In a nutshell

  • Twitch remains unprofitable despite its large user base and the millions earned by top streamers, due to the high costs of infrastructure and bandwidth required to support livestreaming.
  • Twitch has adjusted its strategy by changing Twitch Prime subscription rates and reducing revenue shares for streamers to reduce costs and attempt to move towards profitability.
  • In response to financial challenges, Twitch has also increased ad inventory, ceased offering large exclusive streamer deals, exited expensive markets like South Korea and significantly reduced its workforce to cut costs.

Twitch is the largest livestreaming platform out there. Every day, millions of people tune in to see their favorite streamers play games, make stuff or just hang out. Meanwhile, the most successful Twitch streamers earn millions of dollars through ad revenue, sponsor deals and viewer subscriptions. And yet, despite all of this apparent success, Twitch isn’t profitable. Let’s take a closer look at why that is and what’s actually keeping the platform going.

The hard truth

In a recent stream, Twitch CEO Dan Clancy had this to say about the platform’s financial position: “I’ll be blunt: We aren’t profitable at this point.”

The truth is Twitch has never been profitable. Even back in the days, the platform consistently lost money. As easy as it is to start streaming on Twitch, it’s easy to gloss over the fact that hosting live video streams is expensive. It takes tons of infrastructure and bandwidth to support the 1.3 million streamers who go live every day, often for hours at a time. When you consider that only a tiny fraction of those streaming are attracting big viewership — and thus ad dollars — it’s easy to see why the numbers don’t add up.

Twitch Prime loses Amazon money

Twitch Prime is one of the many perks of subscribing to Amazon Prime. You don’t need to pay anything extra once you sign up for a Prime subscription, and since Twitch is not the main motivator in most people’s decision to keep their Prime account active, Twitch Prime is — more or less — free.

This has led many to speculate that Twitch Prime actually loses Amazon money in the long run. It also explains why Twitch recently announced that streamers will earn less from each Twitch Prime subscriber. Historically, Prime subs and regular paid subscriptions earned streamers the same amount of cash. With the new system, the value of a Prime subscription will be based on where the subscriber lives and how much they pay for Amazon Prime. The result is less revenue for streamers and less that Twitch has to pay out from the Amazon Prime coffers.

While this sounds like bad news for streamers in the short term, it’s one of the steps Twitch is taking to keep the platform alive in the long run.

Other strategies for profitability

Adjusting the Twitch Prime subscription rate is only one strategy in Twitch’s playbook for profitability.

Creator compensation

The platform has also been searching for the sweet spot in revenue sharing, first clawing back the 70/30 split some creators enjoyed for a universal 50/50 agreement, then adding new Partner Plus tiers that allow some streamers to reach those higher revenue shares on paid and gifted subscriptions — if they meet the right requirements.

As you might guess, streamers haven’t been happy with these changes. While trying to balance public opinion with profitability, Twitch has been forced to reckon with backlash from creators and viewers alike.

At the same time, Twitch has stopped handing out huge exclusive deals. The relatively smaller platform could not compete with market juggernaut YouTube and promising upstart Kick. Twitch called the streamer exclusives “unsustainable.”

More ads

Even as streamers are getting a smaller piece of the pie, Twitch is simultaneously increasing ad inventory. That means more ads are showing up during streams — and viewers have noticed. Overall, the shift to include more ads more frequently makes for a worse experience for viewers, potentially turning some viewers off of the platform altogether.

Abandoned markets

In another attempt to bring Twitch into profitability, the platform recently dropped support for South Korea. The justification? It’s too expensive to host streaming services in Korea due to uniquely high network fees and operating expenses.

Right-sizing the company

And of course, we can’t ignore one of Twitch’s most publicized efforts to make the company profitable: the layoffs. Earlier this year, Twitch laid off more than 500 employees or around 35% of the platform’s total workforce. Clancy points to this as a necessary “right-sizing” of the company after over-hiring to meet optimistic growth projections. When the layoffs were first announced, Clancy commented, “while the Twitch business remains strong, for some time now the organization has been sized based upon where we optimistically expect our business to be in 3 or more years, not where we’re at today.”

Will Twitch ever become profitable?

There’s no denying it: Twitch is in a tough spot right now. With more competitors like YouTube Gaming and Kick taking up market share, Twitch has had to make some hard decisions. While streamers suffer in the short term, these changes will hopefully make Twitch sustainable and even profitable in the long run. At the same time, these changes may prompt more streamers to look for other options — especially without exclusivity deals and the option to simulcast to multiple platforms.

What sets Twitch apart from its competitors is its culture and community of streamers. However, as more streamers leave, Twitch could lose that advantage. For now, we’ll have to wait and see if Twitch can become profitable without alienating the people who keep it alive in the first place.

Image asset courtesy: Twitch