After a Decade, Can Amazon Make Twitch Profitable?

[00:00:00] What is dedication? People ask, how your children learn how to ride a bike and you didn't. I just created an environment where they taught themselves and all I had to do was be there. That's dedication. Visit fatherhood.gov to hear more.

[00:00:12] Brought to you by the U.S. Department of Health and Human Services and the Ad Council. Welcome to Tech News Briefing. It's Friday, August 2nd. I'm Zoe Thomas for The Wall Street Journal. Our senior personal tech columnist has been driving an electric vehicle for a year.

[00:00:30] She has one regret and it's not about range anxiety. And then, in 2014, Amazon paid almost $1 billion for Twitch Interactive. The live streaming platform is still losing money. WSJ reporter Salvador Rodriguez will join us to discuss some of the reasons Twitch hasn't turned a profit

[00:00:51] and what that could mean for its future. But first, a year ago, WSJ senior personal tech columnist Joanna Stern told us about her journey to buy an EV. She test drove five EVs under $60,000, comparing driving range, charging speed, infotainment, and driver assistance tech.

[00:01:13] Here's what she told us back then. I was down between Tesla and Ford. The Tesla has a superior charging network. On the Ford side, I just really liked the software and the fact that I had that extra screen. In the end, she went with the Ford Mustang Mach-E.

[00:01:30] Now she's back to tell us what it's been like and the lessons she's learned. So Joanna, you write in your latest column that you're still happy with your choice. But for those thinking about switching to an EV, there are things to consider. Like, for example, range anxiety.

[00:01:46] A lot of people are worried about being stuck on the side of the highway with no power. So this was my biggest nightmare a year ago. So I just have to tell people this did not happen to me.

[00:01:56] Okay, I never got stuck on the side of the road. Now sure, I am careful about looking at the battery and all of that, but I will say there were two big things that changed my mind about this fear. The first is that I charge mostly at home.

[00:02:09] The real game changer though, and this was a promise that I had known about last year when I decided to go with the Ford, but I wasn't sure would totally come through, was that Tesla was going to open up its charging network,

[00:02:21] which is far better than any other charging network we have in the US. And this is actually what happened in early March and I got this dongle and I was able to now charge my Ford at these Tesla stations and it changed everything.

[00:02:34] Okay Joanna, but winter is coming. Are you worried about the battery in the cold? Winter is the worst for so many reasons. One, sweaters to your EV because in the cold and specifically in really cold temperatures like 20 degree days, the battery and the range really deplete.

[00:02:53] And to the point where there were times where I was on the road and I was like this battery is dropping a percent like every minute. What is going on? And of course then I remember, oh it's really cold outside today.

[00:03:03] So you do have to really think about that more in the winter. But again, going back to that point about the Tesla stations there are a lot more options now to charge the car than there was a year ago. So kind of balanced itself out.

[00:03:18] What about car maintenance? How is that different for an EV? Today is actually the first day that I'm taking the car into the shop or the dealership for maintenance and it's not that anything's wrong with it. It's just this annual appointment that I'm taking it in for.

[00:03:32] I'm going to have the tires rotated. They're going to check some of the washer fluid. Basically just give the car a once over to make sure everything's okay. But there isn't that regular oil change appointment. You've compared buying an EV to buying a computer or another gadget.

[00:03:48] So how does this software matter when driving an EV? Yes, there's been this promise with EVs that basically these cars were going to be our computers on wheels. You'd have big screens and wireless connectivity and you'd get an over the air software update just like your phone does

[00:04:03] or just like your computer does. The truth is that hasn't totally happened with the Ford. I wouldn't say that anything has drastically changed in the car or the interface for me over the last year or that there's really any new software feature that changed my experience.

[00:04:18] Though I will say and I keep mentioning that Tesla charger availability, that was enabled through a software update. Rivian and Tesla, these newcomers are doing far more in the software space than some of the older car makers like a Ford or a GM.

[00:04:33] You decided to lease your EV. Do you still feel that was the right option? Leasing was definitely the right thing. Doing it when I did was the wrong thing. What happened in the months after I leased was that the deals got way better.

[00:04:47] In a large part, that's because of tax credits. But basically if I had leased today, I'd probably pay, I don't know, $50 to $100 less per month than I pay right now. But what I say is that leasing is very attractive for two reasons if you're looking at an EV.

[00:05:02] First, the deals are better. Second, this technology is moving very, very fast. When my lease is up in two years, I expect the chips to be faster. I expect the batteries to be better. And so in this moment right now when EV innovation is moving so fast,

[00:05:20] it is a really good idea. Alright that was our senior personal tech columnist, Joanna Stern. Coming up, Amazon paid nearly $1 billion to acquire Twitch. A decade later, the live streaming platform popular with gamers is showing little financial return for the retail giant.

[00:05:38] We'll tell you why after the break. What is dedication? People ask, how your children learn how to ride a bike and you didn't. I just created an environment where they taught themselves and all I had to do was be there. That's dedication. Visit fatherhood.gov to hear more.

[00:05:58] Brought to you by the U.S. Department of Health and Human Services and the Ad Council. Live streaming platform Twitch is known for its hours-long broadcasts of video game play. But enabling tens of thousands of simultaneous live streams is expensive. An Amazon which bought Twitch in 2014

[00:06:21] is wrestling with how to make the service profitable. Here to tell us why and what that means for Amazon and Twitch's future is our reporter Salvador Rodriguez. Sal, this was one of Amazon's biggest acquisitions. What was Amazon's reason for buying Twitch?

[00:06:37] The thinking here at the time is that Amazon was starting to get into making video games and Twitch is an app that reaches young men, early adults. That's a demographic that traditionally has been a little difficult for Amazon to reach.

[00:06:51] And so between those two things and looking at Twitch as having the potential of one of these big tech acquisitions like an Instagram or a YouTube, that was what drove Amazon to acquire Twitch. So tell us how is Twitch supposed to make money? Twitch has essentially two businesses.

[00:07:09] It has an ads business where they roll ads before streams or perhaps during streams or maybe if you switch streams. And then also a commerce business, meaning that you can subscribe to specific creators or you could donate, which essentially, you know, it's like tipping the creator.

[00:07:26] You're reporting that producing a profit was a problem for Twitch from the beginning. What do we know about why Twitch isn't profitable? Yeah, essentially there's been quite a few things that added up. Essentially, it's very expensive to run live streaming. There's videos on demand, right?

[00:07:43] So like YouTube or Netflix and then there's broadcast TV. So a news channel for example. But when you try to do live streaming, you're also adding in this component of the fans want to have their comments on there immediately. So you have to have it synced up, right?

[00:08:01] But also you better have in the technology to catch any bad comments that could come in, any harassment. Right? So to make that all work at the same time, it's very expensive is what our sources told us. Along with the fact that for a while there,

[00:08:17] they were paying top creators quite lucrative contracts to remain exclusive to Twitch. Do we know how much money Twitch is making? We know from the documents that we looked at that last year Twitch generated about $667 million in ad revenue and $1.3 billion in commerce revenue. They're bringing in money.

[00:08:39] It's just that the costs are so high. And you know, speaking with our insiders, they told us that there were moments, you know, in the last year where leadership will tell them that we've made these layoffs and we're about halfway to getting to profitability.

[00:08:52] How does Twitch fit into Amazon's total 2023 revenue? Yeah, well, you know, when you add it all up, it accounts for less than a whole percentage point of Amazon's total 2023 revenue. So it's basically a blip in the Amazon machine and that's not a major problem for Amazon.

[00:09:13] It really seems to be a bigger problem for Twitch because the fear amongst the folks that we spoke with is that Twitch seems to be on a path toward becoming what at Amazon they call a zombie brand, which is essentially internal projects

[00:09:29] and acquisitions they've made that get sidelined because they haven't lived up to expectations. How have things changed specifically within Amazon to affect Twitch? It's our understanding that since Chief Executive Andy Jassy took over in 2021, he's really been focused on just a profitability review at the company

[00:09:49] and he hasn't shown much tolerance for the parts of Amazon's business that aren't profitable. So what is Twitch doing now to improve its fortunes? So one thing that we saw from our reporting, especially from a state of Twitch memo

[00:10:04] that new Twitch CEO Dan Clancy sent out in May, is there's a much bigger focus being placed toward improving Twitch's mobile experience. They've seen that the market has gone away from desktop and websites and so within mobile they've come in with this new discovery feed

[00:10:23] which is filled with short snippets from creators' livestreams. So essentially this is their answer to TikTok and Instagram reels and YouTube shorts and the hope is that more creators will do these little snippets, perhaps users take the snippets and share it on their own Instagrams or their TikToks

[00:10:42] and maybe there's some viral moments that happen and drive some more traffic back to Twitch. That was our reporter Salvador Rodriguez and that's it for Tech News Briefing. Today's show was produced by Julie Chang. I'm your host, Zoe Thomas. We had additional support this week from Melanie Roy.

[00:11:00] Jessica Fenton and Michael Laval wrote our theme music, our supervising producer is Catherine Millsop. Our development producer is Aisha Al-Muslim, Scott Salloway and Chris Sinsley are the deputy editors and Felonah Patterson is the Wall Street Journal's head of news audio.

[00:11:15] We'll be back this afternoon with TNV Tech Minute. Thanks for listening.