Month: August 2019

Within the past year, Twitch has been pruning its payment program for esports teams, according to media and entertainment executives in the gaming category. The platform continues to pay some esports teams in exchange for streaming a specified number of hours on Twitch each month. However, in some cases, it has either reduced the amount of money that it pays teams or phased teams out of the payment program, the execs said. It is unclear how many teams Twitch had been paying as part of the program, the specific terms and amounts of those payments and how many teams have been affected by the changes. Twitch declined to comment on the moves beyond a statement.

“Twitch has been the go-to destination for Esports content for years. We’ve been at the forefront of the industry’s growth and success, and we will continue to invest in Esports and competitive gaming as a component of our overall content strategy,” said a Twitch spokesperson in an emailed statement.

Twitch appears to have made these changes in order to focus the payment program on top competitive esports teams, according to the execs. Some teams that Twitch had been paying had added popular but non-competitive gaming creators to their teams to help fulfill their content commitments, according to Louis Timchak III, vp of sales at Bent Pixels, a talent management company that works with digital video creators, including esports teams.

The payments from Twitch were a top-three revenue stream for some esports teams, and the reductions have pushed the affected teams to diversify beyond the platform, said Menashe Kestenbaum, CEO of Enthusiast Gaming, a digital media company that specializes in gaming content.

Twitch’s payment changes come at a time when many gaming creators and esports teams have already been looking to diversify beyond the platform. Earlier this month, Twitch’s most popular streamer Tyler “Ninja” Blevins announced that he was leaving the platform for Microsoft’s rival platform, Mixer. That specific example likely has a lot to do with the money Microsoft was willing to pay Blevins for making the move. But it also highlighted the increased competition that Twitch currently faces. YouTube remains a major platform for gaming videos, while Facebook and Mixer have also been trying to encroach on Twitch’s turf.

However, the failure of YouTube’s standalone gaming app and Twitch’s relatively small audience of 15 million daily viewers suggest that the market for gaming videos is not a winner-take-all contest but a multiplayer game.

Esports teams may be diversifying beyond Twitch, but they are not leaving Twitch. Instead, they are increasingly adopting YouTube as a way to extend their Twitch streams, especially when sponsors are involved.

“Twitch is still the dominant one for streaming [live videos]. YouTube is still the dominant one for recorded [videos],” said Kestenbaum.

Individual creators and esports teams often stream live on Twitch for hours at a time. That can help to accrue a large audience over the span of the stream, but live viewers may tune in and out and miss parts of the stream showcasing a sponsor. So creators and teams cut shorter highlight clips of the longer streams and post those clips to YouTube, which has 2 billion monthly viewers, where they can reach a wider audience than on Twitch.

Cutting highlight videos of Twitch streams and posting them to YouTube is not a new practice. Austin Long, vp of gaming partnerships and strategy at gaming-focused digital media company Omnia Media, noticed it about two years ago when the profile of Twitch creators and esports teams had grown to the point of meriting them having standalone YouTube channels.

But as marketers invest more in esports, the practice of editing Twitch streams into clips for YouTube has become more prevalent among esports teams. “When thinking about traditional social influencer arrangements in other verticals, most contracts include cross-posting across channels to get as much scale as possible out of branded content. Esports are no different,” said Sarah Schneebaum, community manager at MRY.

Posting the highlight clips of the Twitch streams to YouTube can help marketers to rationalize their sponsorships of Twitch creators and esports teams, given that gaming and esports remain emerging categories for many marketers. In addition to providing incremental viewers, YouTube offers more in-depth analytics than Twitch, which does not provide basic analytics like demographic breakdowns of viewers, said Timchak. “Brands need the analysis and the data in order to justify their investment,” said Mason Bates, account director of content and sponsorship at Mindshare.

Even though Twitch does not offer detailed analytics, the insights it does provide can help to make sure the highlight clips showcase the best sections of a stream. Twitch allows creators and teams to see how viewership and comments trended over the course of a stream, and insights into viewership and engagement peaks can inform which clips are pulled for the highlight clips, said Bates.

Twitch creators and teams are posting these highlight videos to YouTube for a couple reasons that go beyond the size of YouTube’s audience. YouTube’s monetization program enables creators to get additional revenue from these videos, and YouTube offers a better platform for getting views for these non-live videos. While creators and teams can upload non-live videos to Twitch, the platform does not do a great job of highlighting these on-demand videos and viewership suffers as a result, according to media executives. For one popular Twitch creator that Bent Pixels manages, the creator’s on-demand videos on Twitch receive, on average, between 2,000 and 5,000 views, whereas on YouTube they average between 300,000 and 500,000 views, according to Timchak.

“It’s hard to get discovered if you’re making good content on Twitch because unless it’s live, no one sees it,” said Long.

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In doing so, the advertiser shaved 20% from its marketing budget due to not having to pay the cost of working with agencies. However, it was never about savings, said Jochen Koedijk, CMO at ADT.

“It can be hard to execute your media buys flawlessly if you have a wide range of agency partners because ownership of those investments can become diluted and ambiguous,” said Koedijk. “The objective was always to make marketing a core competency of our business. Savings were never an objective of ours.”

In fact, being able to save so much so soon after it stopped working with agencies has forced Koedijk to consider at what point does the strategy start to backfire. “We want our marketing to be a core competency, but the question is how far do you go into that because at a certain point you will hit diminishing returns in terms of the resources you invest into it,” said Koedijk.

The question is being carefully considered by Koedijk as he mulls the best way for the business to build a programmatic strategy. Building an ad tech stack is littered with hidden costs. From the talent needed to run the ad tech to the demand-side platform needed to bid on the media, advertisers like ADT can quickly run up costs of hundreds of thousands of pounds each year, depending on how expansive the setup is. It’s a hard investment to justify for a business that isn’t buying most of its ads from online auctions.

For now, ADT is yet to make a decision on how much to spend on an internal programmatic offer. It isn’t a “hardcore digital advertiser,” said Koedijk. Plans are underway to change this, however, with ADT currently looking for internal media buyers for video and search.

While ADT has found success in recruiting talent, it hasn’t happened as fast as it would like. The company’s headquarters in Boca Raton, Florida, makes for an attractive destination for some candidates, but it isn’t known for its marketing talent. Instead, the business has looked elsewhere, namely places closer to its office in Aurora, Colorado, where some of the expanded marketing team are now based.

“Aurora, Colorado, is a central place in the U.S. that has good talent and is also a place where people will want to move to,” said Koedijk.

Aside from talent, ADT has found it hard to manage multiple publisher relationships to the same level that agencies do. For an advertiser to buy its own ads, it needs to broker and then manage deals with the companies that sell them.

“It’s been completely manageable, but there’s a lot of work having all the direct relationships with publishers across digital and traditional,” said Koedijk. “The benefit of an agency is that you pay them to source those publishers and manage those direct billing relationships.”

That said, the advertiser doesn’t intend to backtrack on its in-housing plans. The speed and scale of ADT’s agency cull stems from a larger rebrand. The company wants to move away from its position as a dry security firm and focus on its ability to provide customized security services in smart homes. It’s easier and faster to land that message when most of the team responsible for buying it are part of the marketing team, said Koedijk.

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Other private equity firms that have dipped their toes into the private equity space include Great Hill Partners, which has invested in Bombas, Wayfair and TheRealReal after historically focusing on the software and health care sector, and JH Partners, which has invested in DTC sneaker brand Greats, and was recently acquired by Steve Madden.

Some of these DTC brands are taking on private equity because they believe it allows them to grow at a more manageable pace than if they were to take on venture capital money. Others, like Peloton initially took on venture capital funding, but took on private equity as they got older and required more growth capital.

Many of the DTC brands that have taken on private equity are still young — Boll & Branch, for example, is only 5 years old and has only opened one retail store to-date. But depending on how many of them go public or end up being acquired compared to their venture-backed counterparts, it will set the tone for how receptive the next generation of DTC brands will be to private equity.

While the amount of equity any two private equity firms can take in a company may vary, there are typically a few key differences between private equity funds and venture capital funds. First, while venture capital funds may invest at any time during a company’s life cycle — some venture capital funds invest at the seed stage, while the company has yet to sell a product, while others typically invest at the late stage when the company has a set timeline to go public — private equity funds only invest during the later stage. Additionally, while venture capital funds only inject equity capital into a company, private equity funds may invest a mix of equity and debt. Plus, private equity funds can take a majority stake in a company, while venture funds typically do not.

The private equity boom in DTC can be explained by the fact that as that DTC brands have gotten older, there are simply more of them who may qualify for private equity investment. Michael Kumin, the managing partner at Great Hill Partners, told Digiday in April that it only invests in companies when “the business model and unit economics are clearly established because we focus on businesses that are either making money or have a clear path to be profitable.”

“You had venture fuel the first five or so years of the boom, and then you started to have private equity come in, which is used to a little bit lower multiples, has a lot more cash on hand, a lot more strategic relationships and can bring debt into the equation,” said Richie Siegel, founder and lead analyst of consumer advisory firm Loose Threads.

Kevin Lavelle, founder of Mizzen + Main, told Digiday in April that his company decided to take on private equity funding from L Catterton instead of venture funding after speaking to one venture capitalist who declined to invest in his company because “she couldn’t see how we could [make] 10 times our revenue over the next 12 to 18 months.”

“She was absolutely right. There’s no way we could do that,” Lavelle added. “I know of a lot of founders who ended up losing control of their company because they were chasing wild growth [due to VC pressure].”

Private equity investors typically operate under a longer time horizon and don’t expect companies to multiply their revenues as quickly as venture capital investors do. However, private equity investments come with its own set of challenges.

According to Siegel, while some private equity investors take a longer-term outcome on their investments, there are others that do look to generate more profit in the short term by “putting a lot of debt into companies and use it to pay themselves fees, and kind of pull cash out of the company.”

Additionally, given that many private equity firms are looking to invest when these companies have a clear path to becoming profitable, the pressure can be greater for a firm to be acquired or to go public. While venture capitalists may be making investments in companies with the expectation that only one or two will generate the necessary returns for the fund, private equity firms are “investing for the vast majority [of their companies] to make money,” Siegel said.

“Taking on large sums of institutional capital will always limit outcomes,” wrote Web Smith, co-founder of Mizzen + Main and founder of e-commerce research firm 2pm Inc., in an email. “Private equity will [still] require a much larger exit than what you’d find in brands who’ve taken on smaller investments.”

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