Twitch: The Platform for the Pitch
By: Kyle Madden & Ali Aamir
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
Twitch’s Origin Story
Since its inception, Twitch has been at the forefront of the live-streaming industry, revitalizing a media format that had previously seemed unprofitable and unpopular. With a primary focus on gaming video content (GVC), Twitch established itself as a leader and pioneer in livestreaming. In 2019, Twitch boasted approximately 75 percent of total GVC market share and generated $1.5 billion in revenues, eclipsing leading competitor YouTube Live. Twitch’s growth was amplified by the COVID-19 pandemic, with a 67-percent increase in hours watched in 2020 relative to 2019.
Twitch has largely been successful due to one key differentiator: community-building functionality. Streamers can chat directly with fans during livestreams and interact with other streamers by directing viewers to other channels once the stream has ended. The subscription tools are especially strong in driving network effects, as fans can donate money to streamers and earn custom badges. Once a streamer gains a subscriber, streamers will often either verbally express gratitude or play a song during the stream, driving focus to the subscriber and their donation. Subscribers can also influence the streamed content live through exclusive chat boxes with other subscribers and the streamer. While these features can be partially replicated by other competitive platforms, Twitch’s first mover advantage and enriched focus on creating community-specific events has largely driven its growth. This unique selling point has been the focus of Twitch’s growth strategy since its $1 billion acquisition by Amazon in 2014.
Out of Their League
As the livestreaming industry grows in profitability, increasing competition has fueled a need for diversification, primarily through exclusive content licenses. In 2020, YouTube Live acquired the broadcasting licenses of top streamers like Jack “CouRage” Dunlop and Rachell “Valkyrae” Hofstetter, as well as a partnership with the Call of Duty League to broadcast all games exclusively on YouTube. Similarly, Facebook Gaming partnered with the now-defunct, Microsoft-owned, Mixer streaming platform to transition Mixer-exclusive partners over to Facebook.
While Twitch has been able to lead its gaming categories, the non-gaming categories have faltered significantly. For instance, the sports category’s average daily viewership on Twitch has nearly halved since its inception in July 2020. This category includes a partnership with the NFL, where Twitch simulcasts just eleven “Thursday Night Football” games per year which also air on FOX and the NFL Network. Twitch’s partnership with the NBA only includes the rights to stream the US men’s national team’s warm-up games and 76 youth games for the Junior NBA during the 2019–2020 season. In addition, Amazon has hosted 10 percent of all English Premier League (EPL) games per season since 2019, but exclusively streams these games through Prime Video, foregoing the potential benefits that Twitch’s community features could provide.
While these deals have been useful in testing the waters, they do not utilize Twitch’s key value proposition of community building. Fans of these sports only have partial access to the games they want and must resort to other platforms for the remaining content, muting the network effects that Twitch can offer. Without immediate action, Twitch stands to lose the race on exclusive content licenses, and ultimately, fail to differentiate itself amongst a growing saturated market. Likewise, due to the lack of non-gaming content, Twitch is losing to other entertainment streaming platforms such as Netflix, who are also currently expanding via original content deals and licenses. Twitch’s existing competitive advantage is not sustainable for long-term growth, and with the opportunity of exclusive content to bolster its credibility, competitive positioning, and category performance, Twitch should act now.
A Different Kind of Game
While Twitch struggles to establish a foothold in non-gaming streaming amid an increasingly competitive livestreaming industry, the COVID-19 pandemic has presented a unique opportunity as sports leagues seek to restructure their broadcast licensing strategy given declining profitability. Even the largest global football league, the EPL, was exposed to issues in its current streaming structure, as they were forced to rollover the existing UK broadcast deal from the 2019 to 2022 cycle until 2025. As a result, the UK government established an Exclusion Order in collaboration with the EPL. This exclusion order outlined the circumstances under which the EPL could forgo its standard bidding process for broadcasting rights, recognizing the importance of football to national culture, social health and wellbeing. This was due to broadcasting revenues stagnanting in the UK since a content-sharing agreement was struck in 2019 between the current duopolic broadcasting incumbents Sky TV and BT TV.
Likewise, the French football league, Ligue 1, suffered financially during COVID-19. Mediapro, the Spanish company responsible for 80 percent of Ligue 1 game broadcasts in France, began skipping payments in October 2020. After four months of legal battle, administrators of the French football league, the Ligue de Football Professional, terminated its €3.3 billion 2021 to 2024 broadcast deal. Though Amazon picked up the broadcasting rights to these games in August 2021, the value of the deal fell sharply to only €250 million per season, which is approximately a 75 percent drop. Similar to the EPL games Amazon broadcasts in the UK, these games are exclusively viewable through Prime Video and not Twitch.
These licenses represent major sources of revenue for both leagues. Many of the attempted initiatives to revitalize economic growth among European leagues during the pandemic were met with severe backlash by fans, including the proposed European Super League (ESL). The ESL received wide opposition from fans as it would exacerbate existing income inequality issues amongst clubs and leagues. Ligue 1 and the EPL also considered reducing the size of their league to include less clubs, which also turned the fans away due to the lack of competition.
An opportunity lies for both the EPL and Ligue 1 to resolve broadcast licensing issues and rebuild trust with audiences via Twitch. Through massive platform growth and community enriching features, Twitch offers a unique proposition to strategically align with these sports leagues and simultaneously build a robust competitive advantage.
Building a New Team
Twitch should acquire the UK domestic broadcasting rights of the 2025 EPL season to improve their underperforming sports segment and improve their position within the livestreaming industry. Until the proposed license acquisition in four years, Twitch should also replace Prime Video as the host of all Amazon-licensed Ligue 1 matches in France. Since the exclusion order takes effect until 2025, Twitch has the opportunity to use Ligue 1 games to transition its site into a hub for live sports entertainment over four years. Since Amazon has already secured the broadcasting rights to 80 percent of all Ligue 1 games, pivoting the live streams from Prime Video to Twitch would not present any major financial challenges in the short-term. Moreover, in order to avoid undermining Twitch’s relationships with its gamer-centric user base, it is imperative for Twitch to begin live sports broadcasting with a league that has significant audience overlap with its existing customer demographics. The football-based FIFA video game series hosts the largest number of viewers and streamers relative to other sports-based video games on Twitch by a significant margin. As a result, the volume of audience overlap for football leagues would likely exceed that of any other sports league.
Collecting Coins: Financial Performance Benefits
Sky Sports, the current broadcaster of EPL, saw advertising income for fiscal year 2020 to be approximately $1.92 billion. Assuming only half of that advertising revenue is realized after migrating to Twitch, the income would cover approximately 40 percent of the $2.3 billion per year licensing cost, based on the rollover agreement commencing in 2022. Twitch would cover the majority of the remaining cost through its subscription-based billing model, which is comparable to the cost of a Sky Sports subscription. As Sky Sports does not have the same community-building functionality tools as Twitch, fans will be encouraged to change platforms. On average, 1.9 million fans tuned into Sky Sports EPL broadcasts in the 2019–2020 season, which excludes games shown on mobile platforms or at pubs. Bringing this fan base to Twitch would skyrocket the sports segment viewership, and increase the total daily active users of Twitch by approximately 13 percent.
Levelling Up: Future Growth Opportunities
Depending on the success of Twitch’s partnership with the EPL and Ligue 1, Twitch has the opportunity to work upwards in the football pyramid to acquire the broadcast licenses of the Union of European Football Associations (UEFA) Champions League. As part of a longer-term strategy, Twitch could even aim to partner with UEFA and FIFA to exclusively broadcast Euro Cup and FIFA World Cup matches. Twitch can similarly work down the football pyramid to stream games in the lower tiers of British football, such as the English Football League Championship. By acquiring and vertically integrating broadcast licensing targets in the football leagues, Twitch can increase barriers to entry for other livestream platforms.
There are also growth opportunities in advertising for Twitch within the two football leagues, such as club merchandise sponsorships and league partnerships. For instance, the current lead partner for the EPL is EA Sports. With Twitch’s expanded affiliation between FIFA video games and the EPL, Twitch can wield its influence to also become an official EPL partner. These advertising opportunities pitch the EPL brand name to an international audience that overlaps with Twitch’s existing game-oriented customers.
The Ball is in Twitch’s Court
As Twitch’s largest competitors rapidly gain traction through exclusive content licenses, financial losses in popular global sports leagues have created a unique diversification opportunity for Twitch. Through Ligue 1 and EPL game broadcasts, Twitch would be able to grow its non-gaming category viewership and improve its poise in a saturated streaming industry. Ultimately, by pairing its robust community-building tools with the world of football, Twitch can redefine its role in the sports streaming industry.