What is the Business Model for a Twitch Streamer?
Before you quit your job to stream games for a living, you’ll need a viable business model.
Streaming video games online for money seems like a no brainer for some, but doing it for a living can be rather complicated. After hearing many horror stories of streamers who quit their jobs and then couldn’t pay bills or rent, I decided to write an article about the streamer business model and the risks involved.
This article is focused on Twitch.
While YouTube Gaming and Facebook have potential, they currently do not have the gamer viewer base of Twitch. It’s hard enough to do this as a living without adding risk of low viewer base into the equation.
1. What is a Twitch Partner?
Becoming a member of the Twitch Partner Program is a key component of the streaming business model.
- Share of the ad revenue generated from all broadcasts on channel.
- Monthly subscription revenue from viewers.
- Stores for selling custom apparel.
- Tips and cheering revenue from viewers via Bits.
…and more but those are the major revenue implications.
There is an application process for becoming a partner with the following guidelines.
It’s easier than ever to become a Twitch Partner, but maybe harder than ever to stand out and make enough money to replace a full time job.
2. What’s Your Unique Value Proposition?
Streaming video games has quickly become a crowded space. It’s already difficult to stand out by randomly playing video games for viewers.
Streamers need to define a “niche” to build upon.
Some viewers will care more about skill and want to learn versus others who want to be entertained and don’t care that much about skill.
Ideally streamers can be both skilled and funny.
Questions to ask before going all-in on streaming:
- What types of games do you enjoy playing?
- What types of games are you skilled at playing?
- What games are already oversaturated with streamers?
- Do you want to skew toward being entertaining or informative?
- What is your schedule for streaming each week?
3. How Do Streamers Engage Customers?
Streamers deliver their value through the Twitch Platform channel, which supports multiple screens.
Streamers need to think about how to get, grow and keep viewers. Having 100–200 viewers consistently is a great start, but that number needs to grow if the goal is to pay rent, bills and food with the profits.
Engaging viewers on the stream through Twitch Chat is necessary, but it is not sufficient.
Streamers now have Twitter, Facebook, Instagram, YouTube and other social media channels for getting and growing their viewer base.
Creating and growing these additional relationships takes time, effort and money. Follow a few of the popular Twitch Streamers and do some research on what links they provide on their streamer page.
4. How Do Streamers Make Money?
Streamers do not simply sit back and watch the cash roll in. This is a huge misconception that is overshadowed by the passion for gaming. Generating revenue is rather complicated and aspects of it evolve as Twitch and other services change over time.
- Ads — Streamers Ad Revenue is calculated flat-rate CPM basis. While this won’t be the major revenue source, it can add up with stream duration over the course of time. The problem is that many viewers use ad-blockers, and do not count towards CPM.
- Subscriptions — Viewers subscribe for $5/month but depending on the streamer’s contract, Twitch reportedly takes 50% of that $5 (or $2.50). There are ways to negotiate the streamer % up over time to a higher share of the subscription revenue, but since Twitch doesn’t allow these contracts to be public, it is a black box on how this actually occurs. Twitch will soon allow higher subscription amounts above $5/month, but that structure is still in beta.
- Donations — Donations can be a major part of the streamers revenue. Viewers can donate $ through services like PayPal directly to the streamer. The streamer can set minimum donation amounts as well. This can get tricky over time however because people can request their donation back from PayPal, which we’ll cover next in the Cost Structure section. Twitch has introduced Cheers, which are powered by a micro-currency called Bits to allow viewers to contribute smaller amounts of to the streamer more frequently. A streamer receives $0.01 per Bit so the larger the number of Bits, the more $ for the streamer.
- Apparel Sales — Twitch partners with Teespring so that streamers can design and sell apparel in the official Twitch store. Twitch takes $2.50 of each transaction and there is a base cost to manufacturing the t-shirts. This will likely not be a significant revenue source right away without a large volume of sales over time.
5. What Do Streamers Need And What Will It Cost?
Streaming requires activities and resources which will result in the streamer incurring costs. These costs can vary based on the style and content but there are some commonalities.
Ideally costs are less than the revenue, however many streamers do not model this out early on and are surprised when they lose money.
- Hardware — Streamers need desktop or laptop to play games and usually another to live stream video to the internet. Depending on the system requirements of the game, this can add up quickly. Most mid-range gaming computers cost an upwards of $2000. Many streamers have a green screen setup with a camera and lights so that they can do more with graphic presentation of the stream. They also need decent gear like headphones and mic so that viewers can interact with them.
- Software — Video Streaming requires a high end internet connection and some software to have a professional looking stream setup. Twitch has a helpful guide here to get you started and there are Twitch Startups popping up every few weeks it seems. Most are geared towards providing streamers more insights into their viewer behavior.
- Production — In addition to streaming, viewers expect perks for donating money and subscribing. Custom badges and emoticons are all the rage and show super-fan status among viewers. These take some graphic design skill and money to create unique perks.
- Taxes & Fees — Streamers need to be prepared to pay taxes and fees associated with streaming. The biggest elephant in the room at the moment is the dreaded PayPal Chargeback. Viewers can contribute donations through PayPal and streamers reaction may be to withdrawal the money right away and spend it. However PayPal allows viewers to reverse the donation, which if approved, will put the PayPal account in a negative balance. There are a few tips to help mitigate this but neither are bullet proof. First off do not touch the PayPal donations within the first 90 days, no matter how tempting it may be. Second include a disclaimer on the streamer page about donations that makes it clear there are no services in return for the donation. After all, it’s called a “donation” for a reason. Unfortunately the terms and services for payment systems still allow this headache for streamers.
Streamers can create partnerships where the costs incurred are driven down significantly. Streamers partner with outside companies that bring activities and resources so the entire burden is no longer on the streamer.
- Partnering with Twitch is a must because streamers need to unlock the perks of being a Twitch Partner.
- Energy Drink companies are an ideal target because some of the games people play feature their products. It’s no surprise that gamers are their target audience. Energy Drink companies can provide perks which streamers can give away in contests.
- Gaming companies (both hardware and software) are great partners because they may provide a gaming system and accessories for both the streamers and for giveaway contests.
Speaking of partnerships and brands, this is where streamers can unlock even more revenue.
6. How Do Streamers Integrate Brands?
Brands love streamers, although they are still trying to find their way on how to engage with them. Streamers on the other hand need to do more than wait for brands to come to them.
I’ve illustrated brands in green below:
- Streamers have to uphold an image that will not damage the brand. The value proposition to the brand is slightly different than the value proposition to the gamers. Brands care much more about appearance and expanding their sales channels.
- There are a few brand / streamer marketplaces now that connect both sides such as Ader and Pillar.
- Brands unlock new revenue streams with sponsorships and affiliate programs for streamers. This is especially helpful if streamers want to use this platform as a foundation to jump other gamer communities and events.
When including brands into the equation, the streamer business model expands from a straight B2C play, and into B2B.
Companies like Razer are already jumping on this opportunity and streamers can benefit from it.
7. Making The Model Your Own
I’ve detailed out the high level commonalities and risks of the streamer business model and while helpful, becoming aware of this complexity is only the first step.
Next you’ll need to put numbers behind each of these pieces and apply them to your unique situation.
Make it your own and good luck!
Interested in how to test your business ideas? Feel free to contact me.