The perils of sharing revenue with creators
It's difficult for platforms to develop revenue share systems that are fair and produce the right incentives.
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The perils of sharing revenue with creators
The history of Web 2.0 can basically be divided into two eras: pre creator monetization and post creator monetization. Let’s start with defining those:
Pre creator monetization
In the early aughts, the rise of blogging platforms like Blogger, Typepad, and Wordpress made it incredibly easy for individual internet users to become publishers. By 2005, the blog search engine Technorati was indexing millions of individual blogs, but it was difficult to build an audience for a blog. You basically had to rely on readers to bookmark your website and keep coming back to it to check for updates. Sure, there were RSS readers, but only a tiny percentage of internet users ever learned what those were.
The emergence of social media platforms like Twitter and Facebook helped with centralized distribution and audience building, but blog monetization was still pretty much nonexistent. That’s because the only way to generate income was through display advertising, which required substantial audience scale. There weren’t any brands back then that would bother advertising on a blog with only a few thousand pageviews a month.
As a result, creators who wanted to make a living from their blogs had one of two options: they either had to scale up their operations into a media company (examples: Talking Points Memo, TechCrunch), or they had to leverage their blog audience to land a job at a mainstream media outlet (examples: Ezra Klein, Matt Yglesias). There were only a handful of solo bloggers who were able to build a sustainable business without taking either of these two routes.
Post creator monetization
Eventually, the tech companies woke up to the notion that creators collectively represented a multi-billion dollar market. By helping those creators make money, not only could a company incentivize them to keep producing content for its platform, but it could also take a portion of any transactions the creators drove.
Creator monetization started with YouTube but then eventually spread to every single platform. These days I can’t open my inbox without seeing new emails from “creator economy” startups that are pitching themselves as the best way for creators to make a living.
Though many of these platforms differ in myriad ways, they can essentially be placed into two distinct buckets.
The platforms in the first bucket allow for completely transparent transactions in which the creator has a clear understanding of how much revenue they’ll receive. Platforms in this bucket include Patreon, Substack, Gumroad, and Kindle self publishing. For example, if I publish a novel to Kindle for $4.99, I know I’ll receive 75% of the revenue for each book sold, which means I can reverse engineer the number of copies I’d need to sell to make a full-time income.
The second bucket is much more nebulous. It includes any platform that pays creators from some giant pool of money based on a quasi-opaque process that can change from month to month. Platforms in this bucket include Snapchat, Spotify, Medium, YouTube, Facebook Watch, and TikTok.
Why would a platform choose this route? Well, it’s usually the only feasible solution for companies that rely mostly on advertising revenue. Because ad rates vary widely depending on the format, topic, and targeting of the ads, it’s virtually impossible to establish an immutable pay rate that allows creators to easily calculate how much money they’ll receive for their content.
This type of model also usually applies to platforms that offer bundled subscriptions (examples: Spotify, Medium). With these types of businesses, not only is it difficult to attribute purchases to individual creators, but they also need to keep their payout structures nimble so they can address user retention and acquisition issues. Let’s say Medium were to establish a firm $10 payout for every 1,000 views an article received. That would create all sorts of clickbait traffic incentives that might drive down longterm retention for subscribers.
Because of all these factors, it can be incredibly difficult for platforms to develop revenue share systems that are fair and produce the right incentives. There are all sorts of pitfalls that can both drive away creators and generate negative publicity for the platform.
Case in point: Newsbreak. For the uninitiated, it’s a news aggregation platform that’s mostly consumed via mobile app. For the most part, it links to outside news outlets, but about a year ago it launched a creator program with a noble cause: help fund local journalism. It basically pays reporters to upload their articles directly to its platform.
Digiday took an in-depth look at its progress thus far and found that creators were fairly mixed in how they felt about the program. One complaint pertains to how the company calculates the payouts:
In the fall of 2020, Newsbreak’s original content aspirations got off to a buzzy start among freelancers, thanks to an offer that few other platforms or outlets could top: Guaranteed minimum payments of $1,000 per month for those who qualified …
… That quickly changed. By the spring of 2021, Newsbreak wanted news from writers’ local communities instead, which it would rate using a ten-point scale, called a CV score, with higher-rated content getting surfaced more and its writers getting paid more. The CV score took several things into account, including how localized, differentiated and well-written the content was.
Before long, Newsbreak changed again, discarding the scoring system and asking for local features built using original reporting, which it would either accept or reject.
This is a common problem for these types of creator funds: they initially generate lots of positive buzz as individual creators start seeing substantial returns, but then those same creators suffer the whiplash that occurs once the incentives change and their pay takes a nose dive. As one reporter put it to Digiday, “What you get paid depends on what they want. Over the years, I’ve learned what the newspaper editors in my town want. But with Newsbreak, next month they might say, ‘We expect this [instead].’”
Another major problem was that Newsbreak’s system started incentivizing the kind of journalism that some experts consider corrosive. Digiday interviewed Chris Krewson, the executive director of LION Pubs, which represents local news publishers:
Among LION Pubs members, Krewson said, Newsbreak is a divisive topic of conversation. Because many LIONs are quite small, the amount of revenue that Newsbreak sends their way is significant.
But the kinds of stories Newsbreak’s algorithm favors gives Krewson, and his organization’s members, pause.
“I don’t love an algorithm that heavily weighs ‘if it bleeds, it leads’-type stories,” Krewson said, noting that some of his members have told him they’re considering investing in more local crime coverage, simply because Newsbreak’s algorithm tends to favor it.
Creators have detected those preferences too. Bebe Nicholson, who stopped writing for Newsbreak in September, said she noticed that true crime pieces she submitted to the platform performed much better than the kinds of stories that Newsbreak’s reps told her to produce, such as recaps of community board meetings.
To be clear, I’m not presenting this as a criticism of Newsbreak, but rather an illustration of how creator funds can sometimes become counterproductive to the outcomes they’re meant to produce. I love the fact that so many platforms are trying to make it easier for creators to build sustainable careers, but most are still struggling to design systems that are both fair and reward quality. It’s clear that producing the right incentives is an incredibly difficult problem to solve.
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Coming next week…
There’s this misconception about Substack that only opinion writers can thrive on its platform. According to this line of thinking, original reporting is too time intensive and would prevent a writer from publishing at a high enough frequency to succeed.
Judd Legum is one of the many Substack writers who are proving this theory wrong. His investigative journalism has had massive impact within both the corporate and political worlds, and he’s generated thousands of paying subscribers as a result. I interviewed Judd at length about his process, so look for that article to hit your inbox by Monday next week.