Are Prime Gaming subscriptions the drug that Twitch cannot live without?

Twitch chief executive Dan Clancy has been quick to reshape the livestreaming platform since taking charge just shy of a year ago. Clancy has cooled competition with YouTube and Kick and taken the wind out of exclusive deals by backing multi-streaming. He has also moved to improve the perception of creator pay. Streamers with 300 recurring paid subscriptions over three consecutive months now get an improved 70/30 revenue split, while those with 100 recurring paid subs over the same period get a boosted 60/40 share. Then there were cost cuts: Clancy announced in January that Twitch would be losing 500 staff as part of a resizing to help it reach profitability.

Significant but less headline grabbing was Clancy’s more recent decision to adjust Prime Gaming subscriptions on Twitch. Prime Gaming subscriptions are a perk offered to Twitch users that have a subscription to Amazon’s Prime membership. Among the benefits are free weekly PC games and exclusive in-game items, but crucially it provides a free monthly subscription to a user’s favourite creator channel. This gives them ad-free viewing, access to that creator’s exclusive subscriber emotes, and other perks.

Free subscription engagement booster

Such is the uptake that Prime subscriptions have not just become a key source of revenue for many creators on the platform, but a key retention driver of users. In other words, Twitch and Amazon are incentivising engagement at a cost to the business. How much so is unclear because Amazon does not split out the numbers, but it is significant. The very nature of the perk means Amazon is shouldering both the cost of the subscription and the foregone advertising revenue on any given channel each month as it is used by a Prime Gaming subscriber. This can be justified if Twitch and Amazon recoup that cost by those users becoming hooked on the experience and spending their own money subscribing on the platform or Amazon’s online store. It is also ok when a platform is in growth mode and is willing to take a cost hit if it means acquiring more users that it can turn into paying subscribers over the long term.

The problem comes when the tone shifts away from spending big sums on acquiring subscribers, to turning what subscribers the company has into profit. This inevitably leads to cost cuts as the company looks maximise the return on its subscribers. It also means that the tactics used to grab subscribers – promotions for example – are rolled back to a degree in favour of subscription price increases to maximise on return. The problem Clancy has is that the Prime Subscription incentive is so embedded into the Twitch ecosystem when it comes to engagement that it is very hard to shut down – or substantially pair back – despite the cost.

So, it is perhaps unsurprising that Clancy announced on January 24th that Twitch would be moving Prime Gaming subscriptions to a fixed rate model. This means a pay cut for creators, especially those on older contracts that used to get a 70% share of Prime Gaming subscriptions. Clancy says the hit to those streamers will be partly offset by eliminating a $100,000 cap on its 70/30 revenue share. For most streamers it is likely to equate to a pay reduction of less than 5% across most countries. This approach is effectively shifting some of the cost burden of Prime Gaming subscriptions onto the creators.

Two-tier pivot for Prime Gaming

Will this be enough? And, if Twitch cannot live without Prime Gaming subscriptions, is there more that can be done so it pays its way? The answer may well lie with Prime Video. Amazon’s recent decision to move all Prime Video subscribers onto an ad-tier and make them pay an extra $2.99 to go ad-free is a test case for ad-tolerance. If it does not lead to significant churn, and a decent proportion of Prime subscribers upgrade to ad-free, then this could be an option Twitch could explore for Prime Gaming subscriptions. Perhaps, Prime Gaming subscriptions become two-tier. The first tier including adverts but offering free access to a creator’s emotes and subscriber perks like free PC games. Those wanting to remove ads could then upgrade to a Twitch Turbo subscription at a discounted rate – Twitch Turbo removes adverts across all channels on Twitch and currently costs $11.99 in the US. This would put some of the cost burden of Prime Gaming onto the consumer. Clancy may need to make more bold decisions to accelerate Twitch’s path to profitability. A revamp of Prime Gaming to deliver a sharper return on investment would be a strong signal that Twitch is serious about delivering financial stability.