This article was written by financial expert Jay Cranford from Buff Your Finances. Jay is financial planner specializing in helping content creators with their business and personal finances, you can find him over on Twitter @hjcranford.
With global conflict on the rise, rapid inflation impacting a variety of industries, and stock market dips on the daily – it feels like a recession is around the corner.
While we’re not in the business of predicting economic downturns, data suggests a prolonged recession could be on the horizon. To oversimplify, the Federal Reserve is raising interest rates to “cool down” the economy to combat inflation.
Streaming in a Recession
Whether this sends us over the edge of the economic cliff or not, streamers should start to think about how a recession will affect their business and how they can prepare.
Given how relatively young streaming is, we have never seen how it would fare in a recession. Technically, there was the downturn of 2020 from the first COVID lockdown, but that was hardly a “normal” economic event. Before that, it was the great recession around 2008. At that point Twitch wasn’t split out from Justin.tv and YouTube was only 3 years old.
Therefore, we must make assumptions about what streaming in a recession will look like. First, let’s break down how streamers earn money into four categories: 1. Subscriptions 2. Sponsorships 3. Ads and 4. Tips. Let’s group sponsorships and ads into “Corporate Money” and subs and tips into “Viewer Money”.
During a recession, companies expect to sell fewer products and begin tightening budgets to weather the economic storm.
Advertising and marketing dollars are an easy budget cut to make. Your favorite keyboard maker likely prefers shutting down a marketing campaign than laying off workers.
During the great recession of 2008, marketing spending decreased between 13 and 27 percent across all channels. However, marketing in 2008 was almost entirely through linear mediums (newspapers, tv, etc.) and the world now revolves around interactive mediums with much more targeted advertisements.
It is safe to say sponsorships for content creators will see a dip, but brands still want relevance and will look to spend marketing budgets where they get the highest return on investment. They want to spend X dollars to get in front of Y people converting to Z total of purchases of their product.
Keep Your Business Afloat
Content creators with loyal communities of specific demographics will be the most prepared to take advantage of any sponsors who are looking to get the most bang for their advertising buck.
Take time now to create a package for potential sponsors showing the value of your audience.
Consider reaching out to sponsors now and building relationships before a potential recession occurs.
Now let’s talk about viewer money.
During a recession many people will have lower incomes and need to cut expenses. Since your stream is free to watch, cutting subs and tips will be easy places to save money. Studies suggest one in every five households will cut back on digital subscriptions. What would a 20 percent reduction in your viewer-based revenue look like?
However, you might see viewership growth since people may not be spending on movies, travel, or other kinds of entertainment. We know viewership went up across the board during the 2020 recessions as more people stayed inside. That trend could continue if enough people view streams as a desirable free source of entertainment.
Every streamer monetizes their audience in different ways, so review your incentive structure for subs and tips. The more value you can offer someone for a sub, the more likely they are to stay subbed during a recession. That sense of community might be the lifeline they’re looking for when things are tough elsewhere.
Diversify Your Income
It may also be time to explore other sources of revenue from your community. Start posting to other social media like YouTube and TikTok, set up a merch store, open a Patreon if your content would do well behind a paywall.
If you feel confident a recession is coming, grind now for extra cash with big events like sub-a-thons while your audience is more likely to spend.
Personal Finance Rules
Lastly, there are general personal finance rules you should follow to stay prepared for a decrease in income:
- Make sure you have an emergency fund of cash savings, 3-9 months of your average spending in a checking or savings account.
- Make a budget today to know where your money is going in case you need to cut back on expenses.
- Separate out your business and personal finances so you can track what’s needed to keep the business running and what you use for keeping yourself running.
The bottom line is we don’t know how a recession will affect streaming. It’s possible streaming will be an industry well positioned to see increases in marketing spend as viewership goes up. It’s just as likely that subs will dry up for several months as household income is down.
Taking time now to prepare for recruiting sponsors and reviewing how you monetize your community will benefit you in any situation. Build resiliency with managing your spending, having cash reserves, and having revenue from multiple places.
If times do get tough those who made themselves resilient and made it through are then best positioned to capitalize big time when things rebound. If times don’t get tough, then you’re set up to run efficiently which helps in the long run.