Former Twitch employee explains why sub revenue split won’t change
Twitch streamers are demanding a higher revenue split from channel subscriptions, but a former Twitch/Amazon employee has explained why this split would only hurt the platform.
Currently, Twitch offers streamers a 50/50 split in revenue when it comes to channel subscriptions. When viewers pay $5 to subscribe to their favorite streamer, roughly $2.50 goes into the streamer’s pocket.
In November 2021, streamer Dezirablegamer took to Twitter to demand a higher revenue split, calling the current 50% model”crazy”. Shortly after, the poll to “Change revenue split between streamers and lower payout minimums” became the most supported idea on UserVoice.
While it sounds easy for the Amazon-owned company to pay streamers more, a former Twitch employee has provided a look at the economics that stop this from happening.
Why Twitch can’t pay streamers more
Here are the real economics of the #SubSplit market no one wants to talk about: (or maybe they don't understand)
1. Big streamers are a loss leader, every time someone who averages 5k (probably lower) goes live, Twitch loses money. Their paid subs will never be enough.— Sam Chen (@djfluffkins) January 7, 2022
Sam Chen, a former employee for Twitch/Amazon, has stepped up to the plate to discuss the “real economics no one wants to talk about.” In an attempt to clarify Twitch’s sub split, Chen explained why the platform can’t pay streamers more per sub.
Chen made his case in three points capped off with a short FAQ. His first point is that big streamers (xQc, Shroud, Nickmercs) are a “loss leader” for the platform. Anyone who averages roughly 5k viewers or more will cause Twitch to lose money anytime they go live.
That’s because it costs Twitch money to host streamers and provide a platform that supports 1080p broadcasts. The number of people watching large creators costs Twitch more than it can earn from that streamer’s subs. The ad revenue also does not cover the cost of that streamer.
2. Mid tier streamers make up for this loss (mid level in this case is prob between 100-500, who knows with pandemic numbers). You’re a size where your subs “likely” outnumber your viewers by a large margin. Twitch cannot be profitable without maximizing revenue from this group.
— Sam Chen (@djfluffkins) January 7, 2022
Chen’s second point is that mid-tier streamers (100-500 avg. concurrent viewers) make up for that loss. He stated that these streamers’ sub counts likely outnumber their viewers by a large margin.
“Twitch cannot be profitable without maximizing revenue from this group” – Sam Chen
3. Smaller streamers probably make back what they cost Twitch, maybe Twitch makes money from the ad side.
Bonus: See why Twitch wants bigger streamers to run more ads without a better share of ad money? So they can POSSIBLY get them to pay their share.
— Sam Chen (@djfluffkins) January 7, 2022
Lastly, Sam Chen claimed that smaller streamers might make back what they cost Twitch to host. Ad revenue also helps Twitch make up what they spend to host smaller streamers.
Chen also stated that Twitch wants larger streamers to run more ads so the platform can afford to pay sub revenue.
Why do streamers cost Twitch money?
Chen further noted why streamers cost Twitch money to host. Prime subs aren’t free. When a viewer uses a Prime Sub, they are making Twitch give streamers money from their own pocket.
As well, it costs the platform money to provide its viewers with video. It also costs more when a streamer can output better quality video. Chen states that Twitch doesn’t offer 4k not because it isn’t capable, but because it would cost much more to provide that service.
How can Twitch pay streamers more?
In order for Twitch to pay streamers more and still be profitable, Chen suggested they adopt progressive taxation of larger streamers. Mid-sized streamers may be able to reap the benefits, but larger streamers would earn less revenue per sub.
However, there is a way to better support streamers on the viewer’s end. Bits are a much more efficient way of donating to a streamer. Instead of a 50% cut, Twitch takes less than 30% of the money viewers spend on bits.
For instance, if you buy 100 bits, you pay $1.40. Twitch only takes $0.40 of that transaction. And as the number of bits a viewer purchases increases, the lower percentage Twitch takes from that transaction.
If you purchase 10,000 bits for $126, Twitch only takes $26 or roughly 20% of the revenue.
Why can’t Twitch replicate other platforms’ payouts?
“But Sam, how do FB and YT do it?” They’re not of size. Before I started at Twitch, I always thought Mixer had such an advantage with their latency. Then I realized that their latency was because they didn’t have the viewership Twitch did. Wait till they get bigger, it’ll be bad.
— Sam Chen (@djfluffkins) January 7, 2022
The #SubSplit discussion has heated up recently because of YouTube and Facebook’s increase in revenue split (70/30). However, Chen also explained why Twitch can’t replicate these splits.
Facebook and YouTube’s streaming categories aren’t comparable to something like Twitch. There are a lot more people streaming on Twitch at any given time than any other platform.
YouTube also has a larger number of revenue sources, whereas Twitch is dependent on ad revenue and subs. So, while it sounds like Twitch is a greedy unfair company, they may not actually be able to afford a larger sub revenue split.
