CSGOStarcraft Twitch, AdBlock, and the Tragedy of the Commons

ploguidic3ploguidic3 2014-04-19 19:10:43

Twitch has exploded in recent years, becoming the primary streaming venue for both bedroom streamers, and massive tournaments that that cost millions to setup and run. Twitch's growth has been explosive, but it has had teething pains associated with it, one of the primary being the growing prevalence of AdBlock. Like most other eSports industries, Twitch is heavily reliant upon ads as its primary source of revenue, the increasing use of AdBlock has driven many streamers to be increasingly reliant on donations as their prime source of income, a shift in directions that does not bode well for Twitch's future.

The Tragedy of the Commons

For the uninitiated, a tragedy of the commons is an economics problem that occurs when a resource requires effort to support and maintain, but is entirely free to use. This problem is commonly used to issues like air pollution. Everyone is free to breathe the air, but those of us that drive cars are contributing to a decreasing level of air quality. There is no rational basis to stop driving a car, because one less car on the road is unlikely to make a measurable difference in the levels of air pollution. The same problem applies to Twitch, which is an entirely free resource, that is struggling with the need to generate advertising revenue in the era of AdBlock. Its difficult to motivate individual users to stop using AdBlock, because users know that their individual viewing of an ad only generates a negligible amount of income, it is only the aggregate viewing of ads that produces enough content to support a given streamer.

This emblem sits atop nearly half of browser connected to Twitch at any given time

Herein lies the problem, AdBlock is becoming so ubiquitous that Destructoid, a gaming oriented site with a similar demographic to Twitch, claims that half their users are blocking ads. It still costs Twitch money to serve content to the users blocking ads, but unless they are Turbo subscribers they are not generating a dime for Twitch. Streamers losing ad revenue has also created a new problem, a migration towards business models that fundamentally conflict with Twitch's goal.

The Conflicts: Donations and Out of Network Ads

With increasingly lackluster advertising revenues, streamers have had to turn to creative solutions in order to support themselves. The larger streaming partners, such as TakeTV and ESL have found a relatively simple solution, integrating ads from their title sponsor into the stream. When an IEM event has Intel adds in the stream, or Take's Seat Story Cup integrates ads for Need for Seat, AdBlock doesn't work because unlike ads served from Twitch's ad partenrs, AdBlock can't tell the difference between the “Content” portion of the stream, and the “Advert" portion. Although this is certainly an elegant solution to a complex problem, it creates two main issues. It doesn't do anything for Twitch, if all the if a streaming partner is relying on out of ads as a prime source of revenue, then it is unlikely that they're making money for Twitch, in fact it seems quite likely that they would be a burden on Twitch's financial books. Additionally only larger partners are able to secure the potentially lucrative out of network adverts. The explosion of “Bedroom Streamers” has been forced to on one of the most polarizing revenue stream within the industry, donations.

I wanted to get the unique insight that only a streamer could give, Evan “Winter” Ballnik was kind enough to take some time out of his day to speak with me. Winter is a popular StarCraft II streamer that does not run advertisements, meaning that his revenue is derived from some combination of out of network partnerships, subscriptions, and the all important donations.

Evan "Winter" Ballnik
Taken from the short film "A Blank Canvas"

Thanks for taking the time to speak with me, because you don't run ads I assume that that all of your streaming revenue comes from either subscriptions or donations is this correct?

Yeah, besides a small portion of revenue from preroll and VOD ads my income is almost entirely from donations, subscriptions and independent advertising.

If advertising revenue was as lucrative as it was several years ago would you consider switching to an advertising based model to allow your viewers to enjoy your content and support you without reaching into their pockets?

I never really had a basis for comparison for advertising several years ago as I only began streaming full time over the last 16 months, but honestly no I don't think I would use the conventional style of advertising. I feel the standard "running ads after a game" style of running ads really interrupts and takes away from the entertainment value of a personal stream, as that is usually a time when people are most interested in having a conversation or hearing a discussion about the game.

As for reaching into their pockets, as controversial as it is I would rather have those that actively chose to support me be able to do so without taking away from the enjoyment of everyone by trying to run enough ads to make a sustainable income.

As a streamer would you rather receive a subscription, or get a $5 donation? Can you explain why?

I would much rather have a subscription almost 100% of the time. Despite the fact you only receive the $2.5 from it the benefits in the long term far outweigh the short term "loss". A subscription gives a less tangible benefit than just the cost, with both emoticons, any benefits it might entail(I personally do subscriber tournaments/war, give out rep packs, do giveaways, coaching discounts etc) and is much more likely to see a return in the long run.

It is far more likely that someone would be interested in continuing a subscription for multiple months than donate on a regular basis, it's a much more passive and accepted way of supporting the content you're interested in than actively making a decision to take $5 out your pocket.

On my end, it makes it much easier to gauge at least my minimal monthly income based on subscriber count than donations which fluctuate and are difficult to predict

In an average month what percentage of your revenue comes from donations versus subscriptions?

On an average month(since I gained significantly more exposure the end of last year), I currently receive approximately about 50-80% of my income from donations, but slowly building up a subscriber base has allowed me to balance it out a bit more. Still, overall, the vast majority of my income since I began streaming is from donations.

Nearly 100% of all donations come from those who have already subscribed as well, it really comes down to the fact subscriptions are a static amount and donations allow those interested to support me past a small subscription.

With AdBlock on the rise your model of relying on donations and forgoing advertising revenue is fast becoming the norm for bedroom streamers, do you think the increased emphasis on bringing in revenue that Twitch can't monetize creates a fundamental conflict of interest between streamers and Twitch?

While it is a conflict of interest, since many larger streamers(including myself) are using alternative advertising options outside of blanket ads from twitch, I think Twitch realizes this as well. They have realized for a while that AdBlock has become a major detriment towards maximizing the revenue of ads, and have started branching out their revenue options as well. A while ago we saw Twitch Turbo being implemented, and subscription buttons have become much easier to attain. I think any streaming site that attempts to monopolize the advertising options of their users will be just hurting themselves in the long run.

What would your response be if Twitch were to ban soliciting direct donations via Paypal and introduced a Tip Jar or Donation button as part of the official UI (With a percentage of a given donation taken off the top)?

Honestly it would depend on the percentage. I would love to say "Well I'd just go stream somewhere else" but Twitch has such a hold on the market, and so many major streamers are almost inevitably tied to it. If it was a small <5% amount there would probably be a short amount of drama involved, like any such change, but even that percentage is in the long run a small price to pay compared to the hit most streamers would take streaming through any different means.

I would actually support such an option being implemented if it were just that, an option. Anything that allows easier and more transparent transactions increases the integrity of a stream. Reducing the amount of fabricated donations(whether by streamers themselves or viewers) for whatever means, allowing direct benefits(such as extra emoticons or chat privileges on top of subscribing), and the option to display an official list of donators would be something I would gladly pay a small percentage for, but once again, as an option, not a requirement.

Any final thoughts you'd like to share on the subject?

As it stands the pool of streamers has become very stagnant. A very small percentage of streamers have a very high percentage of viewers, and the gap only keeps widening. There are no real methods in place to promote or give new/smaller streamers a chance to show off their content without having a connection to a larger streamer, or someone associated with them. It is quickly getting to the point where if you haven't "made it" yet, then it probably won't matter how much you put in, because all the eyes are looking elsewhere.

I think to maintain the growth and diversity of streaming there needs to be methods by which up and coming streamers can truly get their foot in the door. In the long run competition is good(Twitch is a good example of what happens without it), and the same goes for streaming, and hopefully in the near future we can see more of it.

Thanks again for speaking with me, do you have any shout outs for our readers?

Thanks for giving me the opportunity to answer questions outside of my stream :). Also thank you to all of the viewers, followers, subscribers and donors that read this, I would never have gotten to this position without you. I'm happy to be streaming every night over at Zlfreebird usually starting around 6pm EST and going for 6-12 hours a night. You can follow me on twitter @StarcraftWinter if you're into that, but otherwise thanks for reading!

The Future

Twitch is a nimble and adaptable company, spinning Twitch.tv off from Justin.tv, demonstrates an impressive amount of foresight foresight and a willingness to act. This being the case I doubt they'll simply rest on their laurels while AdBlock slowly devours their revenue. So what solutions could we see going forwards?

Twitch could choose to take MLG's approach, preventing AdBlock users from viewing content, but this seems unlikely because preventing AdBlock users from viewing content on Twitch is likely to alienate many of their larger partners such as ESL and Dreamhack. In addition to running their own ads that cannot be blocked, larger partners often have a wide variety of event sponsors. Viewer numbers are the primary metric that sponsors use to determine how much money they should invest in sponsoring a given event, and therefore large event organizers always benefit from additional viewership, even if they're using AdBlock. With the resurgence of Own3d.tv and Azubu.tv Twitch will be reluctant to take any action that might push partners towards competing platforms. Due to the fact that MLG.tv both produces and serves all of its content, their partners do not bring in their own ad networks, sponsors etc.

It's also possible that Twitch content could be kept behind a pay wall. This sounds absurd, it is a risky move that could potentially render Twitch irrelevant, but when you look at the past few years its easier to see that pay walls are a distinct possibility. So far it appears that Twitch has been taking increasingly larger shares of streamers ad revenue in order to mitigate the damage from AdBlock, but there is simply no wiggle room left, Twitch has essentially used up their buffer, and its entirely possible someone decides that pay walls are the only tool Twitch has left to balance the books.

The final and what I believe to be the most likely course of action Twitch will take is getting a piece of streamers lucrative donation revenue, by integrating some kind of official Tip Jar into the UI, banning the solicitation of direct donations through channels like Paypal, and taking a slice off the top of each donation a streamer receives. Its plausible that Twitch could even encourage tournament organizers to implement a Tip Jar, allowing tournament fans to directly inject additional money into an events prize pool, or perhaps we'll see them used for charity drives. Its likely there could be backlash from this decision as well, if other streaming platforms choose not to adapt a similar policy to Twitch, the Twitch could alienate it's massive roster of bedroom streamers the same way that blocking AdBlock users could alienate larger streamers. If this were to happen it would mean that Twitch has learned a lesson that banks learned long ago, its all about the surcharges.

The eSports industry always seems to be one step away from a state of financial stability and viability, but like a desert traveler walking towards an oasis, the goal seems to move further away each time we take a step forward. Last years obstacle was content saturation, this years is AdBlocking, and its impossible to tell what lays ahead. The challenges that lie ahead for Twitch illustrate the easy to overlook fact that the eSports industry outside of Korea is still very much in its larval state. In the immediate future it appears that Twitch will live or die by its ability to “solve” the AdBlock problem in a way that doesn't alienate their major partners, bedroom streamers, or bottom line.

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