How Twitch Is Killing Cable Television

If you’re over the age of 25, the answer is probably nothing. If you were a child of the ’80s or before, the answer is almost certainly nothing. During your entire life, you’ve heard about the generation gap. Twitch is the embodiment of that gap for 40-somethings from their adult/nearly adult children.

What do kids love to do? They play videogames. What’s Twitch? It’s the mecca of videogaming. If you doubt this, consider the recent E3 broadcasts. In part one, I noted how few cable programs reliably attain 100,000 viewers during a given hour of a broadcast. The Nintendo E3 live exhibition reached more than 300,000 on its own, and the Sony and Microsoft programs also easily exceeded 100,000. Twitch is where young eyeballs are today. Let’s examine the data that demonstrates how it’s replacing cable channels in the hearts of younger viewers.

What’s So Great about Twitch?

What’s the appeal? Think about your favorite sport. The real action in the event is the element of surprise. You never know exactly what’s going to happen next, but you know that the superstars of the game will perform amazing feats. Most professional sports offer that only a few times a day, though. Twitch delivers it countless times during an hour. You can watch someone discover a game for the first time or you can watch a master wreck a game.

The recent Twitch event entitled Games Done Quick falls into the latter category. This week-long charitable event occurs twice a year. The mid-July version earned $1.3 million in donations. The central draw was watching players beat games as quickly as possible. The highlight of the event involves a computer program that beat Super Mario Bros. 3 in two seconds. Who wouldn’t want to watch that? As a Bioshock Infinite fan, I took note last year when someone managed to beat the game in two hours, something I barely understand even after watching this video. An amazing dunk happens in the blink of an eye. A TD pass takes a few seconds. Mastery of a videogame requires much more sustained excellence. That’s what differentiates it as a specialized skill, and the under-35 crowd has taken notice.

How Twitch Is Killing Cable Television

What does that mean to a cable broadcaster? Let’s again discuss Disney and sports. ESPN is currently the bearer of a lodestone contract with NBA that only just began. How so? Only three years ago, critics assailed the Atlanta Hawks for signing a very good player, Kyle Korver to a four-year, $24 million contract. Analysts universally agreed that Atlanta overpaid to keep him.

Fast forward to early July of 2016 when the same team paid Kent Bazemore, a less talented and dramatically less accomplished player, to a four-year, $70 million contract from the same team. That’s not a typo. NBA contract values basically tripled in three seasons. Even marginal pro basketball players earn contracts their performance can’t possibly justify.

While the NBA teams are the ones signing the checks (those are like Apple Pay for old people), ESPN is the one footing the bill. They dramatically misjudged the marketplace in 2014 when the extended their deal with the NBA for nine more years. In the process, ESPN essentially signed an exorbitant contract for a business model that won’t exist in a decade. It’s killing their stock price even as the company achieves record sales in other industries.

What’s Disney’s only choice with those stratospheric NBA expenses? They pass the bill along to the consumer. That’s been an integral part of the cable television playbook for decades now. They sign deals with content providers, generally sports organizations, and then they charge cable providers a higher fee for these broadcasts. The providers in turn raise rates on subscribers to offset the new expenses. This business model had proven sustainable since the early 1980s.

The problem is that a new entity showed up and destroyed that model. Twitch is ad-supported and free to use. Yes, you can pay for features, but it’s not a requirement. It’s new and not contractually obligated to any other entity the way that ESPN is due to decades of contracts they’ve built with major sports carriers. In fact, Twitch’s primary licenses involve…

eSports: Like Real Sports, Only More Exciting to Millennials

Symmetrically, eSports is soaring in popularity in tandem with the popularity of Twitch. They’re not quite one and the same, but the most popular channels on Twitch each week are generally eSports-related. That’s because eSports is a growth industry. The market has grown 43 percent in 2016 on the heels of 253 percent (!) growth in 2015, and the conservative estimate places eSports as a billion dollar earner by next year.

This turn of events is a nightmare for companies like ESPN and Turner Sports, the latter of whom owns TNT, the other NBA broadcast partner. They’re locked into contracts through 2023 for a sport whose viewer base is trending away from conventional television viewing. Meanwhile, “fake” sports aka videogames are soaring in popularity. What’s a company to do to handle this turn of events? Remember the Can’t Beat ‘Em, Join ‘Em maxim from part one? Yup.

In 2015, ESPN sent up a trial balloon for eSports coverage. They performed a live broadcast of Heroes of the Dorm, a cleverly named collegiate competition involving the game Heroes of the Storm. Its ratings were…comically low. A 0.1 rating, a fraction of their normal viewing audience on ESPN2, means ESPN had viewers actively change the channel rather than watch eSports. Despite this horrific performance, the company still re-upped for the 2016 event. They understand that the exploding eSports audience helps them long term in proving their value to under-35 viewers, even if the company has to absorb a short term ratings hit.

A second positive exists for this sort of broadcast. It’s dirt cheap. In fact, the production techniques used for the ESPN telecast only required one additional element from a regular Twitch show. They had a live crew commentating on the results. Otherwise, the cameras they used are the usual cost of doing business for ESPN. What’s important to take from this is how cheap eSports broadcasting is. Thousands of Twitch hosts do this from their home every night. One of the strongest selling points of reality shows is that they’re cheap to produce. Videogame exhibitions make reality shows seem like Iron Man movies in terms of production cost. They’re the cheapest form of programming imaginable. And that’s why…

Rated E for Everyone

Noting ESPN’s decision to display Heroes of the Dorm two straight years, Turner Sports executives reached the same conclusion. They too chose to hedge their bets by entering the field of eSports. In May of 2016, they committed to 10 consecutive weeks of eSports broadcasts for Counter-Strike: Global Offensive, one of the most popular games on Twitch. They also found a way to maximize the potential success of their endeavor.

Turner Sports joined with Twitch to provide symbiotic broadcasts. Throughout the week, Twitch airs preliminary games in the competition that build to the Friday main event displayed on TBS. To assure the mutually beneficial partnership, the two companies agreed to a two-year contract, meaning that eSports is here to stay on cable television. It’s the best way any cable broadcaster has found thus far to appeal to the Twitch crowd that is currently not watching conventional television.

The early results are positive for TBS. No more than 92,000 viewers ever watched the Counter-Strike preliminary matches on Twitch. Once the program moved to cable television, the audience expanded to roughly half a million viewers, which is better than ESPN has managed thus far. Still, critics are quick to note that it’s barely a third of what TBS ordinarily receives for reruns of popular shows like The Big Bang Theory.

Plenty of debate exists over whether eSports fans will ever truly transfer their viewing habits to television. It’s the antithesis of how they were raised. For now, what’s clear is that the explosive growth of Twitch is forcing major corporations in the over-the-top arena as well as cable television to reconsider the best methods to attract under-35 viewers. They have to try something, because all their usual methods have failed completely.