Twitch may just be Amazon’s best-kept secret. Acquired in a 2014 bidding war with Google for $1 billion in cash, the gaming platform, and the social network continues to break its own high scores. Less than four years after that acquisition and just seven after its initial launch, Twitch boasts a valuation of about US$3.79 billion.

Streaming the eSports Traffic

In 2014, Twitch accounted for 40% of the live streaming traffic in the United States and 1.8% of all internet traffic, second only to Google, Netflix and Apple. In 2017, it surpassed legacy network ESPN in audience size and live streamed more content than ESPN, WWE, and ML—combined. By 2020, the number of esports viewers worldwide will grow from 380 million to 589 million, according to research firm Newzoo.

Today, an average of 15 million viewers tune into Twitch each day to watch, host, and cheer on live streams.

What has enabled the streaming site to capture and grow its audience despite rising competition comes down to a simple sentiment, encapsulated in a report from research firm SuperData: “While the ‘Why would anyone want to watch someone else play video games?’ sentiment continues to exist among those behind the curve, the smartest publishers, advertisers, and brands are recognizing that their consumers are now watching videos of people playing games.”

Largely ignored by advertisers and mainstream media networks before 2014, online gamers, spectators, and entertainers have long-awaited a platform for hosting and streaming content. Launched in August 2015, Google’s “Youtube Gaming” has since delivered on that need, but Twitch was first to the punch.

What Is Twitch?

Chances are if you were born after 1996, you may already be regularly using Twitch. (That’s because, according to a recent study by Lifecourse Associates, over 70% of millennials have played or watched a video game in the last 60 days, compared to 60% of Generation X and 40% of Baby Boomers.)

For the baby boomers and late-blooming millennials in the room, Twitch is a platform that allows gamers to be broadcasters, viewers, and participants in online gaming communities. Users can live-stream their gameplay, watch esports tournaments remotely, and cheer on their favorite competitive players.

More than just a website for watching and hosting live streams, Twitch is a social community of gamers. To some extent, this is a result of the platform itself. Unlike in professional sports, spectators on Twitch can connect directly with their favorite streamers, competitive players, and one another by commenting in real time on Twitch Chat. In the course of a stream, viewers might chat with one another, ask instructional questions, and engage with streamers directly.

As of 2015, the average viewer on Twitch watched a stream together with over half a million people and spent over 420 minutes on the site each month (in comparison to YouTube’s average 291 minutes).

How Does Twitch Make Money?

Not unlike Google’s Youtube, Twitch is a free streaming service fueled primarily by subscriptions and advertisements. However, backed by parent company Amazon, Twitch has experimented with and expanded its business model since 2014, defying precedent and forcing competitors to respond.

Integrated Advertisements

Common among video and streaming websites, Twitch integrates advertisements into its streams and on the sidebars of its website, which range in price from $2-10 cost per impression (basically cost per view). While Twitch has not disclosed the portion of its revenue generated from advertising, Newzoo predicts the video game streaming market will grow by 38 percent to $906 million this year and $1.65 billion by 2021, with sponsorships, advertising, and media rights generating most of that revenue. 

“As a consumer phenomenon, esports continues to grow its huge base of passionate fans across the globe,” said Peter Warman, CEO of Newzoo. “As a business, esports is now entering a new and critical phase towards maturity. Big investments have been made, new league structures have been launched, sponsorship budgets have moved from experimental to continuous, and international media rights trade is starting to heat up.”

The League of Legends World Championship was the most watched event on Twitch in 2017 with 33 million global viewers, about a fourth the viewership of that year’s Super Bowl. With over $5.5 million in ticket sales, Warman predicts that the event may see competition for streaming rights in future years.

Growth in streaming advertising can also be attributed to the specific demographic that Twitch caters to. Twitch is dominated by millennials (born between 1982 and 2004), according to LifeCourse, with 49% of Twitch traffic coming from 18- to 34-year olds. That means that Twitch is more successful at delivering on this demographic than Facebook, YouTube, or ESPN and on par with Reddit.

While esports players remain overwhelmingly male, Twitch’s viewership is more representative than many advertisers likely believe. “Compared to the days of the stereotyped gamer, the current viewer base has a high female representation (46%) and high average income ($58K in the US),” SuperData reports.

Twitch Prime Subscriptions

If Twitch is Amazon’s best-kept secret, second place goes to “Twitch Prime.” While this membership normally runs at $4.99/month, Twitch’s parent company integrated this membership with their retail website in September of 2016, so that Amazon Prime members can subscribe to Twitch Prime for free.

While the benefits of Twitch Prime are almost entirely aesthetic — adding additional color palettes and emoticons to chat — subscribers also gain the ability to gift half of their monthly subscription cost to one of the website’s streamers. Subscribers can do this once every 30 days, leaving Twitch with just under $2.50/month per subscriber. Although Twitch has not released exact subscriber counts, the ten most popular streamers alone have a combined 160,000 Twitch Prime subscribers, worth about $400,000 to the company.

Twitch Turbo” is the second of the streaming website’s subscription services. The $8.99/month membership makes the game viewing experience smoother by cutting down advertisements, increasing video storage, and offering exclusive chat emoticons and colors.

In-App Purchases, Called “Bits”

In addition to cheering streamers on from Twitch Chat, spectators can also give live shout-outs to their favorite streamers using an in-app currency called “Bits.” Viewers can buy Bits starting at $1.40 for 100, making the exchange rate about 1.4 cents to 1 Bit. “Cheering Bits” on Twitch amounts to animated chat emotes. Typing “Cheer1” into Twitch Chat will produce an animated grey triangle and cost you 1.4 cents. “Cheer100” creates a dancing purple diamond worth $1.40. Users can cheer any amount they want up to “Cheer10000” ($140 USD), and the corresponding emotes get larger and more colorful.

"If channel subscriptions are the equivalent to holding season tickets for your favorite sports team," said Twitch CEO Emmett Shear, "Cheering is like getting a crowd wave started during the game."

One cent of each bit is donated to the streamer, leaving Twitch with roughly 70%. Even at a net gain of .4 cents per Bit, Twitch has raked in nearly $1 million from Bit Cheering alone. Since launching in late June 2016, users have sent more than $1 billion Bits, totaling between $12.3 million and $14 million.

Leveraging Amazon and the NFL

Twitch recently announced that it would be expanding its live streaming content beyond video games to include television shows and even a partnership with the NFL.

Twitch announced in April that viewers would be able to watch 11 National Football League games during the 2018 and 2019 seasons, thanks to Amazon’s renewed streaming deal for Thursday-night games with the NFL. While the broadcast of NFL football on Twitch is a byproduct of Amazon’s ownership, the availability of professional broadcasts is a big win for Twitch — in part because Twitch viewers do not need to be paid subscribers to watch the games.

In August, Twitch teamed up with the privately-traded Pokémon Company to allow viewers to binge-watch streams of Pokémon: The Series and related movies on its website. In the past, Twitch has streamed Saturday Night Live, Knight Rider, and Mister Rogers, suggesting the company may look to expand into older televised content or extend its prime video exclusive content to the live streaming platform.

Live Stream Market Competition

In 2018, more people watch streamed gaming content than HBO, Netflix, Hulu, and ESPN combined. While Twitch is by far the most popular live streaming website for gaming and esports, Amazon’s most notable competition comes from tech giant Google. Youtube Gaming is a Google project and a more direct response to Twitch. Launched in August 2015, after Google failed to acquire Twitch in a bidding war with Amazon, the video game streaming arm of Youtube curates and recommends the live video for users.

For now, Amazon remains the leader in live-streamed video game content, but an independent report released earlier this year found that YouTube Gaming had grown its streamer base by 343% in 2017. Over that same time period, Twitch grew 197%.