Twitch just set a viewership record, but faces an uphill climb to increase ad revenue
- Amazon-owned Twitch has seen a viewership boom during the first quarter of 2020 and it could convince a wave of advertisers to buy into the video-game-streaming platform.
- As traditional media and advertising have been disrupted by the coronavirus pandemic, viewers have turned to Twitch for live entertainment.
- Twitch wants to generate $1 billion in ad revenue and commerce this year, according to The Information. The company reportedly delivered about $300 million in ad revenue in 2019.
- But to hit its ambitious goal, Twitch will have to convince brands they can reach more than just hardcore gamers.
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While many forms of entertainment - from concerts to movies - have been disrupted by the coronavirus pandemic, thousands of streamers on Twitch have continued to deliver live content without issue.
The Amazon-owned streaming platform is the leader in live video, but its overall earning potential still lags far behind YouTube, which generated $15 billion in ad revenue alone during 2019.
Twitch's viewership increased by about 23% during March, as many regions impacted by the coronavirus adopted shelter-in-place and social-distancing policies, according to data from streaming-software firm Streamlabs. The increase in hours watched should be a significant boon for Twitch. But an overall downturn in ad spending due to the coronavirus could make it difficult for Twitch to capitalize on the viewership surge.
Michael Levine, a senior analyst at Pivotal Research Group, told Business Insider that he expects ad revenue budgets to be cut by 20 to 25%. Industries that have seen their demand drop due to social-distancing policies have cut back on marketing, while some brands that were planning major campaign launches have put their plans on hold.
That drop could hurt Twitch, which already fell well short of its ad revenue expectations last year, according to reporting from The Information. An internal goal was set to deliver between $500 and $600 million in ad revenue during 2019, but Twitch landed closer to $300 million, the outlet reported. Twitch set a goal of generating $1 billion in mixed revenue and commerce for this year - but that was prior to the coronavirus pandemic.
Twitch is the top streaming platform and it wants to show that it's not just for gamers
Twitch has a fresh opportunity to prove its value to advertisers. The pandemic has companies rearranging their campaigns and spending for 2020 and viewers are turning to Twitch at a faster rate than ever.
The recent surge helped Twitch set a viewership record during the first three months of the year, surpassing 3 billion hours watched during a quarter for the first time, according to Streamlabs. Twitch's 23% increase in viewership in March reflects its dominance over other livestreaming platforms as well. YouTube Gaming saw a 10.7% increase in hours watched, while Microsoft's Mixer saw a 14.9% bump, and Facebook Gaming grew by just 3.8%.
But The Information reported that Twitch has, in the past, had problems courting advertisers that don't typically spend within the gaming category. EMarketer projected that ad revenue spending on gaming video content would reach $2.03 billion across all digital platforms in 2020. But advertisers will spend billions more advertising across YouTube's vast catalogue in other genres. Non-gaming advertisers are a key to Twitch's continued growth.
Though Twitch maintains its identity as a gaming platform, it has gradually taken steps to highlight its more diverse offerings. The platform's fastest growing genre is Just Chatting, where streamers host an interactive conversation with their community and react to current events, often without any video games involved.
But a gaming-focused audience can be hard to crack for an advertiser from another category.
Evan Kubes, president of the gaming and esports management firm Rumble Gaming, said that brands looking to advertise in gaming and esports should try to align themselves with specific games and streamers that reflect their product, rather than making broad campaigns that will be viewed as inauthentic.
"Unlike traditional media and traditional sponsorship, you don't have 60 years of precedent of what success may look like," Kubes added. "A lot of these brands are taking a chance on you that you're going to kind of help them achieve their goals. So on both sides it's a learning process."
On March 12, Twitch announced a new agreement with Comscore that would provide audience metrics like minutes spent and content minutes per ad to potential advertisers, a move both companies said will help prove the return on investment for future partners. Comscore said it eventually plans to provide genre-specific breakdowns for Twitch, which could provide more insight on the different types of viewers watching Twitch's most popular channels.
Twitch creators will eventually benefit from ad revenue sharing, or by negotiating their own deals
Partnered Twitch creators make money from ad revenue sharing - similar to YouTube - and Twitch offers each channel different rates based on audience, location, demographics, and available ad packages.
The top Twitch streamers negotiate additional promotions independent from the platform and many produce their own ads to run while live. Twitch pays streamers on a monthly basis.
But some channels choose to forgo ads completely, preferring to monetize with viewer subscriptions and bits. This can also hamper Twitch's chances to boost ad revenue. Twitch partner Hallie "Suto" Atisuto said she never runs ads when streaming for her 128,000 followers, and that viewer subscriptions and donations bring in more money.
"I actually don't run ads in my stream, I never have," she said. "Seems silly and a lost opportunity on making money, it's just the last thing on my mind while streaming. But I don't feel too bad about it because it seems like most of the other streamers I talk to are exactly the same way."