The Gaming Live Streaming Ecosystem: A Primer
(Author’s Note: This article assumes you have at least a passing familiarity with Twitch, YouTube Gaming, and the myriad of other gaming-centric live streaming platforms out there. If not, here’s some introductory material: A Twitch Primer, What is YouTube Gaming?, Online Streaming as a Career Choice.)
The emergence of video game live streaming has been an odd process. Can you really say an entertainment medium that brings in over a hundred million unique viewers every month is still hiding below the surface? Or that an ecosystem built around platforms valued in the billions is still hazy and unknown?
Yet, unless you are actively involved in it, the answer is probably yes. Most people know that there is such a thing as “Esports” largely because of the coverage it now gets at the XGames and on ESPN. But streaming as an entertainment medium is so much larger and more vibrant than just its competitive side.
My goal with this article is to reveal the emerging ecosystem of tools that are being built around six core areas that have emerged in this thriving entertainment form. Namely, rapid innovation is occurring in the areas of: Direct Monetization, Payments, Core Streaming Technology, Human Services, Sponsorships & Endorsements, and Statistics.
If you are an investor or entrepreneur interested in learning more about what is happening around one of the most relevant and fastest growing forms of online media, this article is for you.
It’s more than just eSports
First, eSports is huge, no one is denying that there is incredible opportunity in building businesses that somehow facilitate the competitive playing of video games. However, eSports is just one facet of the current live streaming landscape. Underneath all the buzz about large competitive tournaments is a quiet industrial revolution that’s rapidly changing the way live streaming media is both created and consumed.
So what is this revolution all about? What kind of innovation is actually happening in the live streaming space? Moreover, what is it that makes the live streaming space so unique and specifically suited to rapid innovation?
One word: Engagement
For the uninitiated, nearly all live streaming services facilitate an unprecedented level of real-time interaction between streamers and viewers, primarily through built-in text chat. This chat allows viewers to comment on a streamer’s gameplay and the streamer to engage the chat by reading and responding to comments while streaming.
It’s a simple concept, really, allowing many-to-many communication between a streamer and viewers should intuitively provide for a high degree of engagement. Text chat in and of itself isn’t that remarkable or revolutionary, what is remarkable are all the tools and software platforms that have arisen to improve on that initial, primarily text-based, means of engagement. From arguably humble beginnings — playing video games and letting others comment on that gameplay in real time — a legion of tools have arisen to improve, monetize, and better facilitate the high levels of engagement that the whole streaming ecosystem is built upon.
Far from playing video games for an audience on the Internet, the modern live streamer now has an arsenal of tools at her disposal to drive the engagement machine.
Driving Engagement: The Six Core Areas of the Live Streaming Ecosystem
Nearly all of the successful tools that exist to support live streaming are intended to enhance, facilitate, or monetize viewer engagement. Oftentimes, these tools fall into one or more of the following areas:
1. Direct Monetization — generating monetary value from for the streamer directly from his/her viewership.
2. Payments — the exchange of money and all the logistical, regional, and legal ramifications of doing so.
3. Core Streaming Technology — the technical side of streaming video from point A to B.
4. Human Services — the largely “unscalable” human services associated with live streaming: consulting, design, and streamer management.
5. Sponsorship / Endorsement — the exchange of monetary support and goods in exchange for a streamer promoting products and services on stream.
6. Statistics — making sense of the data related to live streaming: concurrent viewer counts, time on stream, retention, etc.
The rest of this article will break each of these areas down in greater detail.
There are two ways to facilitate direct monetization: donations and subscriptions. Donations are one time payments of any amount provided by a viewer to a streamer. Subscriptions are recurring monthly payments of any amount made by a viewer to a streamer. In both cases, viewers can receive recognition, gratitude, and other benefits from the streamer in exchange for the donation or subscription.
(Author’s Note: When I discuss donations, I’m actually referring to tips. However, the common vernacular in the streaming space is to refer to a one-time monetary payment to a streamer as a ‘donation’. For all intents and purposes; however, these donations are tips.)
Many streamers accept donations via PayPal, with various front ends facilitating that exchange. The most popular is the service TwitchAlerts, which allows viewers to donate to a streamer in exchange for an on-stream audiovisual “alert” when the donation occurs.
On-stream alerts allow the exchange of money for recognition. Moreso than acknowledging a donator in text chat, an on-stream alert ensures that the viewer’s donation is immediately seen by everyone viewing the stream and is immortalized in the stream’s resulting video on demand (VOD) playback.
While the core motivation of providing a donation is to support the streamer, on-stream recognition is a pot sweetener that can push a viewer over the hurdle when it comes to deciding whether or not to donate.
The donation space is fairly crowded, and the following list of companies built around supporting donations is by no means exhaustive:
In many cases, the above software’s support for donations is only a fraction of the services offered. Processing donations via PayPal and providing some sort of on-screen alert is practically de rigeur for software in this space.
In terms of business models, donation-based service operate on extremely small margins. TwitchAlerts, for example, takes processing fees and a 1% cut of each donation. Other services, such as StreamPro, provide 100% donation pass-through, excluding processing fees, to the streamer.
A new company can innovate in two key places: new methods of recognition and/or altering the fundamental nature of the transaction itself. For example a donation could be much more transactional, resulting in the exchange of goods or services for a single one-time donation as opposed to pure recognition.
Monetizing via monthly recurring subscriptions was pioneered by the pioneer of game live streaming: Twitch. Through Twitch’s Partner Program, select channels can offer a $4.99 recurring monthly subscription in exchange for emotes, subscriber only chat, chat emoticons and badges, and other benefits. Channels on Twitch receive 50% of their total subscription revenue, with the rest going to Twitch.
Twitch’s Partner Program has been successful, and partnered streamers can leverage it to propel their streaming hobby into a full-time career. However, it is not without faults. First, the program is selective. Partnership requires submitting to an opaque and somewhat mysterious application process that provides general guidelines for success but no hard and fast rules. Additionally, Twitch’s high touch approach to partners makes the Partner Program difficult to scale on their end. Currently, approximately 11,000 of Twitch’s 1.5 million streamers are partnered.
Other live streaming services, such as beam.io and Hitbox, have offered similar subscription programs, with Hitbox’s being open to all streamers on the platform. However, perhaps due to Twitch’s dominance in the streaming space, the Twitch Partnership is still the gold standard for live streaming subscription programs.
Twitch streamers that have yet to achieve partnership, or streamers who prefer greater flexibility in subscription programs than what is offered by Twitch et al, leverage other services to facilitate recurring monthly subscription. The two major providers in this space are:
- GameWisp — Offers flexible benefit creation and delivery in exchange for recurring monthly subscription, tailored specifically to gaming live streamers. (disclaimer: I co-founded GameWisp)
- Patreon — General platform for receiving recurring monthly support. Targeted more to artists and musicians, but still usable by streamers.
Both services allow streamers to provide bespoke campaigns that offer benefits in exchange for monthly support. Patreon offers name recognition, for what it’s worth; GameWisp provides streamer focused integrations and benefit management tools tailored directly to the streaming space.
For a company to innovate in this space, they must go extremely deep when it comes to providing the functionality that live streamers need. Ultimately general approaches like Patreon work, but can be easily outmaneuvered by a company that maintains a laser focus on the needs of live streamers.
Payments in this space are pretty tough. Donations are a huge source of income for some streamers, but are a a massive source of friendly fraud. Since a donation doesn’t result in an exchange of goods for money, it is very easy to provide a streamer with a donation, receive an on-stream alert about the donation providing recognition for your donation, then file a chargeback to get the donation amount back.
Many software applications that facilitate donations leverage PayPal as their underlying payment mechanism. The streamer supplies his/her PayPal information and that information is used to complete the transaction when a donation occurs. This setup leaves the streamer holding the bag in the case of a chargeback since the donation went from the donor’s account directly to the streamer’s.
A possible solution to the chargeback problem would be for payment through ACH to become accepted practice in the space. The benefits of ACH are numerous including fraud/chargeback protection and elimination, lower transfer fees, and accessbility to a large swath of new customers that may not have access to a credit card. ACH acceptance in the live streaming space will take more than a single company, however. Buy-in from major players (e.g., Twitch, YouTube) is likely needed to make the usage of ACH a standard practice.
Despite the limited use of ACH, there are companies currently innovating when it comes to payment processing in the gaming / livestreaming space. Here are a couple:
- HoneyLedger — from the creators of DogeCoin.
- XSolla — geared toward accepting payments via in-game / in-app purchases
Another key problem is international payments using local forms of currency, bank cards, etc. Livestreaming is global, and streamers attract fan bases from all over the world. While credit cards and PayPal are still major players in the payment processing space, allowing the use of local payment methods could potentially unlock a large customer segment that previously had difficulties donating and subscribing to live streamers.
Services exist, such as Adyen, that can solve the regional payment problem, but nothing seems to exist that caters particularly to the sorts of monetary exchanges that occur in the live streaming space. This means companies focusing on monetization are left creating bespoke systems built on the backs of services that are not specifically tailored to the way money is exchanged in the space.
To be the standout success as a payments company in the live streaming space, it is necessary to:
- Eliminate the chargeback problem
- Provide flexible methods to setup recurring payments / subscription support
- Implement realistic margins on small payments, making $1 — $3 donations worthwhile for the streamer
- Fully compliant with all regulations related to online payments and payment processing (e.g., PCI compliance is a must if working with credit cards)
- Stupid simple and powerful APIs such that other companies in the livestreaming space can integrate easily
Of the six core principles of the livestreaming space, payments has yet to be fully solved by any one company. This is the area with the most outstanding issues that is in the most desperate need of innovation. These problems needs to be solved, and it would be a boon to the industry as a whole to see a major player established very soon.
Core Streaming Technology
Core streaming technology is any software that facilitates the broadcast of video to some service (e.g., Twitch). For new businesses, I think it’s very tough to be competitive when it comes to core streaming technology.
One of the major players when it comes to core streaming is Open Broadcaster Software (OBS). OBS is totally free, which can be really tough to compete with. The other popular alternative, XSplit, also offers a large portion of its functionality for free.
OBS and XSplit have both been in the livestreaming space for a long time. That fact, coupled with their no-cost offering, means that OBS and XSplit are widespread amongst streamers and have a large degree of inertia that can make it difficult for a newcomer to claim mind/market-share.
Despite the hegemony on core streaming technology presented by OBS and XSplit, there’s still room for innovation. Recently, companies have emerged that are attempting to move the encoding and processing stages of live streaming to the cloud. These companies include:
Cloud-based livestreaming allows for some interesting possibilities that are currently unaddressed by the big players. Since cloud-based livestreaming services inherently sit “in between” the streamer and the viewer it’s easy for them to alter/modify the stream before passing it along to its final destination. For example, both Infiniscene and StageTen tout the ability to co-stream easily, combining multiple video sources from multiple different users in the cloud into one video stream that is then passed along to another service (e.g., Twitch, YouTube Gaming, etc.). Other possibilities include automatically overlaying sponsorship information, advertisements, etc. directly onto the video stream itself. This provides an interesting outlet for vendors to guarantee advertisement to viewers that can bypass AdBlock and other such services.
Companies innovating on core streaming technology are faced with challenges when it comes to business models. Compared to software that is hosted directly on the user’s computer, cloud-based encoding/streaming platforms are expensive to run. Additionally, approaching streamers with a paid offering when OBS and XSplit are straightforward to use and totally free is a fairly tall order. Therefore, not only must these core technology companies innovate in their product offering, but business models must be fairly innovative as well. A successful company in this space will likely be the first to figure out how to be profitable without directly charging streamers.
Human services include consulting, management, and design work related to livestreaming and the streamers themselves. Human services are inherently the most unscalable. There is no viable fully-automated alternative to sitting down with a designer and discussing custom branding, for example. However, huge opportunities exist when it comes to human services if a company is willing to tackle the right problems.
Design is an area that’s fairly ripe for innovation. Currently, designers are introduced through streamers via word of mouth, self-promotion on personal blogs, and posting to social outlets like Reddit. It would be interesting to see a streamer-focused design marketplace emerge. Such a marketplace could easily facilitate interaction between streamers and designers that are experts at designing art assets specifically for streaming services (e.g., banners, overlays, emoticons). This marketplace must also allow for the exchange of money, showcase design portfolios, and extract a relatively small percentage off of every transaction.
Such a marketplace is a tricky proposition, though. First, if you connect designers to streamers, that streamer can go back to that designer for future work, bypassing your service (see: HomeJoy). This marketplace may also drive down the price designers are able to charge for their work, potentially causing the loss of livelihood for some designers. However, if executed correctly, there is likely large opportunity in this space. StreamPro is currently beta testing a designer/streamer marketplace, so perhaps time will tell whether or not such a marketplace can be successful.
Management is currently the absolute worst in the streaming space due to a real lack of standardization. Manager experience can vary wildly, from agency-like firms (e.g., FloodGaming) and semi-retired streamers, to friends and acquaintances of the streamers themselves. This variability makes interacting with managers a frustrating crap shoot. Some are great, some are very much not.
The management skills gap problem can be approached in two different ways: standardization and education. Standardization is achieved via the FloodGaming approach and creating a highly visible, recognized agency staffed by knowledgeable professionals. As these firms emerge it will force novice managers to pick up the skills necessary to become extremely capable or they’ll risk washing out of the industry altogether.
The second method is to provide ample education for those interested in managing the careers of streamers. Providing this information in a way that is easily accessible, thorough, and well-vetted is likely something would-be managers will pay for.
Much like the Payments area, something innovative really needs to happen here. Management is hurting for a group of skilled individuals willing to do the work necessary to improve it. That work may involve proliferating the agency approach, like FloodGaming, or something altogether different.
Sponsorship & Endorsement
The sponsorship and endorsement area is fairly well-established in the live streaming space. Companies like DXRacer, GreenMan Gaming, and others have been offering sponsorship, affiliate, and referral programs to established streamers and competitive teams for quite some time. Other companies doing streamer focused sponsorship or affiliate programs include:
While affiliate programs and sponsorships are widely known, opportunities exist for companies that are willing to facilitate the sponsorship process by matching streamers and companies. Currently, this process is initiated by managers and the sponsoring agencies themselves. A company that can leverage data and process to provide greater insight into the value of a sponsorship for both streamers and sponsors can win big.
One such company attempting to facilitate the interaction between streamers and sponsors is HelloGamers. HelloGamers performs sponsor/streamer matchmaking using profiles for each. It also integrates social media and other sources such that a sponsor can determine how a particular streamer is promoting the sponsor’s product or services.
Future companies that wish to innovate in the sponsor-streamer matchmaking space would be wise to make the process as hassle-free as possible for both parties. Leveraging data, streamer interest, viewer engagement, and more could help to optimize the matchmaking process; something sponsors would likely gladly pay for.
Streaming generates a rich data set that is ripe for statistical exploration at both the single-streamer level and in the aggregate. However, it is important to remember that descriptive statistics (e.g, average time spent streaming, maximum concurrent viewers) while interesting, aren’t nearly as helpful as actionable insights on the generated data. Important questions that streamers need answered through data analysis include:
- Retention: Should I keep playing this game or is my view count suffering?
- Growth: What times of day are best to stream based on the games I play?
- Stability: Is my community growing in a way that will promote long-term success of my channel?
- Twitch: Should I apply for a partnership?
- Monetization: Should I accept donations and/or launch a subscription service?
The closer statistical software can get to answering these questions (and others) for streamers, the more successful that software will be. One company currently innovating in this area is StreamHatchet. StreamHatchet provides real-time analytics and an interactive dashboard that makes it fairly straightforward to extract key insights about your channel.
Much like Core Streaming Technology, it’s difficult to determine the best business model for statistics and analytics companies in the live streaming space. One approach is to target streamers directly, but streamers have been successful long before they were able to fully leverage data, so the value add to individual streamers has to be great and readily apparent. One approach is to leverage the collected data and make it available to brands and advertisers, potentially facilitating sponsorships and endorsements to streamers that meet a certain set of statistical criteria.
(Very) Honorable Mention: Bots
Bots are software programs that monitor and interact with a streamer’s chat in various ways. They facilitate engagement through issuing artificial digital currency (instituting a type of loyalty program), allowing viewers to request songs that can be played on stream, automatically moderating chat by removing hyperlinks and profanity, and much more.
Bots are tough to pigeonhole into any particular category due to the diverse array of functionality they can offer. Bots facilitate monetization by promoting third party subscription or donation services (e.g., an automated in chat message reading “Subscribe to me on GameWisp: <link>” or “You can donate here: <link>”. Bots can also perform data collection on a streamer’s chat, and provide links to sponsorship/affiliate programs in which the streamer is participating. In fact, many of the services discussed in this article (e.g., StreamPro, StreamHatchet) utilize a custom bot in some form or another to perform operations critical to their product offering. So, while bots are not necessarily a core area of live streaming in and of themselves, they’re utilized heavily in the space to accomplish a myriad of goals, both for companies and streamers.
Some popular bots include:
- Revlo — not a bot per se, but a bot-driven rewards / channel currency application
The bot a streamer decides to use is largely a matter of personal taste. Depending on the needs of a particular streamer, some bots are more appropriate than others. Some streamers pt to have custom bots unique to their particular needs created just for them.
The most important takeaway from this article is that the software ecosystem currently being built around live streaming is expansive, diverse, and vitally important to the success of live streaming as a whole.
All of the software products currently in the space exist to solve unique, but very complex problems that typically fall into one of the six discussed areas: Direct Monetization, Payments, Core Streaming Technology, Human Services, Sponsorships & Endorsements, and Statistics. Many software companies are working in each of these areas to provide products that are beneficial and useful to streamers.
It is my belief that these areas are so diverse and so individually complex that no one company can successfully “own” them all. I do not foresee a single company emerging in the live streaming ecosystem that can dominate in every category. As such, the companies that will win big in this space are those that best serve streamers in one or two individual areas. Reaching any farther than that will likely result in a company being outperformed in each individual area. For example, A really great company that provides for monetization is likely going to do better than a ho-hum all-in-one solution.
For the most part, I think this is a good thing. The ecosystem itself will continue to be propelled forward by many companies providing great solutions to problems in the space. This provides opportunities for more individuals and companies to find success while ultimately resulting in a suite of software products that best serves streamers. The diversity also ensures that the ecosystem remains robust and continues to innovate. Everybody wins.
(Author’s Note: Are you doing cool stuff in the live streaming space, and I missed talking about you? Drop me a line and let me know! I’m always on the lookout for innovation.)