Twitch - What if Amazon decides to change the rules of the game?

Troubled waters are brewing on the streaming platform. Amazon wants to bring order! 🤯

Twitch, the famous streaming platform founded in 2011 and acquired by Amazon in 2014 for 970 million USD, is seeking ways to turn a profit.

The latest data published by Twitch for the year 2022 shows a revenue figure of 2.8 billion USD, but even with this substantial amount, their profit remains negative 🤔.

This has recently led Twitch to the decision to lay off 35% of its workforce (500 employees).

Well, it seems that this is not enough, and Amazon, the owner of the company, wants to take it a step further. All signs point to a significant modification of the business model, which will impact the earnings of its "core product", the streamers.

The reality is that Twitch, with a user profile especially young (around 21 years old) and male, has been showing signs of "fatigue" or "slowdown" for some time.

• Monthly Active Users (MAU): 140M

• Daily Active Users (DAU): 30M

• Concurrent Users: 2.58M (-7.2% YoY)

• Streamers: 7.8M (-13.3% YoY)

• Revenue: 2.8b USD

  • Prime Subscriptions: 80%

  • Subscriptions: 7%

  • Advertising: 5%

  • In-App: 5.8%

  • Merchandising: 2.2%

• EBITDA: Negative

What if Amazon decides to change the rules of the game?

Amazon is clear; it wants to turn its billion-dollar investment around and capitalize on the streaming platform. To achieve this, it is considering modifying the business model. Currently, Twitch has the following revenue streams:

• Prime Subscriptions: AMAZON PRIME users enjoy Twitch subscription. From this model, the company shares 50% of the revenue with the streamers (2.5 USD).

• Native Subscriptions: Users who support streamers by subscribing to their channels. There are three modes - 4.99, 9.99, and 24.99 USD, depending on the channel and the benefits offered by the streamers. Streamers also work on a 50:50 basis, but TOP streamers can negotiate "revenue share" models of 60 or 90% in their favor.

Subscriptions grant access to "badges" (channel resources), exclusive competitions, ad-free content viewing, exclusive access to chat rooms, and channel-specific emojis.

• Advertising: This was introduced later as revenues struggled to take off. Although it generated controversy with streamers, it is implemented, impacting users with video ads. It's a CPM model, where streamers receive a percentage of the revenue. Each streamer is estimated to receive around 250 USD for every 100 subscribers.

• Merchandising: Purchase of brand promotional material through the Amazon platform.

• In-App Purchases: Of specific resources, both for subscribed and free users. This represents 5.8% of the revenue and is done through a virtual currency called BITS (100BITS - 1.40 USD). Streamers receive between 60-80% of the generated revenue from these sales.

Where Amazon wants to "focus" is precisely on the first of these revenue streams, which is also the largest. It is estimated to represent approximately 80% of the company's revenue. In other words, Amazon decides to change the rules of the game.

Amazon wants to remove TWITCH from the PRIME subscription and stop sharing 50% of it directly with the "streamers".

It should be noted that Amazon initially opted to subsidize content creators clearly and powerfully, as it understood they were the key to the platform's success (its product). By having them create content on Twitch, they believed they could grow (economies of scale) and generate new revenue streams (diversification).

But over the years, neither the growth nor the expected new revenue streams have materialized (the user profile doesn't help)... so it has simply become a massive subsidy to content creators. As they gained recognition, it even "strangled" the company more (streamer demands and fear of losing them).

In other words, Twitch has historically chosen a very "grant-based" business model towards content creators, which made sense to ensure entry barriers for new players and be attractive to users. However, over time, it has proven unsustainable.

And what consequences could this change have?

Obviously, the first consequence will be that Amazon will stop paying 2.5 USD per month per Prime subscriber to the streamers (1 billion USD last year), with the consequent improvement in the company's financial figures. This will be the impact in the very short term, but there will be more consequences.

If PRIME stops allowing subscriptions, will these users decide to pay independently? There are many, many doubts about this, especially considering the current weight of individual subscriptions and the main user profile. Therefore, in the short term, Twitch will have to look for alternatives like advertising to compensate for the revenue loss. In other words, Amazon as a group will benefit, but Twitch will suffer and have to look for alternatives that are far from clear.

Let's move on to the effects. If there is advertising, this will have an impact on the user experience, especially when they have been used to living without it. There will also be an impact on streamers. In the medium term, users will see their experience altered, and streamers will be annoyed because, although they benefit from this advertising, their content is affected, and even their own promotions within the videos.

And finally, the BIG IMPACT that will have medium to long-term consequences is the one that will affect the influencers. If PRIME disappears, their subscription revenues (easy money) could be affected by 80-85%! And that is a lot, a lot of money!

Streamers like Illojuan (one of the most followed with 3.9M followers) have come out saying that 85% of their subscribers come from PRIME. Illojuan, who admits to having 47k subscribers, talks about losing 40k (100K € per month in revenue).

And of course, will these streamers accept these new conditions? Will they stay on the platform or look for alternatives like Kick, owned by the crypto-casino Stake.com where money is currently flowing rapidly?

And if the streamers decide to look for alternatives, what will happen to the content and consequently the audience?

Twitch and Amazon don't have an easy situation, and it's understandable that with these figures, they are looking for solutions to make the platform profitable. But they themselves have built their "cage" with a model that has empowered content creators, and now they are hostages to them.

We'll see if Jeff Bezos can steer the situation, but tumultuous times are coming for Twitch and the streamers.

How do you see it? Do you see a future for Twitch? Do you think content creators/streamers are overvalued?