Twitch Competitor Caffeine Would Like to Sell You a $100 Virtual Potato

(Bloomberg Businessweek) -- On Thursday nights at around 7 p.m. in California, Jayceon Taylor, an American rapper known as the Game, likes to play video games with his friends. NBA 2K20 is one of his staples. Opponents have learned to beware of his virtual midrange jump shot.

Appreciation of such skills might once have been limited to the members of a celebrity’s entourage. But in 2019, the circle of potential admirers and hecklers has widened considerably. These days, anyone who wants to watch the Game and his buddies dunk on each other can hop on Caffeine, a free livestreaming service, and cheer on the action in an accompanying chat room. “Game, don’t forget to set up that rematch between me and you in Madden,” said Snoop Dogg in a recent promo. “You’ve been running from me.”

Many of the current shows on Caffeine feature voluble hosts offering stream-of-consciousness commentary as they compete in one video game or another—Fortnite, World of Warcraft, Overwatch. In other words, it’s essentially the same genre popularized by Twitch, the livestreaming service that Amazon.com Inc. acquired in 2014 for $970 million and which has since grown into a giant vortex of teenage status and attention.

The Game is the rare host on Caffeine who is well known outside video gaming circles. But that’s about to change. Throughout this fall, Caffeine will be rolling out a new slate of programming, starring established entertainers, designed to position Caffeine as a more mainstream alternative to Twitch. “Caffeine is not just about hardcore gamers,” says Ben Keighran, founder and chief executive officer. “We’re broader than that.”

Or, at least, it aspires to be—thanks in no small part to Lachlan Murdoch.

Murdoch, executive chairman and chief executive of the new Fox Corp., sits on Caffeine’s board of directors. Like Tucker Roberts, the scion of the Comcast media empire, Lachlan, eldest son of Rupert, is a big believer in the future of esports. In 2018, prior to selling much of its assets to Disney, 21st Century Fox invested $100 million in Caffeine and formed a joint venture called Caffeine Studios, which is now part of new Fox. In recent months, Caffeine Studios has set up shop on Fox’s lot in the Century City section of Los Angeles, and created a studio in Burbank. It also started recruiting celebrities and social media influencers to create exclusive livestreaming content.

For now, the company is keeping its roster of hired-gun influencers under wraps. “You can come in and see which person you want to hang out with,” says Keighran. “That person could be streaming a video game, or they could be snowboarding, or streaming from Coachella, or from one of our studios with a very carefully crafted show.”

Keighran, 37, grew up in Sydney. In 2012 he sold his app search company Chomp to Apple for $50 million. Afterward, he joined Apple and oversaw software design for Apple TV. In 2016 he co-founded Caffeine with Sam Roberts, a former colleague from Apple who has since left the startup. Keighran calls the format “social broadcasting.” “You can talk to the commentator, you can become the commentator, and you can interact with other viewers,” he says.

Much of the current demand for “social broadcasting” is centered on major esports events. Keighran thinks the phenomenon will eventually spread to the traditional sports universe via young viewers who have grown up wanting to be the next Ninja, rather than the next Joe Buck. Thanks to its partnership with Fox—which, among other things, airs professional football, baseball, golf, stock car racing, wrestling, soccer, boxing, lacrosse, rugby, and bowling—Caffeine is well positioned to pioneer the trend, says Keighran.

But securing livestreaming rights for desirable sporting events can be costly. Consider the NFL. On Sept. 26, Caffeine’s partners at Fox aired the Thursday matchup between the Green Bay Packers and the Philadelphia Eagles. Despite the affiliation with Fox, fans couldn’t watch a livestream of the game on Caffeine. Instead, they had to turn to Amazon, which is paying the NFL $65 million a year to livestream Thursday night games. The online broadcast appeared not just on Amazon Prime Video but also on Caffeine’s social broadcasting rival Twitch. There, viewers could choose among a handful of channels, each featuring a different Twitch personality—including TimTheTatman, AngryJoe, and Gutfoxx—narrating the Packers-Eagles game in a signature style.

The current streams of live sports on Caffeine are limited to decidedly less-popular pastimes. In May, the service’s viewers were treated to a live college softball game pitting St. John’s vs. Butler. (The Big East Conference is an early adopter on Caffeine). Eric Shanks, the chief executive officer of Fox Sports, says that Fox and Caffeine are still figuring out ways to capitalize on the crossover potential.

For now, esports is the main focus. In August, when FIFA hosted its annual eWorld Cup competition, the virtual soccer matches aired on both Caffeine and FS1, Fox’s sports cable channel. “The interactivity plays much more of a key role in esports than in traditional sports,” says Shanks. “It’s still early days.”

Caffeine will be trying to make up ground in an increasingly competitive field. According to data from StreamElements, in the third quarter of 2019 (a period covering July to September), Twitch was the clear market leader in livestreaming, accounting for 75.6% of the total hours watched, followed by YouTube Gaming (with 17.6%), Facebook Gaming (3.7%), and Microsoft’s Mixer (3.2%). In August, Mixer successfully lured away Tyler “Ninja” Blevins, one of the world’s top livestreaming personalities, from Twitch, signing him to an exclusive contract for an undisclosed amount. The competition for talent is expected to grow fiercer, likely driving up costs for all the livestreaming platforms.

At the moment, Caffeine is a minnow, by comparison. According to mobile app researcher Apptopia, since June 2017, Caffeine’s iOS app has been downloaded 865,207 times. During the same time period, Twitch’s iOS app has 52 million downloads.

Joost van Dreunen, a gaming industry analyst with Nielsen’s SuperData, says that while Caffeine’s technology and design are impressive, it will be difficult to catch up with the competition. “Strategically, you’re asking people to do several new things: a new platform, a new brand, a new content type, and also a new way of monetizing it,” says van Dreunen. “Consumers are going to get a headache early on. If this was three years ago, I’d be like, ‘Awesome.’ But that’s not the case. I think Fox is late to the game here.”

There is no advertising on Caffeine, which aims to make money via in-app purchases. The platform has its own internal currency, called Caffeine Gold, that viewers can use to buy virtual animated items, which can be deployed in chat rooms to express support for one’s livestreaming host. It’s a behavior that Keighran compares to traditional sports fans “buying a jersey or a foam finger to stand out in a crowd at a live event.”

Anyone who does a livestream on Caffeine can earn money by soliciting virtual donations from viewers. The gifts, which can be purchased with Gold during a broadcast, range from such things as an animated siren (which costs 5 coins; the equivalent of 50 cents), to a rose (10 coins; approximately $1), to a unicorn (150 coins), to a potato (999 coins). The more digital items broadcasters attract from viewers during a livestream, the more “Caffeine Credits” they earn; if applicable, the copyright holder of, say, the video game being played may also get a cut. The credits, in turn, can be converted back into “Caffeine Gold” or cashed out. It’s basically a tradeable currency that broadcasters amass from their fans.

Caffeine takes a cut of each transaction, a slice of each digital pie. The tips are voluntary, and not everyone contributes. But those who do, says Keighran, allow everyone else to enjoy an ad-free, subscription-free experience. “Fortnite makes several billion dollars a year in in-app purchases,” says Keighran. “This appears to be how the next generation wants to pay for content.”

To contact the editor responsible for this story: James Ellis at jellis27@bloomberg.net

©2019 Bloomberg L.P.