Video games are generally perceived as solitary engagements for the gamers, or at the most engaging others in multiplayer games. However, the reality is different. People like to watch others play games, which is something nobody saw coming in the early days of video gaming. Twitch's business model works on the addictive appeal of video gaming personalities and the viewers who pay to watch them.

Key Takeaways

  • Twitch.tv is a video-game broadcasting and viewing platform where viewers can "donate" to their favorite players.
  • Twitch.tv, referred to as simply Twitch, was acquired by Amazon in 2014.
  • Video game players broadcast themselves playing the game, usually with an audio commentary. A chat box helps them connect with their audience.
  • The platform accepts payments via Amazon and Paypal.

How Does Twitch.tv Work?

Twitch.tv, owned by Amazon.com (AMZN), is an online service used for watching or broadcasting live or prerecorded videos of gameplays. The broadcasting player usually includes audio commentary. The broadcaster's own video may optionally appear on the corner of the screen via a webcam, and there is also a chat feature where viewers can comment or ask questions.

Almost any video game of any genre can be broadcast and viewed on Twitch. Twitch regularly hosts E-tournaments where various players fight it out for millions of other viewers to watch with live commentary and news. Twitch also hosts events and demos of new upcoming games.

Accessing Twitch

Viewing games on Twitch is registration-free. Broadcasting and chatting require free-of-cost registration. The real-time interactive chatting makes Twitch a real-life social experience in the virtual world. This interaction is how many broadcasters develop a personal connection with their audience. Broadcasters can also archive videos forever, making them available for viewing later. (See related: How to Game the Video Game Industry)

Twitch content is accessible through multiple devices and mediums including PCs, gaming consoles, and mobile devices. Twitch offers access through a web browser and dedicated Twitch apps, also offering dedicated software for improved streaming of videos.

Twitch also offers a software development kit (SDK) and Application Programming Interface (API) to integrate Twitch with game devices, websites, and web applications. For example, using the Twitch API, multiple viewers can play a game by issuing commands through chat. It results in millions of page-views and increased subscriptions to Twitch. (See related: Can Games Make You A Better Investor?)

Business Development and Funding

Justin.tv was founded in 2007, which had video content in several categories. It raised $7 million in funding from angel investors. The popularity of the gaming category increased tremendously, which led to a dedicated spin-off called twitch.tv in June 2011. It successfully raised $15 million in Sept. 2012, and then another $20 million in Sept. 2013.

In Feb. 2014, the original justin.tv was renamed to Twitch Interactive as Twitch maintained its prominence. There were rumors of a possible acquisition by Google’s YouTube (GOOGL) in mid-2014, but it was Amazon.com that acquired Twitch in August 2014 for $970 million. As of today, Twitch continues to operate independently as a wholly-owned subsidiary of Amazon with their CEO carried over from when they were independent.

Ustream.tv, YouTube, and Dailymotion are the primary competitors for Twitch. Youtube is the most prominent one, as it recently announced a dedicated YouTube Gaming platform in June 2015.

How Does Twitch Make Money?

Twitch makes money by advertising and subscription fees. Advertisers include various gaming companies, game portals, game developers, and game event organizers that get a highly targeted audience-base who are practically addicted to video games.

Twitch offers Turbo membership for $8.99 per month, which allows users ad-free viewing of Twitch content, and other enhanced features for using Twitch.

Its revenue-sharing model with broadcasters is an attractive option that brings lots of talented gamers to its platform. It ultimately results in increased revenue for Twitch. (See related: 5 Video Game Stocks to Power Up Your Portfolio)

How Do Twitch Users Make Money?

Twitch broadcasters can apply for the Twitch partnership program, which enables them to get a cut from the advertisement and subscription revenue received by Twitch. Acceptance into the program requires approval, which is based on certain requirements like having a minimum number of viewers, and a minimum of broadcasts per week.

Twitch also allows users to accept PayPal donations from other users, which can be received for sharing game-tips, cheats, and hacks.

Twitch has also partnered with game development companies that offer rewards to outstanding gamers, including scholarships. E-tournaments are regularly conducted on the Twitch platform, which allows reward opportunities for winning players.