon acquired Twitch in 2014 for $970 million in an all cash deal. At the time of the acquisition, Twitch had more than 55 million unique visitors every month with over 15 billion minutes of content produced by 1 million broadcasters.4
Amazon has a gaming studio called Amazon Games, was the second largest distributor of games after Steam at that time and the Twitch acquisition provided an incentive for Amazon to integrate itself better into the gaming ecosystem. Amazon also spun-off the infrastructure used to power Twitch as a B2B solution for customers to host their livestreaming services on AWS. This solution is called Interactive Video Services (IVS) and in classical Amazon fashion, Twitch runs on IVS as well5.
Twitch generated about $667 million in ad revenue and $1.3 billion in commerce revenue, but the costs of running Twitch make it unprofitable.6 Hence I ask myself a question that if I was the CEO of Twitch - what would I do to make Twitch profitable?
Who uses Twitch and what are their needs?
We can broadly divide Twitch’s customers into two categories - Streamers and Viewers.
Streamers are customers who livestream a variety of content including games, music, outdoor events or just interacting with viewers to name a few. A streamer’s needs are to be able to seamlessly livestream content and earn sustainable revenue from the platform.
Viewers are customers who consume livestreams and interact with streamers by chatting on livestreams, by subscribing to their channels for a fee, or by rewarding streamers through bits or tokens purchased on Twitch. A viewer’s needs are to be able to view content they are interested in.
What problems are customers facing?
Both streamers and viewers are facing a variety of problems on Twitch.
Streamers
Streaming life is essentially very exhausting and streamers have to stream everyday to be able to sustain a revenue. It’s both mentally and physically taxing to be a full-time streamer7
Its very difficult to get subscribers as a new streamer and it is estimated that only 0.01% of streamers earn minimum wage on Twitch8
The revenue split is not favorable to creators and streamers can only start earning money from subscribers and advertisements once they reach a certain minimum threshold. Moreover streamers do not earn subscription fees from an Amazon Prime member9
Twitch has stopped exclusive contracts for streamers to stream only on Twitch, which decreases the incentive for streamers to stream on Twitch
Engagement and donations are decreasing on Twitch10
Streamers lose viewers because of un-skippable and irrelevant ads
The content moderation policy if very opaque and some streamers are banned without proper explanation11
Viewers
It is overwhelming and not that easy to find new content and streamers on Twitch
Some content is inappropriate for young viewers as streamers engage in NSFW activities in-order to gain more subscribers12
Some viewers also face harassment from other viewers on the live chat
Ads are not personalized and are annoying. Viewers cannot skip advertisements and hence end up dropping off from the stream13
How would I solve these problems and make Twitch profitable?
Personalized Ads
The ads shown on Twitch are annoying as the ads are not personalized and viewers cannot skip the ads as well. Personalizing ads is difficult on Twitch as there is hardly so much you can gauge from a viewer watching livestreams.
However there are going to be a set of customers who use the same Email to checkout on both Twitch and Amazon. Twitch can get the shopping data from Amazon to understand e-commerce preferences of such customers and recommend personalized ads to these customers.
Now, Twitch can show similar ads to other customers viewing the same content on Twitch - similar to how Netflix recommends similar shows based on a viewer’s search history and start learning more about the new customers as well. The ads can also be non intrusive like a small popup that does not interrupt the livestream, and rather shows items that viewers would want to buy on Amazon.
[Moonshot solution] Twitch.shop
Essentially the cost of running Twitch is the cost to run IVS + the cost of features and support required to run Twitch. I am guessing that Amazon Live, the live streaming shopping service by Amazon runs on IVS as well. However, Amazon Live seems quite unappealing and the App Store ratings are a measly 3.2. I don’t think a Gen-Z shopper is going to buy something on Amazon Live.
I sense an opportunity to leverage Twitch’s UI, streaming and community building capabilities + Amazon’s e-commerce capabilities to spin-off a new livestreaming shopping App called Twitch.shop. Streamers can livestream and sell advertised content on Twitch.shop and the same content can be cross streamed across Amazon.com and Twitch.com simultaneously too.
Twitch.biz
The streaming quality on Twitch is top-notch and I’d explore starting a B2B platform for corporates exclusively to livestream content and advertise on Twitch.biz. Companies do have their livestreams on Twitch, but Twitch lacks the business credentials and the viewers also don’t come to Twitch to see branded content. This branded content, published on Twitch.biz can also be used to advertise on Amazon Live and Prime Video.
Moreover, I’d also want to explore a B2B opportunity to provide a solution for corporates to livestream to their employees using Twitch - essentially creating a Zoom or a Blue Jeans competitor. The idea is basically to build a B2B UI on top of existing infrastructure and create a new revenue stream.
AI Powered Content Moderation
Given the rise of inappropriate content on Twitch, Twitch should use the AI content moderation tools provided by AWS and blur inappropriate content and mute hate speech. Twitch should also have consistent policies on content moderation and make these policies transparent and fair for every streamer.
Though content moderation is not going to directly yield revenues, it has potential to retain both streamers and viewers who were leaving the platform because of opaque moderation policies and inappropriate content respectively.
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These were my armchair opinions on how Twitch could be profitable despite having never worked at or used Twitch. Have other opinions? Do share them in the comments section below and if you liked reading this post - do like, share and subscribe to this newsletter!