Business Twitch

Is Twitch Profitable?

Is Twitch Profitable

When we think about Twitch, two visions come to mind – a platform on the come up looking to be profitable, and the Amazon-owned money printing machine. But which vision is true? Is Twitch profitable, and if so, how profitable are they? Is Jeff Bezos buying new yachts every week on our subscriber money, or will he shut Twitch down because it costs too much?

It’s a question I ask myself a lot – and before doing the calculation, I suspect that Twitch is NOT profitable but close. The community thinks the opposite. Over 53% believe that Twitch is making money. The next largest group believes it’s hemorrhaging money. Is that the case? Well, we’ll see. I’m going to do my best to estimate the expenses and revenues that Twitch has. While it may not be exactly accurate, we can at least get a ballpark idea!

TWITCH’S EXPENSES

Content Delivery (Live)

We can calculate what Twitch’s total content delivery costs are thanks to Amazon. Earlier this year, Amazon launched a white label solution using the same technology that powers Twitch. The sale page includes direct pricing on ingest and live content viewing costs with examples. Then, we just need to take 2019 data from StreamElements, StreamLabs, and SullyGnome – and it becomes a complicated, but straightforward calculation.

  • Total Stream Hours: 432,000,000 Hours
  • Total Hours Watched: 11,000,000,000 Hours
  • Total Data Per Hour: 4.175GB Ingest | 2.64GB Origination
  • Live Ingest Rate: $0.03/GB
  • Live Origination Rate: $0.05/GB

(Stream Hours (432M) x 4.175GB) x $0.03 Ingest Rate = $54,108,000

(Total Hours Watched (11B) x 2.64GB) x $0.05 Origination Rate = $1,452,000,000

In total, this comes to $1,506,108,000. HOWEVER, this is at pricing that anyone is able to access via MediaPackage. Twitch likely gets this at cost – so, let’s assume a 20% reduction bringing us to $1,204,886,400.

Content Storage (VODs)

Storage for all that video content also adds some cost – but not anything near the cost to transmit it live. Using a simple Amazon AWS Pricing Calculator, we can come up with a total cost. With 432,000,000 hours streamed, at 4.175GB of total video footage, we get 1.8B GB of data. But, Affiliate VODs are deleted after 30 days (unless they have Prime or Turbo, then it’s 60 days). That deleted content is possibly offset by clip creation (which lasts forever). So, just for the sake of simplicity – let’s call it a wash. Based on the AWS Calculator, we get about $45,000,000 in storage costs (after Twitch’s ‘at cost’ discount). That’s just 2019’s data storage cost. There are years of previous data… but only Partners would have VOD storage that long. I estimate it adds about $100,000,000 more.

Staff, Rent, etc.

Staff, equipment, office space, the (apparently) legendary Twitch kitchen all come with a cost. While 2020 has changed that up dramatically due to COVID19, we can still make a general guess. As of January 2, 2020, Twitch had 1536 staff. Let’s multiply that by the average Tech salary in major cities around the world ($135,000). That comes out to $207,360,000.

As for Rent, back in 2016, Twitch signed a 10-year lease at 350 Bush Street for 185,000 Square Feet for $62/sq foot (which excludes taxes, insurance, and maintenance). Let’s round that (with the exclusions added) to an even $15,000,000. There’s a bunch of other costs such as hoodies, cookies, healthcare, travel, etc. But, because there’s no good way to actually figure that number out I’m adding $100,000,000 for the hell of it.

2019 also saw the departure of Ninja and Shroud, leading Twitch to start a bidding war to secure top streamers. While not everyone is getting a $10M dollar deal, they have signed a lot of the big streamers to exclusive contracts for a period of 2-ish years. They also have deals with the NFL and other content providers… So, let’s add an extra $100,000,000 on top of that.

In total, that brings us to a grand total of ~$1,800,000,000.

TWITCH’S REVENUE

Finding reliable data about Twitch’s revenues is a bit more difficult, but we do have two solid pieces of data. A report on their advertising revenue, and a wide data collected report by a reputable data analyst company.

Twitch is pushing hard for Advertising revenue this year. In doing so, they’ve managed to frustrate the streaming community with midroll ads. What we know about Advertising on Twitch though, is that in 2019 – they fell short of their goal. In fact, despite aiming for $500M in ads, they only projected to deliver $300M according to a report from January 2020.

When it comes to Twitch’s other sources of revenue, we can look at things like Bits, Subscriptions, Sponsorship (Bounty Board), but there are also other sources as well. Neilson-owned SuperData detailed a report where they estimated that INCLUDING ads, Twitch made $1,540,000,000 in 2019. Considering the level of trust that SuperData is known for, we can assume that’s about correct.

So, is Twitch Profitable?

All in all, Twitch is nearly profitable! Had they hit their ad goals for 2019 (an extra $300M), they would have broken even.

~$1,800,000,000 in total expenses.

$1,540,000,000 in total revenues.

The COVID19 pandemic has driven a TON of new people to the platform. That will increase the cost of content delivery. But, digital advertising spend increased 6%, according to the Interactive Advertising Bureau. That, in combination with Twitch Ads being integrated into the Amazon Ads Network, will mean BIG things for ad revenue. As such, there’s a high likelihood that Twitch will have a breakeven year.

Based on the poll I created, a lot of people believe that Twitch is printing money – they are not. That needs to be a consideration when we talk about business decisions the platform makes. At the same time, that proximity to breakeven means that the monetization team needs to work with the community. A healthy and financially successful creator community will result in the financial success of the platform. One does not exist without the other, so it benefits both to work together!

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