12 Oct

Twitch: Bezos Owns the Ace of Spades

WRITTEN BY Shankar Iyer

Jeff Bezos, the owner of Twitch, is known for making smart moves when it comes to business. His ventures into different domains always raise curiosity among other investors. For instance, Jeff Bezos talked about introducing drones to deliver products in 2014.

Even with his acquisition of the video game streaming company Twitch, he raised a lot of questions. Bezos’s vision was unclear at the time. However, when you look back now, you realize the value that Bezos saw in the live streaming website five years ago. With the US president broadcasting his campaign on the portal, this game streaming platform is now the talk of the town.

Amazon Inc. (AMZN) bought Twitch Interactive Inc. for just less than a billion dollars, $970 million to be exact. Bezos bought the online streaming startup in August 2014. Since it is a privately owned company, the financial statements are not available publicly. Although sources suggest various estimates, here is an attempt to peek into Twitch’s business.

Video game streaming business model

Twitch is a live streaming website that mostly features gaming content. It’s a gamers dojo of sorts. The portal gets a lot of viewership from gaming enthusiasts. Some statistics suggest that over 50% of the viewers are between 18 and 34 years old. In addition to gaming, the website also broadcasts videos on sports, music, and politics. Users can create channels on the live streaming platform.

Other features include viewing videos uploaded by other users, live chat features, broadcasting virtual gameplay live, etc. All in all, it’s the perfect platform for a gaming netizen. With the growing enthusiasm in online gaming, the portal’s viewer base is evergrowing.

Three revenue segments

Like most digital streaming companies, Twitch relies mainly on advertisement revenue. There are three main revenue segments:

  • advertisement revenue
  • subscription revenue
  • revenue from partner programs

    Under the advertisement segment, the company generates its earnings in two ways. The first way is through display ads. The other is through advertisements through video media. According to one source, Twitch ads generate revenue somewhere between $2 and $10 CPM (costs per mile). So, for every thousand visitors, the company earns $2 to $10. However, CPM revenue varies based on different factors.

    Twitch subscriptions generate revenue

    There are two different products that can users can subscribe to. One product is Twitch Turbo, the original flagship product. The other is Twitch Prime. Twitch turbo costs $8.99 per month. The primary benefit for subscribers is that they will have access to ad-free content.

    Also, paid Turbo members can store broadcasts for a longer time. They can save their content on the platform for 60 days, unlike the standard 14-day storage. The chat feature will sport their username in unique colors, and the member will have an exclusive badge. Additional benefits include access to more emoticons and priority customer support.

    The base package of a Prime subscription on the channel starts at $4.99 per month. The higher tier subscriptions cost $9.99 and $24.99. With Twitch Prime, members will receive the Twitch channel subscription; access to gaming content, exclusive emoticons, and additional color options in chat messages; and a special Prime member chat badge. Also, members are eligible to gift in-game content to other community members. The 60-day extended storage is the same for Twitch Prime and Turbo.

    Partner programs make money through subscriptions

    Partner programs include revenue from partner ventures broadcasting on the platform. For regular broadcasters, Twitch offers a partner program. The platform creates a variety of content like music and art, talk shows, and, of course, games. Partners can generate revenues by accepting subscriptions from viewers.

    Also, viewers can spend “bits” on the partner channel. Bits are the kind of online currency that viewers can buy for one cent. For every bits spent to cheer on the partner channel, they will receive a portion of the bits’ revenue. Partners can also earn through mid-roll ads on their channels.

    Trump joins Twitch ahead of the 2020 election

    In recent news, it came to light that President Trump is broadcasting live on Twitch. Hypothetically, if the broadcast is part of the partner program, then the channel could generate ad revenue. If a viewer cheers the president’s statement with a “bits,” then the channel will receive a portion of the Twitch earnings. And to top it off, viewers could buy Trump merchandise from their Amazon linked accounts. This is how the partner earns revenue on Twitch.

    There are some eligibility conditions for the partner program. Twitch demands that the partner stream at least three videos every week. Also, Twitch has a set of defined quality parameters. Partners have to adhere to these quality norms. All details and specifics of the partner program are included on the website.

    General statistics about Twitch

    Investopedia recently published statistics about Twitch. Most of the data is from October 2018. We will try to come up with an in-depth valuation soon. But, until then, here are some of the key highlights on the video streaming portal:

    • In 2018, Twitch received web traffic of 15 million users every day. Twitch viewers spent approximately 23 billion minutes per month.
    • In 2014, when Jeff Bezos bought Twitch, the purchase consideration was $970 million. In four years, the estimated valuation has increased more than 4x. The approximate value of the company in 2018 was around $3.79 billion.
    • According to Investopedia, in the second quarter of 2019, over 2.72 billion hours of live video streaming were featured on Twitch. It is the highest count of live streaming videos watched online. Also, the same source said that Twitch welcomes 3.9 million new and unique viewers on its platform every month. The roughly 3.9 million viewers is an average count for 2019.

    Conclusion

    Online live streaming is gaining popularity and so is Twitch. With Trump broadcasting on Twitch, the portal could see significant traffic in its politics channels. Also, the company live stream the National Football League. Additionally, there is a lot of content on Twitch, which is perfect for binge-watching. In other words, the company could see huge growth in its ad revenues. There’s one more thing to be said about Twitch. Since it is a private company and owned by Jeff Bezos’s Amazon, Twitch revenues will add value to Amazon stock.

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