My thoughts on Substack’s sponsorships rollout

PLUS: Fox’s acquisition of Roku is kind of a big deal for the streaming wars.

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My thoughts on Substack’s sponsorships rollout

After many months of anticipation, Substack finally rolled out its initial framework for how it’s going to incorporate sponsorships into its creator ecosystem, and I wanted to offer a few observations.

The first is that it’s only offering this service to Substack “bestsellers,” at least to begin with. Bestsellers are simply Substacks that have a minimum of 100 paid subscribers. This is basically the strategy I initially recommended when the company announced it would expand into sponsorships (I’m not saying that to suggest they took or even read my advice.)

Why do I think this is smart? Because it ensures that Substack’s north star continues to be subscriptions. It’s actually not easy to get 100 people to simultaneously pay for a subscription, and reaching that threshold ensures a basic level of quality. It also reduces the incentives that could attract get-rich-quick scammers looking to churn out AI slop.

If Substack instead set a threshold based purely on free subscribers, the system would be much easier to game. An unscrupulous person could simply buy a massive email list and import it into Substack. It’s much harder to fake a paying audience.

And finally, this rule conveniently incentivizes more Substackers to turn on paid subscriptions so they can begin working their way toward Bestseller status — a win-win for Substack.

So let’s now talk about the sponsorships themselves. Because I’m a Bestseller, I have access to the media kit, and it gives some clues to how the system will work.

The media kit automatically populates basic audience stats like subscriber count, open rate, and a geographic breakdown of your readership. It includes open fields where you can explain who your audience is and why they read your publication. It also allows you to add testimonials, either from the ones subscribers submit when they upgrade to paid or from ones you’ve solicited directly.

As for the sponsorship formats, Substack appears to be offering several options where the ad is inserted directly into an article/newsletter when it’s sent out. One of the most interesting formats is the “unlocked by” free post: A sponsor can pay to make one of your paywalled posts available to your entire free subscriber list.

I think this is a clever approach. The “unlocked by” format has three potential benefits:

First, it allows free subscribers to sample your paid content.

Second, it lets the sponsor place its message alongside premium content that’s being delivered to an audience that’s grateful for getting access.

And third, a presumed added benefit of becoming a paid subscriber is that you get an ad-free experience.

There are still a lot of unanswered questions. How will sponsorship purchases actually work? Will a brand simply upload its creative and wait for me to approve it, or will I be expected to have a back-and-forth conversation? What cut will Substack take? How will pricing be determined? Will there be a cost-per-click option, or only flat-fee sponsorships? Will brands be able to make large buys across multiple Substacks, or will they need to negotiate a bunch of individual deals?

My guess is that Substack doesn’t yet know the answers to many of these questions. It first needs to get a large number of Bestsellers into the system so it can start testing different ad products and see how both creators and readers respond.

Either way, I can virtually guarantee it’ll deliver a better experience than what you’ll find on publisher websites monetized through programmatic ad tech — for both the users AND the advertisers.

ICYMI: This independent magazine publisher doubled down on print

Twenty Two Media Group founder Krista Faist explained how she bootstrapped two print magazines.

That case study actually sits behind a paywall, but if you’re not ready to subscribe, I also included it in an ebook that you can download over here.

Quick hits

Netflix must be seeing positive subscriber metrics from its video podcast inventory because it continues hammering out new deals. Anecdotally, while I do dip into video podcasts occasionally on YouTube, I’ve yet to click on one hosted by Netflix. In fact, I don’t know if it’s even really showing them to me. [Hollywood Reporter]

The South Korean film industry is more open than Hollywood to using AI in the filmmaking process. One film that was originally projected to cost $85 million was produced for as little as $165,000. The jury’s still out on whether any of these films will be entertaining. [Bloomberg]

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Fox’s acquisition of Roku is kind of a big deal for the streaming wars

From the WSJ:

Fox Corp. said it is acquiring Roku in a deal valued at around $25 billion, making a major bet on the future of ad-supported streaming.

The deal—Fox’s largest to date—brings together a media company known for its live news and sports programming with the biggest provider of streaming platforms for connected TVs.

Ok, I have a few observations on this.

The first is that Fox has adopted a pretty differentiated approach to the streaming wars compared to its peers. Rather than bundling its entire IP library under a single subscription streamer — like Peacock, Paramount+, and HBO Max — it instead launched/acquired multiple streamers, including Fox Nation, Fox One, and Tubi. Its bifurcated approach has allowed it to go after different customer bases that don’t necessarily have much overlap. Given that Fox News is a highly polarizing brand, I could see why Fox wants to offer streaming options that aren’t closely associated with it.

Its work on Tubi has been especially interesting; not only is it one of the largest FAST channels, but it’s also hammered out lots of innovative deals that give Fox a firm footing in the Creator Economy. It acquired Red Seat Ventures — one of the largest podcast networks — and signed several licensing agreements with really big YouTubers.

With its acquisition of Roku, Fox now owns the Roku Channel, another huge FAST channel. It’ll essentially have the kind of scaled advertising inventory that will put it in serious competition with YouTube.

And then finally there’s the marketplace aspect — Fox will basically have dominion over the entire streaming ecosystem. Roku is installed in over 90 million households, and it basically sets the rules for how streaming apps can operate on its platform. That’s a huge influence. Also, Fox will now have access to enormous amounts of data relating to how consumers interact with all the largest streamers.

And finally there’s the irony that Roku initially split off from Netflix precisely because the latter believed that no one streaming app should have control over the entire streaming ecosystem. But this was at a time when the industry was still nascent and Roku needed buy-in from both the TV device makers and the other media conglomerates. It no longer needs that buy-in.

(BTW, I used a gift link so you can access that article for free.)