How Twitch.tv and Its Business Model Work

Twitch is the go-to live streaming service used around the world by creators of content that spans gaming, entertainment, music, sports, and more. Most people know Twitch because of its popularity amongst video game enthusiasts. Video games were previously perceived as solitary engagements for the gamers, or at most, offered a way to engage with others in multiplayer games. However, the reality is different. People like to watch others who are engaged in activities that they are interested in, such as playing video games, cooking delicious food, and playing music. This rise in the popularity of livestreaming is something that not many people saw coming. Twitch's business model works because of its close-knit communities, which are composed of like-minded individuals who are passionate about topics such as a particular video game. In 2020, Twitch users spent over 1 trillion minutes watching videos on the platform, which is a testament to its popularity.

Key Takeaways

  • Twitch.tv is primarily known for its role as a video-game broadcasting and viewing platform on which viewers can donate to their favorite streamers.
  • Twitch.tv, often 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 across topics such as cooking, travel, art, sports, and video games. The broadcasting player usually includes audio commentary. The streamer's own video may also appear on the corner of the screen via a webcam, and there is also a chat feature by which viewers can comment or ask questions.

Almost any video game of any genre can be broadcast and viewed on Twitch. The specific rules of etiquette and prohibited topics are covered in the platform's community guidelines. Twitch regularly hosts e-tournaments in which various players fight it out for millions of other viewers to watch amid live commentary. 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. Twitch's real-time interactive chatting makes it a social experience in the virtual world. This interaction is how many broadcasters develop a personal connection with their audiences. Broadcasters can also archive videos forever, making them available for viewing later.

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, as well as 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. This results in millions of page views and increased subscriptions to Twitch.

Business Development and Funding

Justin.tv, which offered video content in several categories, was founded in 2007. The popularity of the gaming category increased tremendously, which led to a dedicated spin-off called Twitch.tv in June 2011. It raised a total of $16.4 million in funding by June 2013.

In February 2014, the original Justin.tv was renamed 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 its CEO staying on from when it was independent.

How Does Twitch Make Money?

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.

Its revenue-sharing model for broadcasters is an attractive option that brings many talented gamers to its platform. This ultimately results in increased revenue for Twitch.

Turbo

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

How Do Twitch Users Make Money?

Twitch broadcasters can apply for the Twitch Affiliate or Partnership programs, which enable them to get a cut from the advertisement and subscription revenue Twitch receives. Acceptance into the program requires approval, which is based on certain requirements, such as having a minimum number of viewers and a minimum of broadcasts per week.

Bits

Bits are virtual goods that channel supporters can purchase and then use to encourage their favorite streamers when they are in a chat. By typing “Cheer” in the chat window, followed by the number of Bits that the user wants to allocate, the user can amplify their message so that it includes animated Bit gems or various forms of animation. Bits are purchased via Amazon payments. For participating Affiliates and Partners, Twitch provides a share of the revenue that Twitch receives from Bits equal to 1 cent per Bit used to Cheer for them (subject to certain terms and conditions).

Subs

Viewers can support their favorite streamers by subscribing to their channels. A subscription allows a viewer to pay a nominal fee each month, either on a recurring or one-time basis. Subscribers then gain access to various benefits defined by the channel. Those who purchase a subscription can also gift subscriptions to other Twitch members. Lastly, Amazon Gaming is included with Amazon Prime memberships, which includes one free Twitch channel subscription per month. A portion of funds paid for channel subscriptions is routed to streamers based on the platform’s conditions. 

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.

The Bottom Line

When Twitch came onto the tech scene in 2011, very few people realized that livestreaming was poised to skyrocket in popularity. Since its launch, the site has widened its reach from video games across many other categories, such as food, travel, sports, and music. In 2020, the platform had 30 million average daily visitors with over 7 million unique streamers going live every month. Since a number of changes resulting from the pandemic took effect, livestreaming has become even more popular, and in turn, so has the Twitch platform.

Article Sources

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