how-does-twitch-make-money

How Does Twitch Make Money? Twitch Business Model In A Nutshell

Twitch started in 2007 as Justin.tv, broadcasting the life of Justin Kan, one of its co-founders, used to prove the concept of enabling anyone to broadcast their lives on the web. Once pivoted, Twitch quickly grew, and by 2014 it was acquired by Amazon for almost a billion dollars. Titch now makes money via subscriptions, bits, advertising, and merchandising.

Origin Story

How Twitch pivoted from Justin.tv, to become among the most successful streaming services, bought for a billion by Amazon.

Twitch is a North American live streaming service with a focus on esports broadcasting and video game streaming. Twitch was founded as a spin-off to Justin.tv. Founders Justin Kan and Emmett Shear noted that the gaming category on Justin.tv was the most-watched category on the site. 

Three years after Twitch was founded, it was identified as the fourth-largest source of peak internet traffic in the United States. As a result, the parent company of Justin.tv was rebranded as Twitch Interactive and Justin.tv was shut down. 

Twitch Interactive was then acquired by Amazon for $970 million, enabling the platform to become integrated with Amazon Prime.

Twitch continues to dominate the gaming and esports streaming market, boasting over a hundred million actively monthly users. The platform has since expanded to offer creative content, music broadcasts, and affiliate programs for streamers.

The Amazon acquisition explained by Twitch co-founder

Justin Kan, co-founder of Twitch explains how he sold the company to Amazon for almost a billion dollars!

Now Twitch is part of the Amazon’s empire:

who-owns-twitch
In 2014, Twitch was bought by Amazon for $970 million. Therefore Twitch is part of Amazon, comprising other subsidiaries bought over the years, like Audible, Whole Foods, and Zappos (in total, Amazon has 12 subsidiaries). Therefore, as of 2020, Twitch is a multi-billion dollar company, making money primarily via advertising through its video streaming platform (creators use Twitch today across many other verticals).
amazon-competitors
Amazon is a consumer e-commerce platform with a diversified business model spanning e-commerce, cloud, advertising, streaming, and more. Over the years, Amazon acquired several companies. As it operates across several industries, Amazon has a wide range of competitors across each of those industries. For instance, Amazon’s E-commerce competes with Shopify, Wix, Google, Etsy, eBay, BigCommerce.

Twitch revenue generation

Twitch has an extensive revenue generation model – despite being predominantly a freemium product. Without further ado, let’s delve into the finer details.

Subscriptions

To show their support for a favorite creator, Twitch users can subscribe to their channel.

There are three, tiered options, with the latter two accommodating those who generally wish to provide more support:

  1. $4.99/month is the minimum amount, giving subscribers access to creator emotes (Twitch-specific emoticons) and other benefits which each creator can define.
  2. $9.99/month – offering one extra emote.
  3. $24.99/month – offering two extra emotes.

Irrespective of the plan chosen, Twitch takes 50% of the total revenue. In limited scenarios, Twitch allows popular creators to keep 100% of the subscription revenue as an incentive to keep them on the platform.

Bits

Bits are essentially Twitch currency and can be bought on the platform by users to cheer for creators using emoticons in live chat.

100 bits can be purchased for $1.40, with 25,000 bits available for $308. The creators themselves receive $0.01 for each bit that is used in their chat.

Advertising

Twitch also incorporates video advertising on live streams and pre-recorded content.

The company first negotiates with an advertiser and then the creator receives a portion of the advertising revenue. The total amount a creator receives is dependent on their CPM (Cost Per Mile), or a fixed price per one thousand views.

Twitch works with each creator to agree on a unique CPM. Confidentiality clauses mean that exact CPM rates are hard to quantify.

Merchandise

Merchandising is a hallmark of the acquisition by Amazon in 2014.

Fans can purchase Twitch-branded merchandise via the Amazon website. This merchandise is exclusive in the sense that it cannot be purchased elsewhere. Clothing is the most popular form of merchandise, but Twitch fans can also purchase gift cards and pet accessories.

Amazon Prime integration makes these purchases exceedingly easy. Such is the popularity of Twitch that profit margins are also high.

Key takeaways:

  • Twitch is a live streaming video platform founded by Justin Kan and Emmett Shear. The platform was created after Kan and Shear noted the surge in video game streaming popularity on Justin.tv.
  • After becoming the fourth largest source of peak internet traffic in 2014, Twitch was acquired by Amazon. Its product range quickly expanded to include music broadcasting, affiliate programs, and other creative content.
  • Twitch makes money by offering creator subscription plans. Fans can also purchase in-house currency to show their support using proprietary emoticons. Twitch also makes money on exclusive, high-margin merchandise.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"