Global News Podcast - Bonus: The Global Story - Is Twitch too big to fail?

Episode Date: August 18, 2024

This is a Bonus episode from The Global Story - Is Twitch too big to fail?The world's largest live-streaming platform, Twitch, faces an uncertain future. Media reports suggest that parent company Amazon has become frustrated by its failure to make profit, and rumours are swirling of a third round of layoffs within a year. But does its loyal audience of 240 million active monthly users make it too big to fail? On this episode, Caitríona Perry is joined by BBC tech reporter Tom Gerken, and the BBC's former gaming correspondent Steffan Powell. They examine what makes Twitch unique, and discuss whether the platform is under threat from its rivals. This episode was made by Laurie Kalus and Tom Kavanagh. The technical producers were Ben Andrews and Jonny Baker. The assistant editor is Sergi Forcada Freixas and the senior news editor is Richard Fenton-Smith.The Global Story brings you one big story every weekday, making sense of the news with our experts around the world. Insights you can trust, from the BBC World Service. For more, go to bbcworldservice.com/globalstory or search for The Global Story wherever you got this podcast.

Hello, this is the Global News Podcast from the BBC World Service, with reports and analysis from across the world. The latest news seven days a week. BBC World Service podcasts are supported by advertising. If you're hearing this, you're probably already listening to BBC's award-winning news podcasts. But did you know that you can listen to them without ads? Get current affairs podcasts like Thank you. Amazon Music with a Prime membership. Spend less time on ads and more time with BBC Podcasts. Hello, this is Oliver Conway from the Global News Podcast. I'm here to tell you about another pod from the BBC World Service, The Global Story, which takes a deep dive into one big news story every weekday.

Let me hand over to Katrina Perry for a flavour of what to expect when you subscribe. This episode looks at the uncertain future of the world's biggest live streaming platform, Twitch. Boasting more than 240 million active monthly users, Twitch hosts superstar gaming creators like Ninja and Kaisenat, with audiences watching over 2 billion hours of content in June alone. Wait, we broke a record. No way. We just beat Ninja's record!

But despite these huge numbers, it's struggling to turn a profit. And there's speculation that parent company Amazon, which bought the platform for a billion dollars a decade ago, could be losing patience. Now rumors are swirling that a third round of layoffs within a year are on the horizon. So today we're asking, what went wrong? And is Twitch too big to fail? With me today, our BBC technology reporter, Tom Gherkin. Hi, Tom.

Hi, Catriona. And Stefan Powell, a presenter and journalist who was formerly gaming correspondent for BBC News. Welcome back, Stefan. Hello, lovely to be here. Now, lots to talk about Twitch here, but I think we need to set out, first of all, for anyone who doesn't know, we need to explain, Tom, what is Twitch and how popular is it? Where does it sit in the gaming world? It is incredibly popular. As you mentioned in the intro there twitch has 240 million visitors monthly but the way that works out if you break it down a little bit it ends up being around about a hundred thousand live broadcasts taking place on twitch at any given time i mean a hundred

thousand people live streaming on twitch with goodness knows how many people watching them live stream between them. That means in the gaming landscape, Twitch is absolutely massive and it is the go-to place for people who want to have other people watch and play video games. Huge numbers there. Stefan, as we know from social media companies, it's not always easy to monetise big numbers like that. I think what's been really interesting with Twitch is that it's the sort of platform that did well early doors because it changed the nature of the way people engage with content. Traditionally, you would watch a television programme or watch a movie or a YouTube clip,

and that was your sole focus. Whereas Twitch was really the website that sort of broke through on this idea of double screening, where people would have their favourite Twitch streamers up on screen as they were doing something else. So the idea is that you are spending a lot of time with someone. And that, in the first instance, seems really attractive to a big company, because, well, if somebody's spending five, six hours a day on this website watching their favourite content creators, then there must be a way of monetising it. They managed to do that in the early days, but it hasn't really evolved much past that.

If you look at the other big social media platforms like Instagram or TikTok or even Twitter or whatever, they have evolved their offering quite a lot over the last decade or so. The big news of the day, Facebook-owned Instagram launching its competitor to TikTok today, and it's called Reels. It'll let you create 15-second videos using filters, AR and music. Twitter is now X, maybe. Elon Musk rolling out that rebranding this morning. It's part of his long-held ambition to create an everything app

that combines messaging, social networking and payments. People use Twitch, like it, and they like it just the way it is, thank you very much. And so any innovation that changes it too much from its core principles, I don't think people are up for, which is one of the reasons why I think it's stayed fairly same in terms of its level of growth. Right, and there's another problem off the back of this, which is that Twitch theoretically is quite simple to monetise, right? You put adverts when people watch the streams, you make people pay a subscription fee, and Twitch takes a cut and the streamer takes a cut.

The problem is what Stefan said. That straightforward thing, fans like. And the streamers don't want it to adjust in any way as well. When Twitch tried another way of making money by effectively taking part of the sponsorship fees, extra deals people were doing outside of it, it got a massive backlash and Twitch just had to backtrack immediately.

So they can't find another way to make money outside of what they're currently doing. And their CEO says what we're currently doing isn't profitable. We've implied this before where we say we need to run it sustainably, but I'll be blunt. We aren't profitable at this point. Amazon has been extremely supportive of Twitch.

And a big thing for being sustainable over time is ensuring that we don't lose money. And that's a big part of my job because that's going to be what makes sure we can be here for long term. You know, this idea of it being a second screen for a lot of people. Sometimes you really engage with Twitch streamers as they're performing. Some of the top performers get lots of people. Sometimes you really engage with Twitch streamers as they're performing. Some of the top performers, you know, get lots of people watching them. But it's often whilst you're doing something else. Different to, you know, we've seen podcast advertising, for example, boom recently because advertisers think that you are getting an engaged listenership. If I'm listening to a podcast, I'm really listening to it. Whereas on Twitch, if I'm going to put an advert on Twitch, when do I put it? At the beginning of someone's Twitch stream?

Maybe not everybody's logged on to watch yet. Do I put it on after a few hours? Does it sit in the corner? The numbers are big. But how engaged is that particular audience with that advert at that particular time is really difficult to judge. And as we know, the fabulous listeners to The Global Story are always very engaged when you're talking about engaged podcast listeners there. But Tom, with Twitch struggling to turn a profit,

there have already been significant job cuts. What are we talking about now in terms of scale? Well, at the start of the year in January, Amazon announced around 500 job cuts. That was about a third of the people who worked for Twitch. That is a really significant amount of cuts. And that was the latest in a long line at that point. There had been several cuts after the pandemic, during which time lots of tech companies had grown. So in a sense, it wasn't outside the norm. Lots and lots of tech layoffs. There have been hundreds of thousands of tech layoffs since then, but it's still significant. A huge percentage of the employees they had, they don't have anymore. And that obviously has significant challenges that

come with it. You can't just lose loads and loads of people that worked for you and that not have an impact. You're going to see that in the stability of the platform over time. You're going to see that in the way that creators are dealt with and the interactions that they have. And if there are more to come, which we don't know, by the way, it is hard to see where they could come from now, that Twitch has such a small amount of people working for it. I mean, big companies, companies which are getting, as we said, hundreds of millions of users, they have a heck of a lot more people working for them than a thousand. So it is a real issue and it's quite hard to imagine where these cuts are going to come from. So we're talking about cuts there, but let's just take it back a little bit and talk about

the evolution of the company. Stefan, tell us about how it launched and how it came to have such a large user base, so much so that made Amazon want to buy it. This is Nightly Business Report with Tyler Matheson and Susie Gerring. Amazon is making a major move into the lucrative video game business. The internet giant is buying Twitch for almost a billion dollars in cash, one of Amazon's biggest acquisitions ever. What Twitch did is it touched into the magic of radio, I think, you know, with all the changes in technology and how people consume information and engage with media over

the years. Radio has probably been the mainstay throughout that time and has stayed with people because it feels like you're connected to society and you're with friends sort of all of the time. And what Twitch offered you was a visual version of that. And so it gave creators the space to build up relationships with their communities in a different way than, say, YouTube did because you were live. So it had the mix of great visuals you get from a video game platform, because video games are very visual, of course. But it gave you that same connection with the audience that the radio does because they're always there and you tune in and you become someone's sort of comfort blanket someone's best friend and that made it unique and also I think the tech behind it worked

very well so you could instantly communicate with your creators and they would react to you live and that was a bit of a thrill you know if you're watching somebody play a video game fortnight is sort of one of the the big titles still on twitch even to this day when fortnight was in its preeminent early years the fact that i could message ninja who was one of the big twitch streamers to say i think you should land on this part of the island next and him be able to say oh i've seen stefan's message so i'm going to do what he says that is an instant gratification that you don't you didn't have from other platforms like YouTube at the time. So that's what made it so popular. Yes, sir. Honey, Ninja is calling you up to the national team.

You ready? And I think there was an assumption then from Amazon when it bought it that this connection that worked so well in the video game space was going to branch out into other areas, OK? So you would have it, you know, being super popular for people who like to knit or go running. That hasn't really happened, which is why I don't think it has grown to the level that Amazon expected it to. Twitch has become super successful within the video game space. It's not just the ninjas and the Pokemon and the Tommy

Knits of this world that use Twitch. You know, my mate Dave, who streams to 100 people, is also on it. So you've got all these big numbers and it grew there really quickly. But then I think it hit a glass ceiling in terms of it hasn't broken out from the game space, which is why then hasn't gone to find new audiences and grown in the way that I think Amazon was perhaps expecting it to. And the peak of that, Tom, was surely during the COVID pandemic when people couldn't leave their homes and couldn't see their friends and connections in any other way. Sort of an inevitability, isn't it? Video games in general saw record sales over that time period because a lot of people were out of work and needed something to do and it's as simple as that to some extent obviously twitch found a similar success because of that obviously lots of

different things were going on there as well and actually there's so many little interesting things that happened within twitch over that space chess became incredibly popular on twitch during that point chess grandmasters like dan Daniel Naroditsky are still super popular streamers with hundreds of thousands of followers because during COVID the kind of people that might not normally use Twitch started to use it and started to become interested in chess. They also got

a lot of young people into chess. I'll stop talking about chess. The point is they did manage to see some success in slightly other different areas during COVID as more people came to the platform. That's a problem they had when people started to leave the platform, when Switch was starting to find a bit of success elsewhere and the core audience became the focus once again.

It all became about gaming. I think it sort of has to. As Stefan was saying, there's a glass ceiling there and it's really, really difficult to see how it could smash through. Well, let's talk for a minute about those megastars and Stefan's mate Dave with his 100 people watching him. But we leave Dave aside for a second. Let's talk about Ninja, Kaisenet, guys like that.

That's led to this kind of broader ecosystem where there are now sponsored public events all over the world, which thousands attend, and presumably a lot of those things are making money. What people do is they use Twitch as the platform to grow themselves as a personality, as an individual, and then they monetize themselves. And I suppose Twitch, like Tom was referring to earlier, are getting frustrated that they're not able to take a slice of that pie. We're making these megastars, but we're only able to monetize the bits that they do on our platform. But I think it was sort of, it was ever thus for media platforms.

I think that's just how that ecosystem and that financial world works. But I'm not too sure if stripping their staff base right down, cutting it to the bone, whilst it looks good on a spreadsheet, ultimately I think that is going to create problems for the platform going forward. Because if they've only got 1,000 staff and you've got a hundred thousand people streaming on your website that's like a hundred thousand radio stations or tv channels and you've got to be across what they're putting out there into the world you know it's had some difficulties

in the past regulating what people are putting out on Twitch which has led to sort of issues in terms of its corporate look. And then if you have more of those scandals, then you become worth less in the long run. So I can see why on a spreadsheet you'd want to cut the number of staff there because you're paying out less money, but then that can also have a long-term effect. So it's in a really caught between a rock and a hard place. And it's those big names like Ninja.

I'm just as hype and I freak out just as much. Son of a... Are you kidding me? Get this out of the game! Who is pulling in, you know, 19 million followers or whatever he's got on Twitch. Or Pokimane, who I think is the number one female streamer with nine odd million.

I'm sorry, the song's giving me the heebie-jeebies. Sorry, I wasn't expecting that! Thanks, guys! Those are the big tentpoles that sort of bring people into your platform, but you've got to look after the other ones as well, otherwise that can really impact your corporate responsibility and your corporate image. Losing those staff members as well, it is quite a significant test if they're going to keep having big public events. I mean, Twitch runs TwitchCon.

The last North American event had 20,000 attendees. This is a big money spinner for Twitch as well. They charge hundreds of dollars for tickets to this thing. I think it's around $250 if you want to go for the whole weekend. Welcome to the best day of the year. Welcome to Twitch Rivals. Live at TwitchCon Rotterdam. It is day two, which means it is ultimate challenge day.

You multiply $250 by $20,000. It's a lot of money for Twitch, this kind of thing. And obviously you can't really run those events effectively if you're cutting your staff numbers. So we've looked at Twitch's past success and struggles. Next, the competitors who are looking to pounce. If you're hearing this, you're probably already listening to BBC's award-winning news podcasts. But did you know that you can listen to them without ads?

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We bring you one big international story in detail five days a week. Follow or subscribe wherever you listen. With me today are Tom Gherkin and Stefan Powell. Tom, the most obvious competitor to Twitch when it comes to live streaming is YouTube. What sort of challenge does YouTube pose to Twitch? This is something Steph was talking about earlier that I think is really, really important. YouTube does pose a threat, right? There's no question. YouTube really wants to get into the live streaming space. Google, which owns YouTube, has put a lot of money into this to make the live streaming offering effective fast because you want when you make a comment for it to be seen by the person streaming as quickly as possible.

Live streaming on YouTube is a great way to connect with your audience in real time. Whether you're streaming an event, teaching a class, playing video games, performing for your fans, or posting a Q&A, YouTube has all of the tools that will help you manage your stream. So YouTube desperately wants a piece of this pie, but creators really don't. Because if you're a creator, what you want to be able to do is stream on as many platforms as possible. There's always going to be exclusive deals, but the best thing a creator can do is have their stream go on Twitch, have a stream on YouTube, have a stream elsewhere, and interact with people in those different locations. But there's something else going on here too, which is what Steph mentioned earlier. When you're watching a Twitch stream,

it is something you often do on a second screen. People watch YouTube in a very similar way to how people watch Netflix. It's something you might be putting on on the big telly while you're sat on your sofa. And because those audiences are a bit different, because Twitch really prioritise that live interaction, it means you're just going to struggle to see a big threat that YouTube might take a big piece of the pie. And Stefan, there are more junior rivals. One example is Kik, which highly incentivises creators through generous revenue sharing. Is that forcing Twitch into a corner somewhat? I don't think it's made as much of a splash as they were hoping for when Kik was launched.

And they, you know, tried to grab some big streamers and move them across to the platform. I think it's been hit by a number of controversies about some of the content that has ended up on Kik and some of the behaviour that some of the streamers that use Kik have broadcast. But loads of people have come for Twitch, if you will, in the past and have failed. There was a platform called Mixer, which was backed by Microsoft, right? And when you had your Xbox, it would link to a Mixer account, and they tried to beat Twitch in its

own game. It started in 2016. It shut down in 2020, you know, and that had taken a lot of content creators from Twitch over. Major news dropped just minutes ago. Microsoft Mixer is shutting down and there is a partnership in place with Facebook Gaming.

Let's read the details here. So both Mixer and Facebook Gaming put up blog posts and the gist of it is Microsoft Mixer is shutting down the operations side. So even though there are big names on Twitch, there is something about its place in the market has really cemented itself as at the heart of the games market. And also, I just think the way that it works, just the ease

of use of the software has made it supremely popular. And the games companies engage a lot with it. You know, when they release a new game, they will be partnering a lot with Twitch content creators and they work a lot in that way. So just Twitch is such an integral part of the gaming ecosystem now, economically, but also perhaps more significantly than that, culturally. To take that away is going to be really difficult. Kik does have this nice revenue share,

you know, where on Twitch at the moment, it's a 50-50 split when you start out. It can get better. It can become, you get 60% of the amount people subscribe and it can even go up to 70%. And the big streamers get more kick goes right in says, Hey, listen, you get 95% of the money you earn on this platform, please come here. But like Steph said, the reality is, if a massive audience is on Twitch already, it just doesn't do you any favours as a creator to try and start out on kick. I mean,

95% of a small amount of money is something. 60% of a much larger amount of money is obviously better. So with the layoffs, with the job cuts, with all of those questions that we've been discussing, how much jeopardy is there for Twitch to really use? Stefan, is it at risk of losing creators or, as you've been saying there, they don't really have many other places to go

yeah it's interesting i you know i think it's sort of like a business question isn't it because it's this sense that big companies are obsessed with growth right you can be a profitable company that is sort of culturally significant and making you money but if you're not making more money than you were the year before then you're deemed to not be successful. Twitch is struggling to find a way of making itself profitable. I can't quite wrap my head around as why it's not a success economically, because culturally it's really nailed it. It's slap bang in the middle of the hearts and minds of engaged gamers across the world.

And I think what ultimately happened is that it'll perhaps find a little niche for itself there and it will sit there forever. But in terms of becoming sort of the preeminent platform that people go to view their content on, I don't think it is going to be that. And I think that's what Amazon's guess was when it took it over. Tom, how do you think it's adjusting to stay competitive? I mean, it's revamped the app. There's a feed now, kind of like a TikTok feed there.

Yeah, that is, I think, a direct response to the fact that there are a lot of creators now who are posting short form videos on TikTok that are doing very, very well. I think the main adjustments they've made around this area of revenue sharing, that is the main thing it's done rather than the visual, something behind the scenes. We don't know what it's doing in terms of revenue sharing with the big creators. We don't know those numbers. We can estimate they get an incredibly large slice of the pie, much more than other creators do. It wouldn't be outrageous to suggest that people like Kai Sinat are getting 90% of the money on the platform. Wouldn't be outrageous to suggest that. We don't know though. But Twitch is going to, I would imagine, keep

trying this kind of thing to find a balance whereby they can pay out less money and find a way to profitability. When Amazon bought Twitch, they bought it for just under a billion dollars. Last year, Twitch paid out over a billion dollars just to its streamers, to the people making content for it. That is its big number one problem. And it's so hard to find an answer to that. If it cuts the number down, people will look at where else they can go, the top ones anyway. There's a juxtaposition, right? There's a question that remains unanswered. What is or who is Twitch for? Because it does both things. It services your smaller communities, you know, whether it's my mate Dave with 100 people that watch his stuff, or it's your guilds in world of warcraft that all watch each other's content and it's a way of

maintaining your community like a community radio station if you will in that space or is it a place for ninja and kai to come on and share their thoughts with millions of people at the moment it's servicing both the reason that people don't like change on Twitch is because I think that they love the thought of being able to broadcast to everybody and at the same time watch some of their favourite stars. But I think being able to do both requires slightly different financial models, maybe. And that feeds into the reporting

from the Wall Street Journal. You know, they're attributing fears to staff that it could become a zombie brand subsumed into Amazon, starved of resources, left to run with minimal oversight, but the brand would still be there. It would still be the go-to place for gamers and those big megastars and the community. What do you think of that, Tom? The funny thing is, I think that to some extent, people who use Twitch, some of the big fans of the platform might be quite happy with that.

The suggestion that it would just be left to its own devices and it wouldn't change. I mean, that's sort of every internet user's dream that their favourite platform doesn't change. I think the zombie brand isn't the fear. It's that Twitch might look at some other regions in the world and go, doesn't make money there, so we'll get rid of it. That's what they did with South Korea. Twitch wasn't making enough money there. Amazon, which owns it, just went, you know what? We're never going to make enough money in this area. Forget it. We're shutting it down. That is possible. Twitch has done it before. It could so easily look at other regions in the world and go, you know what? We're not making enough money in Italy. We're not making enough money

in Finland because our servers aren't located in the right place to be able to. So we're actually going to shut it down in lots of different areas. This is not something which Amazon has said it's going to do, by the way. There is absolutely no reason to speculate that this might happen. It's just that this is the real concern that fans have. Okay, so final verdict from you both. The original question, is it too big to fail? Is it too big to fade into the background? Where will it be in another decade? Do you want to go first or second, Tom? That's a big question. Happy to go first. I think that Twitch holds a very significant part in the internet landscape. For me, it's almost inconceivable to imagine a world where Twitch becomes used less, let alone anything else. But hey, you know, Twitter was something that every single person used. And then Twitter got

bought by somebody else. Twitter became X. And a lot of people criticising the way X is currently run. I think that there are potential parallels. If Amazon, for example, decided, actually, someone else can take it off our hands and give it a go. There's certainly a world where that happens. And then Twitch's future looks very different. But so long as it's underneath Amazon, I think that that company would be risking so much ill will if they let anything bad happen to Twitch. But I think it's pretty safe for now. Yeah, I think the future of Twitch actually sort of sees it move away from the focus on big streamers, which I think might sound counterintuitive. I think it becomes more of a community tool that gamers across the world use regularly.

And I think ultimately, you're not going to be able to satiate financially Ninja, for example, or Kai. They're going to make so much money. And if your entire point is trying to keep them happy and then you spend all of your focus on those guys and they suddenly decide tomorrow they're going to stop Twitch streaming because it's actually really hard work, broadcasting 8-10 hours a day every day is knackering

and when they realise you know what I can make just as much money by making one short form TikTok or one short form Instagram post a day I'm just going to do that, culturally now I think it is set in stone as part of the gaming community for the next 10 years or so. Whether or not it maintains this place, this all-encompassing platform that

you go for big celebrities, I'm not sure. But I still think video games, players and companies will be streaming on Twitch for years and years and years to come. Well with all of these things, where will we even be in a year, let alone a decade? Fascinating chat with the both of you there about Twitch. Lots to watch out for.

Thank you so much for joining us on The Global Story, Tom Gherkin and Stefan Powell. Thank you. Lovely to be here. Thank you. Cheers. If you want to get in touch, please do. You can email us at theglobalstory at bbc.com or you can send us a message or a voice note on WhatsApp. Our number is plus 44 330 123 9480. Thanks for taking the time to listen. But remember, The Global Story won't always appear in our feed. So if you want

to hear more like that, just search for the Global Story wherever you get your BBC podcasts and follow or subscribe. Bye for now. to BBC's award-winning news podcasts. But did you know that you can listen to them without ads? Get current affairs podcasts like Global News, AmeriCast and The Global Story, plus other great BBC podcasts from history to comedy to true crime, all ad-free. Simply subscribe to BBC Podcast Premium on Apple Podcasts or listen to Amazon Music with a Prime membership.

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