Twitch is not a Welfare! - On why they are making the right moves.

Hey there,

Recently, Twitch - the number one streaming platform for gaming - has been under fire from streamers and viewers alike. After announcing major changes to its branded content and payout rules, the community strongly voiced their dissatisfaction and outrage. Despite the bad PR and streamers moving away from the platform, could Twitch's strategy pay off in the long run? Here is why it may very well be, how the new Twitch could look, and why Kick.com is playing its own games.

In a span of just two weeks, the number one gaming platform, Twitch, unveiled updates to its branded content and payout regulations.

Branded content refers to paid product placements, endorsements, or sponsorships. The update imposes limitations on the size and methods of advertising for streamers. The accompanying image outlines the specific restrictions.

The second announcement introduced a new partner program that alters the payout ratio depending on your subscription count.

Streamers that meet the qualification criteria will get a 70:30 payout ratio (70% to the streamer, 30% to Twitch). To qualify, the partner's subscription count must maintain at 350 or above for at least three months in a row. Once eligible, partner are automatically enrolled for the next 12 months. Gifted subscriptions are not counted towards the 350 level. Revenue represents another limitation. The streamer's cut reverts to a 50:50 split once their revenue exceeds $100,000.

StreamCharts (a website for stream data and analysis) shared that 1,066 out of the 42,300 active streamers, which represents 2.5%, are currently eligible for Twitch's Partner Plus program. According to another tracker, there are around 1.1 million active streamers daily. However, it is unclear what "active" means.

Both pieces of news weren't well received by streamers and viewers alike, causing dissatisfaction and outrage among them. As a result, less than 24 hours later, Twitch reverted their branded content changes. The company stated:

Though they undid the changes, it, however, has not stopped the community's outrage. Especially streamers have been vocal about Twitch's moves and have either already moved away from the platform or are considering doing so. The most recent example was xQc signing a 2-year contract worth $100 million with Kick. Many streamers have expressed similar intentions, have already moved, or are - as an act of disobedience - consciously breaking Twitch's rules (e.g., streaming on multiple platforms at the same time).

Amazon acquired Twitch in 2014. Back then, Twitch wasn't profitable and wasn't meant to be for at least a few years. Amazon saw the growth potential and invested in the sector. The strategy for them has, until now, been to get as many creators and people to stream and watch on their website - basically for free. Amazon's strategy was to establish Twitch as the leading streaming platform on the market. To grow their market share, they took a loss in the past to be profitable in the future. So far, this has been a success.

Rumors have it and various sources say that Twitch to this day isn't profitable, though their revenue was $2.8 billion in 2022. If you take into account how much the market has grown and that we're hitting somewhat of a plateau, it makes total sense to flip the switch - and Twitch is flipping it hard! Now they want to use their leverage - market share (being the number one streaming platform) - and start making money. How do they do that?

Twitch's recent branded content guidelines indicate their intent to exert greater control. Acting as the middleman between content creators and sponsors, advertisers, etc. As such, they are looking to monetize this position. By restricting the streamers' amount and ways to advertise products and services, Twitch "forces" companies that want to reach the younger generation to go through them. Now they get to do the business.

The second change concerns the split of revenue between the content creators and Twitch. As mentioned earlier, only 2.5% of the streamers enjoy the 70:30 deal, but that's only up to $100,000, which isn't much for big streamers. They, and all other streamers, fall back to a 50:50 split favoring Twitch heavily.

A third change that came in May was a 33% raise from $9 to $12 for Twitch Turbo. Twitch Turbo is a subscription service that prevents users from getting ads on Twitch. Over the years, Twitch has progressively increased the number of ads during streams. They also had an incentive system set up for streamers to give them a share (which wasn't much). It was their attempt to get viewers and streamers used to more ads, setting the stage for what was about to come in the months after.

Simultaneously, they have also become more advertiser-friendly by restricting or banning things such as gambling or explicit-like content under the "Just Chatting" category.

💡 Hence, Twitch is having sponsors go through them now and be more advertiser-friendly, have people watch more ads. Those who don't want ads have to pay more now to avoid them, and streamers make way less money than before.

As we have seen, the outrage and changes have caused many streamers to leave Twitch. From Twitch's perspective, this is good. Here's why.

When users consume your product or service, you want to make a cut. If that's not the case, these users are costing you money. The majority of streamers fall into this category. Considering the costs for servers, community managers, etc., and put it in relation to the number of people streaming to zero, one, or just a handful of viewers it's pretty clear that for Twitch, they are dead weight – a net negative. By flipping the switch, Twitch initiates a self-purging process that will ultimately make them profitable afterward.

When low-viewer streamers leave, you are happy, and you don't even care if some big streamers leave too. The fewer streamers, the lower the costs for infrastructure such as servers, the fewer people you need to run everything, etc. When streamers leave, it means less viewer competition. Hence, the platform becomes more appealing for others to stay and try to be the next big thing. For them, the incentive is now even greater, especially because discoverability increases.

For Twitch, new stars are on the horizon all the time. Who needs the old ones? Also, as we have seen before, some streamers come back to Twitch after streaming for a certain period on a different platform. Twitch's reach is just too appealing (meaning it converts may too nicely into Dollars) than to leave it on the table.

While the departure of big streamers may initially cause their fans to follow suit, it is only a temporary effect. Yes and no. Yes, because this will happen, but only for a short amount of time. No, because Twitch is something they are used to, it's burned into their brains, and they will always go back to it. In addition, rarely does any viewer watch just one streamer. Meaning, even if one of their favorite streamers leaves, they will still return to Twitch to watch the others.

💡 Though it is understandable that the recent announcements and changes by Twitch have caused public outrage among Twitch streamers and viewers, they are necessary. The community has used Twitch's services basically for free for almost a decade. Since the company, still to this day, likely isn't profitable, it has to take measures. From a strict business standpoint, a company that can't make money will die at some point. Twitch is not a welfare! No one can expect Amazon to keep Twitch alive without wanting to make money.

Amidst the outrage, one specific platform has used this situation to step in and fish for content creators and viewers to increase their reach and market share. That platform is Kick.com. They have been very vocal on social media about the intentions of their competitor. In particular, they used the 70:30 and 50:50 split changes as a negative anchor to point towards their generous 95:5 split. Another factor is getting big streamers to join their platform, such as xQc and Trainwrecks. To viewers, giving their favorite streamers a new home and treating them "fairly" (compared to Twitch) makes Kick look good in their eyes.

From a financial standpoint, a 95:5 split, as well as a $100 million deal, doesn't make sense. It is not sustainable whatsoever. But Kick isn't meant to be profitable. As recently discovered, the owner of Stake (a crypto casino) is allegedly invested in Kick. It appears that the platform is not meant to be a profitable business itself but more as a gateway to drive users towards Stake for gambling.

💡 Think about it: people are emotional about Twitch right now, causing them to leave. Then, Kick comes around the corner marketing itself as a great platform for creators and viewers. Famous streamers from Twitch move over, bringing (at least at first) massive numbers of viewers with them. Kick is also more lenient when it comes to content (gambling and nudity), which is great for viewers. Those streamers "promote" gambling (directly or indirectly), and hey, there is Stake.

Kick is basically a marketing campaign and a business expense for Stake. Streamers and viewers should be aware of that.

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