• Andrew Schauer, Esq.

The Economics of Streaming - Part 2

Last week on the blog, we introduced the basics of Twitch streaming, and referenced two revenue streams: Donations and subscriptions. This entry will be more of a deep dive on those two (and will also touch briefly on Twitch's "bits" system), so we can see exactly how they work and where streamers may be leaving money on the table.

First up, we'll discuss subscriptions. Until the end of 2017, Twitch offered $4.99 subscriptions only. Since then, they've introduced two additional tiers.

Source: https://help.twitch.tv/customer/en/portal/articles/2812403-how-to-subscribe

There are three subscriber "benefits" (such as they are) built into Twitch by default. These viewers: 1) get an ad-free experience; 2) they may display a "badge," or special icon, next to their name in chat channels to which they have subscribe; or, 3) they can access special emoticons to use in the chat. Streamers may also offer additional perks, like a private chatroom or more effusive shout-outs.

Proceeds from subscriptions are usually split 50/50 between the streamer and Twitch, though extremely popular streamers may be able to negotiate a better deal. It also bears mentioning that - since Amazon owns Twitch - Amazon Prime subscribers may allocate one $4.99 subscription to their favorite streamer, which is split the same way as any other subscription. However, there is another way:

Source: patreon.com

Patreon is a subscription service for content creators that has picked up a good deal of steam in recent years. Content creators may choose different monthly tiers to offer prospective subscribers, usually including different perks for subscribers at each tier, and they earn 95 percent of the revenue generated that way (with Patreon taking the other 5 percent). This 95/5 split should obviously look much more appealing to streamers than the 50/50 offered by Twitch. Of course, this means the streamer has to direct their viewers to another off-site service to give them money, which may be a bridge too far for many prospective subscribers with shorter attention spans. That said, if Twitch is just one aspect of a streamer's brand and that streamer has, say, an accompanying Podcast or Youtube channel or anything of that sort, a service like Patreon may be a useful touchstone around which they might build out their brand and its associated community.

Not subject to the 50 percent "Twitch tax" or even the 5 percent Patreon fees, however: Donations/tipping. That's not to say no one else is trying to get their hands on that money. Twitch has innumerable customization options for streamers' UI's, and their community has turned to two main third-party developers to narrow down and implement those options: StreamElements and StreamLabs. While there are several differences between the two, they both use PayPal to process one-time money transfers from viewers to streamers. Both these developers and Twitch allow the streamer to keep 100 percent of that money, subject only to PayPal's fees. PayPal may be a reliable, well-established player in the digital banking age, but is it the best for streamers? Let's take a look at the numbers:

Source: https://www.digitaltrends.com/mobile/paypal-vs-google-wallet-vs-venmo-vs-square-cash/ 

Right away you can see that Twitch streamers are losing out on $0.30 every single time one of their viewers donates using either a credit or debit card. None of the other services ding streamers with any such fee whatsoever. When you're talking about tens or hundreds of thousands of donations for the largest streamers, that adds up. As a hypothetical, take the streamer we mentioned last time, Ninja: As of March 3, 2018, he had over 100,000 subscribers (more on those down below). Let's assume - and this is pure conjecture with no actual basis in fact - that he had received the same number of donations over his streaming career, and each donor gave $5.00 (many donors give a lot more and some give less, this is again just for argument's sake). That would mean Ninja has paid $30,000 to PayPal out of $500,000 (or 6 percent) of his g›ross income from donations, and that's not counting the base 2.9 percent fee on top of that.

Although there does not seem to be any conclusive publicly-available data, it could well be that donations are much more common than subscriptions, meaning streamers may be taking an even bigger hit than in the hypothetical above. In any case, Google Wallet and Venmo are (at the time of writing) demonstrably cheaper where credit and debit card transactions are concerned. Of course there are some tradeoffs - Google's withdrawals could take a day longer, and Venmo's daily transfer limits are considerably lower - but you'll keep more of your money with one of those two as opposed PayPal.

Another form of donations are "bits" which are used to "cheer." Streamers earn $0.01 for each bit spent to cheer. The default cheer emotes for 1 / 500 / 1000 / 5000 / 10000 bits look like this:

Streamers may incorporate custom cheer emotes into their channels; it's exactly the same principle as the subscription bonuses. Bits are packaged and sold like this:

 Source: https://www.twitch.tv/bits (accessed 3/23/18)

To put it another way: Twitch makes $0.40 on each sale of a pack of 100 bits (or ~28.6 percent). They make $2.00 on the 500 bit pack, again about a 28.6 percent take. Twitch goes on to make $4.95 (24.8 percent) on 1500 packs, $14.40 (22.3 percent) on 5000 packs, $26.00 on 10,000 packs (20.6 percent), and $58.00 (18.8 percent) on 25,000 bit packages. This all boils down to the fact that well-heeled viewers may choose whether to allocate more of their money to Twitch or their streamer of choice, but at the end of the day streamers are still earning just one penny per bit their viewers spend.

Ultimately, it all comes down how much you buy into the old adage: "A bird in the hand is worth two in the bush." Twitch is undoubtedly a force when it comes to concentrating a certain type of buyer, and a guaranteed $2.50 per subscriber is an attractive prospect for streamers who reach even modest recognition. However, supplementing with a heavy dose of direct donations - even if they come through PayPal - can represent a great cash injection as well.

Next time, we'll start digging for the real pots of gold: Endorsements and product placements.

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