Sizing Up Twitch’s Game Streaming Business

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By Doug Clinton and Steve Van Sloun of Loup Ventures

[Editor’s Note: Twitch is wholly owned by Amazon]

  • We think Twitch will pay streamers almost $75M in 2018 and see that number expanding to $180M by 2020.
  • We tested streaming on Twitch to get a better sense of what it takes to be a streamer and reach Twitch’s audience of 140 million monthly unique users.
  • Twitch has made it easy to begin streaming from a PC or an Xbox One.
  • The real challenge for streamers is building an audience, engaging and monetizing the audience, and committing to the daily grind of streaming.

Setting Up the Stream

We streamed Fortnite gameplay to Twitch from a PC and an Xbox One. Each had their own unique setup steps, but both were easy to set up. In all, it took less than 15 minutes in each case to begin a stream.

1) Streaming from a PC

Setting up the stream was relatively easy. Outside of a Twitch account and familiarity with a game you’d like to stream, the only additional tool we needed was Bebo, a broadcasting application available on the Twitch store. In addition to Bebo, which is recommended for new streamers, Twitch listed the other most common broadcasting applications: Streamlabs OBS, XSplit Broadcast, and Open Broadcast Software.

Our hardware setup was relatively standard. We were streaming and playing off of a single PC and did not use a webcam or microphone. Adding these components would be simple, as the setup process prompts you to select the source for each.

2) Streaming from an Xbox One

The Xbox One has broadcasting tools built-in thanks to Mixer, a Microsoft acquisition in 2016. To stream our play to Twitch, we had to download the Twitch app and go through a few additional steps. We used the Kinect to add video and a gaming headset for voice. We did have some internet issues with the Xbox One stream. Our gameplay stream was interrupted once, and the camera feed cut out multiple times. To be clear, this was likely no fault of Twitch or Xbox but an issue on our end.

Twitch, Xbox, and the broadcasting applications have made it easy to begin streaming. Existing gamers probably have everything needed for a stream, outside of a webcam. For those that want the most professional setup, adding a second PC (to combat streaming lag) and a mixing board (to optimize the balance of voice chat and game volume) would add to the final viewing experience for the audience.

Biggest Challenges for Streamers

While the process of streaming games is easy to do, the path to becoming a full-time streamer is much more difficult. Despite the glory that it seems to entail, there are a few notable challenges that streamers face:

1) Building an Audience

First and foremost, streamers need to have viewers on their channel. In some instances, viewers will organically find your channel browsing on Twitch. In our case, Fortnite had hundreds of different streamers, and there wasn’t any particular reason to choose our channel over another. In addition, channels are sorted by the current number of viewers. The easiest way for people to find your channel organically is to have a lot of viewers, creating a power law dynamic.

Similar to building traction on other platforms, going from 0-100 viewers is more difficult than going from 1,000 to 1,100. New streamers can benefit by promoting their channel through other platforms (i.e. Twitter, Discord, Facebook) as a way to gain viewers at the start. In addition, streamers who want to grow their audience will need to have a camera and microphone attached for high-quality visuals and audio. It also helps to be entertaining in some unique way.

Twitch has an extension platform with allows third-party developers to create tools for streamers. The first two categories of tools are “viewer engagement” and “loyalty and recognition.” Both of these categories help streamers interact with their viewers to improve the viewing experience, and more importantly, entice users to continue to return to their channel. Extensions in the viewer engagement category could be emotes or GIFs that pop up on the stream, eye-tracking tools to show the audience where you’re looking on the screen, or avatars that the audience can interact with. Extensions in the loyalty and recognition category could be viewership leaderboards, loyalty rewards programs, or reminders to subscribe to the channel if you have a free Prime subscription available. For many extensions, viewers can unlock channel rewards by using bits (which users purchase from Twitch) or by engaging frequently with a channel.

2) Monetizing an Audience

Once a steamer has an audience, the next step is to optimize the monetization around their audience. There are three ways to earn a revenue share with Twitch: the sale of games and in-game items, advertisements, and channel subscriptions. Twitch Affiliates and Partners receive 5% of the revenue earned from game sales, in-game items, and subscription revenue. Only Twitch Partners receive a revenue share from advertisements, which we estimate to be about 50%. Outside of earning a revenue share from Twitch, streamers can add affiliate links, sell merchandise on their channels, or obtain sponsors. These monetization avenues aren’t provided through Twitch, but instead must be set up and managed by the streamers or their managers.