There has been a lot of heated discussion lately regarding advertising revenue in the video game streaming business and the way broadcasters are compensated for their content. To be sure, it’s a complicated business with many nuances that are often lost in casual conversation. I’d like to dive in for a minute to clear up a few misconceptions.
TwitchTV, we are dedicated to delivering the best service and greatest revenue possible for our partners, while offering the best viewing experience for our users. We hope this level of transparency will help bring the whole discussion to a more fruitful level for the entire community.
There are two main models for compensating broadcasters: Revenue Share and Flat-Rate.
Revenue Share works like this: For every ad, the platform and the broadcaster share in the revenue. For example, if the platform sells a $20 CPM (cost per thousand impressions) ad, the broadcaster receives $10 for every thousand viewers who see that ad.
Flat-Rate works like this: The broadcaster is compensated at a specific CPM per ad, $5 being a popular rate. So, in this case, if the platform sells a $20 CPM ad, the broadcaster receives exactly $5 per thousand viewers who see that ad, and the company keeps the remaining $15.
There are pros and cons to each option.
The pro for the revenue share option is that the broadcaster benefits from better sales on the part of the streaming platform (the higher the ad sells for, the higher the revenue the partner receives). The con is that while revenue can be forecast fairly accurately, it cannot be pinpointed with exact accuracy every month, and the broadcaster shares the risk that it will go down.
The pro for the flat-rate option is that the broadcaster can forecast the revenue made in a month more easily because the rate is guaranteed. The con is that they will lose out on revenue made by the platform when an ad is sold above that $5 CPM.
Whether the broadcaster is on a revenue share or flat-rate, the company makes more money if the company sells more ads. This is obvious and the same for all companies, hence why it is ludicrous to claim that one company cares about selling less than the next. The difference is that for a rev share, the partner takes the risk AND the benefits along with the company, whereas with a flat rate, the partner takes less risk but also less reward.
TwitchTV, we believe that our partners should benefit if we benefit, thus we have promoted a revenue share model. We do this because we are in close contact with the best video game broadcasters on the planet, and they’ve told us that this is what they prefer. However, we realize that one size does not fit all and we will be offering a Flat-Rate option in addition to our standard Revenue Share option. We will be announcing details shortly.
Now for the real nitty-gritty advertising 101 primer on how advertising works?
Terms you need to know first:
Ad Opportunity,This is the total number of opportunities a company has available to deliver an Ad Impression.
For example, if a channel has 1000 simultaneous viewers and runs 1 commercial, there are 1000 opportunities to show an Ad Impression. Ad Opportunities are also sometimes described as Ad Inventory.
Ad Impression: This is counted when a viewer actually sees an ad. Impressions are always less or equal to opportunities.
Fill-rate: This is Ad Impressions divided by Ad Opportunities,
In an ideal world, everyone sells every single Ad Opportunity to someone. This would mean 100% fill-rate. In the real world, because there are other variables like country of viewer, time of day, number of ads seen by a unique viewer, etc. the Fill-rate is always less than 100%.
CPM - this is cost per 1000 Ad Impressions. So $3 CPM means you earn $3 per 1000 Ad Impressions viewed. It is important to note that it is not $3 per 1000 Ad Opportunities.
eCPM (Effective CPM) - this is cost per 1000 Ad Opportunities, thus takes Fill-Rate into account. This is a much better measure of how a company is performing in terms of sales.
Thus if someone tells you they offer $3 CPM, but has a Fill-rate of 50%, then your eCPM is $1.50. The way you calculate this is revenue divided by every 1000 Ad Opportunities.
For example, if you have a $3CPM, 50% Fill-Rate and 1000 Ad Opportunities, this is 500 Ad Impressions. $3CPM x 500 Ad Impressions / 1000 = $1.50 eCPM.
Frequency Cap - High paying advertisers usually only allow companies to show their ad 1-3 times per day to a unique viewer. This is to prevent over-exposure of their brand and ensure higher performance. Frequency caps can be as low as none (as in they will allow a company to show their ad as many times as possible) or 1 per day. The ones you see over and over are usually the lower paying CPM ads.
Top Online CPM Site |Average CPM Rate | TribalFusion CPM Rate
Here are the major factors that determine if a viewer sees an ad,Country: The country that a viewer is watching from is one of the biggest factors in determining whether someone sees an ad, how much the ad costs, and how many they see. Of course, every company is trying to sell 100% of the ad inventory - it would be silly to accuse a company of not trying to do this.
However, in many countries the online video ad market is not yet as mature as in countries like US, UK and Germany. We all do our best to sell, but viewers and partners need to understand that not every country is near 100% fill-rate at the high CPMs.
How many ads a viewer has seen each day: If you as a viewer have been to other video sites or even other channels and see other video ads before arriving at a partner channel, then whatever ad you see on the current channel you’re viewing will be lower in CPM value than the first ad you saw that day.
Most big brands frequency cap video ads at 1 per 24 hrs, which means you should only see their ad once per day as a unique viewer. So as you see more video ads through the day, the value of the ad decreases.
Ad blockers - Of course this is an issue and we are working on helping partners learn how many people are using ad blocker and educating people that using ad blocker is detrimental to folks who are trying to create great content and entertain people.
Now that you are armed with this knowledge, back to the two revenue options available to broadcasters.
As you can see, comparing a flat-rate CPM to an eCPM without insight into fill rate is very misleading, and unfortunately this is exactly what is being compared . The best way to compare apples to apples is to look at eCPM (effective CPM, or revenue per ad opportunity). We are confident that we deliver an equal or higher eCPM than any gaming platform out there.
We strive for complete transparency with our partners. That’s why we will offer data on both ad opportunities and ad impressions in the partner dashboard. This way, partners can understand how they are doing and how we are performing for them. I urge all broadcasters, when deciding which platform to go with, to get this kind of transparency. Otherwise, it is easy to be deceptive when it comes to how much revenue a broadcaster can potentially earn even in social site advertising.
There are competitive options out there
We know this very well. In addition to our industry leading eCPM, we are constantly driving innovation on the product. We were the first to build commercial breaks, the first to offer live transcodes, the first to offer channel subscriptions, the first to offer advanced chat moderation tools, and on and on. We pride ourselves on staying ahead of the competition when it comes to broadcaster tools, and we will continue to build great features that gamer's need.
There is always room for improvement. We will continue to make the best place to find great gaming content, but also the best place for partners to broadcast their content and to earn a living by doing what they love.