Why Patreon is struggling
Patreon’s “valuation has decreased substantially — by 70% — over the past year."
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Why Patreon is struggling
Patreon’s origin story has been retold so many times that’s it’s now fabled in Silicon Valley startup circles: the musician Jack Conte was fed up with the paltry advertising payouts from YouTube’s partner program, and so he approached his Stanford roommate Sam Yam with an idea for a platform that made it easy for creators to operate paid monthly memberships. Yam built a prototype for the site, and when Conte promoted it at the end of a newly-launched music video, thousands of his fans signed up to support him financially.
After witnessing Conte’s success, other creators started launching their own pages on Patreon. The company used this momentum to raise hundreds of millions of dollars in venture capital, and it then built out an entire suite of services that are today leveraged by millions of creators who have collectively generated $3.5 billion on the platform.
Conte can be considered a true visionary for predicting the rise of the Creator Economy, but I also think he’s developed his own blind spots for where the market is heading. Last month, the company laid off 17% of its staff, including members of its creator partnerships team. And then this week Business Insider published a leaked memo stating that Patreon’s “valuation has decreased substantially — by 70% — over the past year."
Its SVP of finance attributed this decline mostly to the economic downturn that’s affected many tech companies, but it’s also a clear sign that Patreon is facing stiff competition, both from a rising crop of Creator Economy startups and also the major social platforms that once fueled its growth.
This competition has exposed a number of key weaknesses in the platform’s core offerings. Let’s run through them:
You can’t build a sales funnel on Patreon
It’s rare that someone will convert into a paid subscriber for a creator without sampling their content first; in fact, it usually requires months of free newsletters, podcasts, or videos before that person even thinks about making the jump to a paid membership.
And yet a creator’s ability to distribute free content via Patreon is limited. You can technically “follow” an account, which makes posts appear in their Patreon feeds, but you currently can’t send newsletters to non-paying audience members. Podcasters can’t host their free podcasts on the platform either, at least in a way in which non-paying users can access them on their podcast player of choice.
Other Patreon competitors allow you to build a sales funnel on their own platform. Substack, for instance, not only distributes content to free subscribers via email, but it also hosts free podcasts. This simplifies the sales process tremendously. Patreon creators, on the other hand, are forced to build their audiences on other platforms and then drive them over to Patreon. That’s a lot of extra friction.
It doesn’t help its creators find new audiences
For several years, Patreon’s biggest selling point was that it was content agnostic. Unlike social behemoths like Facebook and YouTube, it didn’t have content sorting algorithms that could take away your audience in the blink of an eye. Creators liked this aspect because it helped guard their businesses from platform interference.
This pitch was great when Patreon was the only major membership platform out there, but now it’s competing with companies that offer both memberships and audience building. A few weeks ago, I wrote about Substack’s recommendations tool, which has introduced network effects to its platform and helped its creators grow more quickly. Nearly every major social platform — from YouTube to Instagram to Apple to Spotify — has launched its own internal subscription product, and many creators are opting to run their subscriptions through these platforms, even if it exposes them to more long term risk.
While researching this article, I asked several Patreon creators whether they thought the platform helps them grow their audience. Here’s what an Instagram influencer who goes by Aló Miami had to say:
All my growth depends on my promoting my Patreon channel to my IG audience … It's really difficult to get people interested at all without further explanation. Also, Patreon is not easy to navigate for newer users. We have +400 posts (video and podcast) and, unless I promote the old content in my social media, not even the new users get to see those posts. It's frustrating.
And here’s Bob Cesca, who monetizes his eponymous podcast through Patreon:
Patreon has many events, discussions, and gatherings for creators that appear to be helpful, though I don't really participate. I'm not aware of any direct Patreon promotions of my page. New creators should count on promoting their page themselves via social, etc.
Patreon lacks basic tools for distributing and analyzing content
Paid subscription models are an optimization game. You’re constantly looking at data and tweaking your strategy based on how the content performs. The most sophisticated subscription publishers mine this data at a pretty granular level; some even employ machine learning to optimize their paywalls.
But the Patreon creators I spoke to said the platform offers paltry analytics. While you’re allowed to send newsletters to paying members, you don’t get any metrics on open or click-through rates. The same can be said for the premium podcasts distributed via personalized RSS feeds. Instead, Patreon offers a vague “views” stat on posts.
Here’s Aló Miami again:
Not only we don't receive results on views/downloads/CTR, etc.... The insights page gives us some information that is clearly not accurate (like I'm seeing now how many "views" my latest podcast has and I see "9 views" when I have almost 900 patrons and obviously way more people have already seen that post already. It has more comments than views...)
There’s so much competition in the creator monetization space now
I mentioned this already above, but there are now many competitors in the content subscription space. Not only have all the major social platforms launched subscription functionality, but there are dozens of startups that specialize in locking digital content behind some sort of paywall.
Luckily, Patreon has three advantages over many of these other companies:
A huge head start
A lot of collective goodwill within the creator community
Conte and his team have built a great product, and they still reportedly have a huge VC war chest saved up. If Patreon wants to usher in the next era of the Creator Economy, then it needs to give creators a reason to choose it over its competitors. It can’t just be a paid membership platform anymore; it’s time to up its game on content optimization and discovery.
What do you think?
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Let's talk about building your podcast audience
Let’s face it: podcast discovery is hard. There aren’t many network effects built into the medium, and listeners have to fire up a designated podcast app just to consume your content. The industry largely depends on old-fashioned word-of-mouth to grow an audience.
I’m hosting a live Zoom call on Thursday where we’ll talk about how successful podcast companies market their shows, both to already-existing podcast listeners and people new to the medium.
You can find the login info over here.
Uber is on track to generate $1 billion in advertising revenue by 2024. Further proof that every business eventually becomes an advertising business. [Insider]
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"Can the Times become something like the online liberal elite’s answer to an old cable bundle like Comcast — not just a news site with some extras?" [Semafor]
"Event partnerships now represent 35% of Forbes’ total advertising revenue. The publisher is on pace to host more than 80 events this year, split almost evenly between editorial tentpoles and custom activations for clients." [Adweek]
Uncovered is building the largest community for true crime enthusiasts
You’ve probably noticed that true crime is having a bit of a moment right now. Podcasts dedicated to the genre dominate the charts, and every week there’s a new hit series on one of the major TV streaming services.
Jim Brown approached true crime from a different direction. Rather than launching a show, he used his tech and product skills to build a database of cold cases. Think of it as a kind of Wikipedia for unsolved crimes.
He then created ways for users to submit updates and participate in the discussion around these cases. The site, which is called Uncovered, now attracts tens of thousands of monthly visitors and recently played a key role in solving a cold case.
I spoke to Jim about building the site, how it attracted its initial visitors, and its monetization strategies.
To listen to this conversation, subscribe to The Business of Content wherever you get your podcasts. iTunes/ Stitcher/ Overcast/ Spotify/ Google/ YouTube/ Audible
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Hey Simon, great analysis here. I completely agree with your assessment of Patreon's shortcomings vs Substack and other platforms. However, keep in mind that the overall market sentiment may also be responsible for much of the decline in value. Shopify has lost 80% of it's value in the past year, despite being the market leader.
You forgot to mention that Patreon lost a lot of business (including mine) by giving up on free speech. For example, on 7/6/21 they emailed me: "We are writing to let you know that your account is currently suspended because it violates our Community Guidelines." They didn't say which guidelines or how I had violated them. I responded:
"I don’t believe I have violated any community guidelines. But after reviewing them, I noticed the new guideline on 'medical misinformation.' That policy, which presumably relates to COVID, didn’t exist when I started posting on Patreon. Since my show is primarily a platform for hearing 'the other side of the story' on all of the most important public policy issues, I have featured a couple of scientists and doctors, like internationally-acclaimed peer-reviewed biowar expert Meryl Nass MD and anti-aging scientist Josh Mitteldorf, who disagree with some of the CDC and WHO policies. So I assume that must be the problem.
"Please note that I have also interviewed experts who support CDC and WHO policies, like historian Eric Zuesse and science professor Gideon Polya. I think my overall coverage of COVID issues is 'fair and balanced' given that the whole purpose of my show is to critique mainstream perspectives from the most defensible and interesting angles.
"I would appreciate it if someone at Patreon could help me figure out what I need to do to remain in compliance. "
Patreon's response was to permanently cancel me without further explanation, which earned them intense ill-will from me and my audience. The same thing happened to many other creators. So by pissing off very large numbers of people, they didn't do their business any favors.