Is the creator economy "tax" worth it?

Nearly every creator platform takes a cut of revenue, but are they providing commensurate value?

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Is the creator economy "tax" worth it?

In case you haven’t noticed, there’s been a veritable explosion of creator economy startups over the last few years, and while their offerings vary, they’ve all pretty much settled on the same business model: taking a percentage cut of a creator’s revenue.

Here’s just a sampling of the “taxes” that major platforms charge:

Patreon: 5 - 12%

Substack: 10%

YouTube Partner Program: 45%

OnlyFans: 20%

Apple podcast subscriptions: 15 - 30%

Twitch: 50%

Revue: 5%

When you work in the creator economy, you constantly encounter discussions over whether a particular platform’s fee is “worth it,” especially when there are often DIY alternatives that can allow the creator to take home more revenue.

Take Substack as an example. Its 10% cut is constantly attacked by those who point out that its services can be replicated by other cheaper platforms. The publishing consultant Ben May, for instance, wondered in my private Facebook group why more successful Substack writers don’t “pack up [their] free and paid subscribers and move them to another platform quite easily and not lose a penny,” especially since “users don’t know the difference.”

Here was my response:

I really think technical-inclined people who enjoy building websites vastly underestimate the lock-in value of convenience. Can you make more money by moving your entire subscriber base off Substack and onto some other more hands-on platform? Sure. Will the average writer who just wants to focus on the content actually bother to do this? Probably not.

Let’s dive into this a little bit further.

So most of Substack’s functionality can be replicated through a combination of Wordpress, Mailchimp, and Stripe. And because Wordpress and Mailchimp have locked-in fees, a writer with, say, 1,000 subscribers paying $10 a month will take home a considerably larger chunk of income than they would on Substack.

But let’s consider the downsides to this approach. For one, a Wordpress site with your own domain starts costing you money from day one. A Mailchimp account starts charging you after the first 2,000 email addresses and rapidly scales up in cost from there. And depending on how customized you want your site to be, you may have to pay an expensive Wordpress developer to build your site for you. It’s also not that difficult to break a Wordpress website when an open-source plugin stops getting updated by the developers who built it. A writer could end up spending hundreds or even thousands of dollars upfront before they even begin monetizing their newsletter.

Substack, on the other hand, is free from day one, and it doesn’t start making money until you, the writer, make money. Its CMS is simple and intuitive, free of the bells and whistles that most writers wouldn’t take advantage of anyway. Its uniform design makes it almost impossible for a user to accidentally break their account. If you’re a writer who’s dabbling in paid newsletters, the 10% fee won’t seem too onerous.

But what about the star Substack writers, the ones who are generating well into the six figures? Surely they’ll grow disgusted by the tens of thousands of dollars they’re paying Substack each year.

Well, sure, some will indeed make the jump, especially those who want to expand from a one-person newsletter to a scalable media company. But I honestly think that most writers won’t care enough to switch.

Let’s say you’re a Substack writers with 2,200 subscribers paying around $100 a year. That means you’re pulling down around $200k annually, or four times the U.S. median income. And sure, you could maybe make an extra $15k if you migrate to Wordpress/Mailchimp, but that’ll also introduce all sorts of headaches.

You’ll either have to perform the migration yourself or else go out and find someone you trust to make the switch for you. The move would involve a certain amount of risk, as there might be some technical glitches as you’re trying to extract all your paying subscribers from Substack (this is a real risk; I’ve spoken to publishers that made the migration from Substack who ended up losing subscribers in the process). And then you have to learn how to use these new platforms, which, again, are much easier to break or screw up than Substack.

All that is to say, I think a lot of creators will simply opt for the platform that allows them to maximize their time spent producing content, even when it sometimes means giving up a larger cut of revenue. When it comes to creator economics, never underestimate the power of convenience.

Quick hits

Insider profiles a media outlet called Friday Beers. What started as an Instagram meme account has grown into a 11-person company that spans across several mediums. [Insider]

Social media celebrities still have a really mixed track record when it comes to breaking into mainstream Hollywood. [Washington Post]

I'll always show up to read a post making fun of Gary Vee. [On Posting]

"I think we'd all appreciate it if the investor class would stop taking up residence in the bloated, desiccated corpses of Former Magazines." [On Posting]

It’s amazing to think about how much VC cash was set on fire simply because Facebook's algorithm was so easy to game for a period spanning over about four years. [The Postscript]

For 50+ years we were able to have a somewhat accurate understanding of how many people watched various TV shows, but that era is probably over. Now our only indication of popularity will come from show cancellations. [Mike Shields]

This is a great example of how ad tech that was supposed to help the media industry compete with Facebook/Google instead diverted revenue away from publishers and into the hands of scammy marketers. [Morning Brew]

Coming next week…

Grant Thompson’s YouTube channel, The King of Random, had over 11 million subscribers when he suddenly decided one day that he was burnt out and didn’t want to make videos anymore.

Instead of shutting the channel down, he handed day-to-day production over to a team of people. I interviewed members of that team about whether the hand-off was successful and what it means for the longevity of creator-led businesses. The article should go live by Thursday at the latest.

Have a great weekend!