#Integrating Medium with Substack and Patreon

[mehmetyildizmelbourne-blog]

From Zero to Substack Hero Level 4 Intro on YouTube

Freelance Writing Business in 2025 and Beyond with Mastery and Beyond Dear freelance writers, As I introduced before, I am developing a comprehensive online training program for freelance writers specializing on Substack. I have already published two levels on Udemy and about to publish level 3 this weekend. It will be around 10 levels and 65 modules covering 2 exceptional books of Dr…

[stoweboyd]

Tumblr Futures and the Newsletter Revolution

Tumblr could be a platform for newsletter writers and other creators

Photo by Patrick Fore on Unsplash

I've been using Tumblr fairly consistently for many years, here at stoweboyd.com and on other blogs, like workfutures.org. I think I moved to Tumblr sometime in 2007, importing materials I had managed previously on Typepad and Blogger. At any rate, I now have over 14,000 posts here, and (supposedly) 163,000+ followers.

I am dug in.

In recent years, with the rise of the newsletter revolution, I have tried many newsletter platforms, including Patreon, Medium, Revue, and Substack. At the present time I am publishing the Work Futures newsletter on Substack.

Substack is certainly the best of the various platforms I have tried. I want to like Medium, but they keep shifting their approach and plans, and have not been very fast at implementing various improvements they've discussed (such as importing subscriber lists). Substack simply works at what it aims to do. However, Substack lacks a feeling of community of the sort that Medium and Tumblr have.

I can envision a version of Tumblr that would include newsletter support: subscriber registration, subscription fees, emailing, stats, and so on. Much of this could build on the Tumblr follower model, extended to include subscribers.

I have no idea whether the Tumblr folks are intending anything of this sort. But why not?

Tumblr was acquired by Automattic -- the folks behind WordPress -- in August 2019, and has been letting Tumblr be Tumblr, aside from continuing the ban on adult content that Verizon imposed. There is work afoot to move Tumblr onto a WordPress backend, but no grand strategy has been disclosed about Tumblr and newsletters.

Automattic acquired Atavist in 2018, with the goal of integrating Atavist publishing model, including newsletters, into the company's existing LongReads product. LongReads is a reader-supported project to fund long format writing, and the feel is something like Medium: subscribers pay $5 per month to supporth the site.

In recent days, Facebook, Twitter, and LinkedIn have announced plans to get into newsletters, Twitter by acquisition of Revue. I am a heavy user of Twitter, and see that the Revue deal could work for them.

What I really want is a souped-up, newsletter-supporting Tumblr, where I can get the social media community of Tumblr with the addition of a newsletter community something like Substack, all in one package.

I hope they are working on it.

I forgot that I had written about this idea two years ago. See A New Direction For Tumblr:

For a few months, I have been advocating a major addition for Tumblr, something that might offer a new path for the more-or-less stagnant property: add the functionality to allow Tumblr 'creators’ to make money on the site. This would mean

Subscriptions for access to material behind a paywall (this would mean integration with Stripe or some other money platform)

Newsletter tools that integrate with Tumblr existing publishing workflow

Creation (or acquisition) or podcasting and video capabilities

Possible Medium-like publishing schemes so that creators can get paid for popular content.

Advertising opportunities based on tags?

I also happened upon this post by Richard MacManus from Sep 2019, How blogs, newsletters & Tumblr can fight back against social media - Cybercultural, in which he makes a similar argument:

In my view, there’s potential to build a significant new form of networking with blogs, Tumblr and email newsletters, this time built around cultural content.

The current wave of email newsletters proves there is demand for thoughtful media content, while Tumblr shows that this content can include more multimedia than we typically see in email newsletters. Naturally, multimedia is best viewed on the Web - not in inboxes. So I’m hoping Automattic can find a way to direct readers back to the Web, with the help of its latest acquisition.

[worldiary]

I agree with @mens-rights-activia . There are big concerns about this product, but I actually think it's a worthwhile experiment. The concerns I see most often about this product are the following:

1. Fanfic is going to be a disaster. Tumblr seems to be either uninformed or unconcerned about the legal ramifications of folks putting fanfic behind a paywall.

I agree with this concern and Tumblr should figure it out. I'm sure with all the hububb (and their own legal team), they'll realize that if they're making a cut off of our subscriptions, they can't wash their hands of the issue. Plus, Disney is absolutely brutal. Many of these big companies are. They need to come up with clearer guidelines. And also perhaps consider what kind of monetization best suits fandom creators. If they can have guidelines so we can still support those folks safely, that would be great.

I know folks are concerned that it's going to take all of Tumblr down, but I'm less concerned of that because Redbubble has figured out a semi-happy medium where they aren't dead. Redbubble's approach isn't going to work for Tumblr, but it does give me hope that there is a happy medium somewhere.

I would also ask Tumblr @staff to consider something a little more like Brave's tipping system (or integrating with Brave's tipping system) where you can load the browser up with money and then based on how long you spent on different sites, it recommends who you might want to tip. Their lawyers can determine if that's just as risky as putting content behind a paywall. It's possible that the "posts+" concept is safer because you can clearly legally point to the fact that "Yes, I draw fan art, but everything behind my paywall is an OC". I don't know. That's for lawyers to determine. But if tipping is less risky from a fanfic perspective, then that might be a better fit for the style of content Tumblr tends to create.

2. There's so much broken with this site, you shouldn't trust them to run this and/or they need to fix other stuff before it's worth trying this.

I disagree. Predominantly because: (a) WordPress just took over and they have a whole plan to revamp the backend. I trust that that's in progress, and therefore (b) I have faith that a company can do multiple things at the same time. The team is 200 people. The infrastructure folks are not the same as the product folks (speaking from experience working in tech companies).

I can kinda see the trust thing when it comes to "hey if you're paying, you'll want a functioning experience". But I think the trust thing about "DON'T LET THEM HOLD YOUR MONEY" is overblown. They're using Stripe. They're not building fintech infrastructure. If you trust Stripe, then you're probably fine.

3. Tumblr's cut is too high, how dare they

This is a misunderstanding. Folks see the 30% cut on mobile (which a cut set by and going to Apple and Google) and think it's Tumblr's cut. But it's not. It's demanded by Apple and Google and there's nothing Tumblr can do about it. Except maybe decrease their cut from 5% to 2% on mobile, but that's not gonna do much for you. Just don't pay for anything through an app ever. In a lot of cases you're paying a surcharge because of Google and Apple. Check out the Epic v Apple lawsuit for more.

Furthermore, Patreon's cut is 8-12%, Substack is 10%. Tumblr's 5% is cheap by comparison. Some might say you're paying less because they have so many little things to work out.

4. How dare they try to monetize, we will go down with this ship!!! I hate the people who run this!!!

I know this has been a really deep rooted culture here. And it's fine and it's funny. But I think it's a little silly here because this is literally the best philosophical approach (NOT execution, per se) to monetization we could have asked for. Like oh...Tumblr wants to be a sustainable business by allowing creators to make money??? Instead of just ads where they're the only ones making money?? We're... we're upset about this? We're upset about the opportunity to support creators without having to go to YouTube or Twitter or something? Do you know how much cooler WordPress is compared to Google or Twitter?

(I've also noticed that folks don't know WordPress owns Tumblr now. Please read the "Julia Alexander: The Tumblr community has watched as executives from Yahoo and Verizon came in and tried to grow something that they really didn’t understand" section here to get a sense of them).

I can name writers that I enjoyed on Tumblr that left years ago because they had no way to further their career here. It was better for them to be on Twitter, etc. Allowing followers to pay for your work is actually a feature folks were asking for years ago.

Also, we talk a good game about wanting to be here when Tumblr dies. But I've seen the way we talk about Twitter. We'd lose our fucking minds if Tumblr actually had to shut down.

5. What about the porn???

First, I think it's important to update folks that the ones who got rid of the porn and the ones who own Tumblr now are completely different companies. It doesn't change anything practically, I think some people just don't know that.

I agree that this matters to folks. And Post+ doesn't solve for that issue. I recommend folks keep asking for it, and hopefully if it's important enough to enough people, Tumblr will jump through the infrastructure hoops to figure out how to allow it. If you want to read more of the Automattic CEO's thoughts on why porn is complicated, check out this interview. You want the "Nilay Patel: Obviously, Verizon decided that adult content was going away. You tweeted last night, “If people want big policy changes here, put pressure on the app stores of Apple and Google, no one else has any leverage.” What did you mean by that?" section and the one below.

Furthermore, allowing people to pay for NSFW content is even more complicated than serving it for free. Stripe is the one that labels "adult services" as a restricted business that cannot use their service. Even if Tumblr supported NSFW content well right now, Stripe wouldn't let them allow that on Post+.

If this is important to you, keep asking Tumblr about it. If they know it's worth it, maybe they'll figure something out. But just know that it's not going to happen in a day.

In conclusion, I think this is a worthwhile experiment. It has issues that need to be worked out. But it's a worthwhile experiment. It's also going to be a huge test of if WordPress can execute better than any of the previous Tumblr overlords. (Which is funny because I don't think the staff of actual Tumblr has changed that much, but it's still going to be seen as a test of WordPress' process). I know some of you disagree with me and I think that's great. That's what keeps Tumblr interesting: different view points. And your concerns are going to push staff to make the product the best it can be. Just remember to be constructive in your feedback.

If you got all the way here, here's a gold star: ⭐

Y’all, they aren’t saying the entire site will be monetized, just the people who choose to use the feature

but we could literally use this post plus thing to get porn back on the site among other things

also tumblr as a site is not generating money, I guarantee you this is a way to get revenue for the site which is much needed and could actually get more people hired to actually run the site better.

need I remind you, this site lost close to 1 billion in worth and it has billions of posts and millions of accounts so think about the sheer cost of running a site like this. Those laughable ads they’re running sure ain’t bringing much revenue either.

It’s not ideal, it’s an imperfect idea(legal issues with fanwork has to be sorted out) but realistically tumblr as a website, with its current model, will not be around for long unless it can find a way to sustainably make revenue and this is the model that a lot of sites are headed towards

No one wants this but I’d rather not be able to have access to certain posts than to lose the entire site

Just wanted to properly make a post because I don’t think people are fulling considering the “why”

[toomanysinks]

Patreon’s future and potential exits

Through the Extra Crunch EC-1 on Patreon, I dove into Patreon’s founding story, product roadmap, business model and metrics, underlying thesis, and competitive threats. The six-year-old company last valued around $450 million and likely to soon hit $1 billion is the leading platform for artists to run membership businesses for their superfans.

As a conclusion to my report, I have three core takeaways and some predictions on the possibility of an IPO or acquisition in the company’s future.

The future is bright for creators

First, the future is promising for independent content creators who are building engaged, passionate fanbases.

There is a surge of interest from the biggest social media platforms in creating more features to help them directly monetize their fans — with each trying to one-up the others. There are also a growing number of independent solutions for creators to use as well (Patreon and Memberful, Substack, Pico, etc.).

We live in an economy where a soaring number of people are self-employed, and the rise of more monetization tools for creators to earn a stable income will open the door to more people turning their creative talents into a part-time or full-time business pursuit.

Membership is a niche market and it’s unclear how big the opportunity is

Patreon’s play is to own a niche category of SMB who it recognizes has particular needs and provide them with the comprehensive suite of tools and services they need to manage their businesses. A large portion of creators’ incomes will need to go to Patreon for it to someday earn billions of dollars in annual revenue.

The market for content creators to build membership businesses appears to be growing, however, membership will be only one piece of the fan-to-creator monetization wave. The number of creators who are a fit for the membership business model and could generate $1,000-500,000 per month through Patreon (its target customer profile) is likely measured in the tens of thousands or low hundreds of thousands right now, rather than in the millions.

To get a sense of the revenue math here, Patreon will generate about $35 million this year from the 5,000-6,000 creators who fit its target customer profile; if you believe this market is expanding at a fast clip, capturing 10% of the revenue (Patreon’s current commission) from 20,000 such creators could bring in $140 million. And that’s without factoring in the potential success of Patreon implementing premium pricing options, which is a high priority. If Patreon can increase its commission from 10% to 15%, it would need around 47,500 creators in the $1,000-$500,000/month range (9.5x its current number) to reach $500 million in revenue from them.

There is a compelling opportunity for a company to provide the dominant business hub for creators, with tools to manage their fan (i.e. customer) relationships across platforms and to manage back-office logistics. At a certain point it taps out though.

That’s one of the reasons why Patreon’s vision includes extending into areas like business loans and healthcare. For companies targeting small and medium businesses like Shopify, Salesforce and Dropbox, there is so much more growth tied to their core products that there is no need for them to consider such unrelated offerings as business loans. Patreon has to both expand its market share and also expand the services it offers to those customers if it wants to reach massive scale.

Patreon faces serious competition but is evolving in the right direction

Patreon is the leading contender in this market, and there’s a role for an independent player even if Facebook, YouTube, and other distribution platforms push directly competing functionality. Patreon will need to make three important changes to compete effectively: more aggressively segment its customers, make the consumer-facing side of its platform more customizable by creators, and build out more lightweight talent management services.

What’s next for Patreon?

Having raised over $100 million in funding over the last six years, what is the path to a liquidity event for investors and employees? 

In a worst case scenario, it is unlikely the company would go out of business even if it fell into disarray because it would be strategic for several large companies to takeover at a discount. Patreon may be on the path to IPO (as CEO Jack Conte hopes), but I find it more likely that the company gets acquired sometime in the next couple years.

Path to IPO?

If a public offering is in Patreon’s future, it’s several years out. It now defines itself as a SaaS company and has a plan to earn a higher blended commission on the sales of its customers through premium pricing options. It is a frequently misunderstood company, however, and needs to prove that a big market exists for mid-tail creators building membership businesses. 

According to a summary by Spark Capital’s Alex Clayton, SaaS companies who went public in 2018 typically:

had $100-200 million in revenue over the prior twelve months,

were 14 years old,

had an average year-over-year revenue growth rate of ~40%,

earned 90% of revenue from subscriptions,

had a median gross margin of 73%,

ranged from roughly 500 to 2500 employees,

had a raised a median of $300 million in VC funding,

and IPO’d with a median market cap of $2 billion

Public market companies to benchmark it against will be Shopify (as SaaS infrastructure for small businesses selling to, and managing payments from, consumers) and Zuora (Patreon can be viewed as a media-specific SMB alternative to Zuora’s ���Subscription Relationship Management” system). Compared to Shopify, whose market of SMB e-commerce businesses globally is easily understood to be enormous, Patreon would face more skepticism from public investors about the market size of mid-tail content creators.

Patreon’s gross margins can’t be much more than 50% given that almost half of revenue is going toward payment processing. Patreon mirrors Shopify’s topline revenue growth in the run up to its 2015 IPO: Shopify reported $23.7 million for 2012, $50.3 million for 2013, $105 million for 2014 and I estimate Patreon brought in $15 million for 2017, $30 million for 2018, and will hit $55 million for 2019. Most of Shopify’s revenue came from subscriptions, however, with only 37% coming from the “merchant solutions” services where Shopify had to pay out payment processing fees. Patreon’s revenue net of payment processing fees is closer to $7.5 million for 2017, $15 million for 2018, and $27 million (predicted) for 2019.

There’s a lot of capital chasing late-stage startups right now. How long that remains the case is unknown, but Patreon can likely raise the funding to operate unprofitably a few more years — getting topline revenue closer to $150-200 million, proving creators will adopt premium pricing, and showcasing its ability to compete with Facebook and YouTube in a growing market. In that case, it could become a strong IPO candidate.

The acquisition route

The other scenario, of course, is that a larger company buys Patreon. In particular, one of the large social media platforms building directly competitive features may decide it is easier to buy their expansion into membership than build it from scratch. Patreon is the dominant platform without any noteworthy direct competitor among independent companies, so acquiring it would immediately put the parent company in a market-leading position. Competing social platforms wouldn’t have another large Patreon-like startup to acquire in response.

There are three companies that jump out as both the most likely acquirers. Each of these M&A scenarios would be mutually beneficial: advancing Patreon’s mission and providing strategic value to the parent. The first two companies are probably obvious, but the last one may be less known to TechCrunch readers.

Facebook

I highlighted Facebook as the top competitive threat to Patreon. This is also why it’s a natural acquirer. Patreon would bring fan relationship management to the Facebook ecosystem and particularly the company’s Creator App with CRM and analytics specifically fit for creators’ needs. It would also bring a stable of 130,000 creators of all types to make Facebook the primary infrastructure through which they engage their core fans.

Facebook is prioritizing human relationships more and clickbait content less. A natural replacement for the flood of news articles and viral videos is deeper engagement with the creators that Facebook users care the most about.

Since the annual churn rate of Patreon creators who earn $500 per month or more is under 1%, the ~9,200 creators who fit that category would likely stick around as Patreon’s infrastructure integrates with Facebook’s; the vast majority probably already have Facebook pages and possibly use the Creator App.

Facebook’s data on who fans are, what they like, and who their friends are is unrivalled. The insights Facebook could provide Patreon’s creators on their fans could help them substantially grow their number of patrons and build stronger relationships with them.

Like all major social media platforms, Facebook has partnership teams vying to get major celebrities to use its products. Patreon could lock the mid-tail of smaller (but still established) creators into its ecosystem, which means more consumer engagement, more time well spent, and more revenue through both ads and fan-to-creator transactions. Owning and integrating Patreon could have a much bigger financial benefit than solely revenue from the core Patreon product.

As a Facebook subsidiary, Patreon would stick more closely to being a software solution; it wouldn’t develop as robust of a creator support staff and the vision that it may expand to offer business loans and health insurance to creators would almost surely be cut. Facebook would also probably discontinue supporting the roughly 23% of Patreon creators who make not-safe-for-work (NSFW) content.

Given Patreon’s mission to help creators get paid, it may make a bigger impact as part of Facebook nonetheless. Facebook’s ecosystem of apps is where creators and their fans already are. Tens of thousands of creators could start using Patreon’s CRM infrastructure overnight and activating fan memberships to earn stable income.

A Facebook-Patreon deal could happen at any point. I think a deal could just as likely happen in a few months as in a few years. The key will be Facebook’s business strategy: does it want to build serious infrastructure for creators? And does it believe paywalled access to some content and groups fits the future of Facebook? The company is experimenting with both of those right now, but doesn’t appear to be committed as of yet.

YouTube

The other most likely acquirer is Google-owned YouTube. Patreon was birthed by a YouTuber to support himself and fellow creators after their AdSense income dropped substantially. YouTube is becoming a direct competitor through YouTube Memberships and merchandise integrations.

If Patreon shows initial success in getting creators to adopt premium pricing tiers and YouTube sees a strong response to the membership functionality it has rolled out, it’s hard to imagine YouTube not making a play to acquire Patreon and make membership a priority in product development. This would create a whole new market for it to dominate, making money by selling business features to creators and encouraging fan-to-creator payments to happen through its platform.

In the meantime, it seems that YouTube is still searching for an answer to whether membership fits within its scope. It previously removed the ability for creators to paywall some videos and it could view fan-to-creator monetization efforts as a distraction from its dominance as an advertising platform and its growing strength in streaming TV online (through the popular $40/month YouTube TV subscription).

YouTube is also a less compelling acquirer than Facebook because the majority of Patreon’s creators don’t have a place on YouTube since they don’t produce video content (as least as their primary content type). Unless YouTube expands its platform to support podcasts and still images as well, it would be paying a premium to acquire the subset of Patreon creators that it wants. Moreover, as much as a quarter of those may be creators of NSFW content that YouTube prohibits.

YouTube is the potential Patreon acquirer people immediately point to, but it’s not as tight of a fit as Facebook would be…or as Endeavor would be.

Endeavor

The third scenario is that a major company in the entertainment and talent representation sphere sees acquiring Patreon as a strategic play to expand into a whole new category of talent representation with a technology-first approach.  There is only one contender here: Endeavor, the $6.3 billion holding company led by Ari Emanuel and Patrick Whitesell that is backed by Silver Lake, Softbank, Fidelity, and Singapore’s GIC and has been on an acquisition spree.

This pairing shows promise. Facebook and YouTube are the most likely companies to acquire Patreon, but Endeavor may be the company best fit to acquire it.

Endeavor is an ecosystem of companies — with the world’s top talent agency WME-IMG at the center — that can each integrate with each other in different ways to collectively become a driving force in global entertainment, sports and fashion. Among the 25+ companies it has bought are sports leagues like the UFC (for $4 billion) and the video streaming infrastructure startup NeuLion (for $250 million). In September, it launched a division, Endeavor Audio, to develop, finance and market podcasts.

Endeavor wants to leverage its talent and evolve its revenue model toward scalable businesses. In 2015, Emanuel said revenue was 60% from representation and 40% from “the ownership of assets” but quickly shifting; last year Variety noted the revenue split as 50/50.

In alignment with Patreon, Endeavor is a big company centered on guiding the business activities of all types of artists and helping them build out (and maximize) new revenue streams. When you hear Emanuel and Whitesell, they reiterate the same talking points that Patreon CEO Jack Conte does: artists are now multifaceted, and not stuck to one activity. They are building their own businesses and don’t want to be beholden to distribution platforms. Patreon could thrive under Endeavor given their alignment of values and mission. Endeavor would want Patreon to grow in line with Conte’s vision, without fearing that it would cannibalize ad revenue (a concern Facebook and YouTube would both have).

In a June interview, Whitesell noted that Endeavor’s M&A is targeted at companies that either expand their existing businesses or ones where they can uniquely leverage their existing businesses to grow much faster than they otherwise could. Patreon fits both conditions.

Patreon would be the scalable asset that plugs the mid-tail of creators into the Endeavor ecosystem. Whereas WME-IMG is high-touch relationship management with a little bit of tech, Patreon is a tech company with a layer of talent relationship management. Patreon can serve tens of thousands of money-making creators at scale. Endeavor can bring its talent expertise to help Patreon provide better service to creators; Patreon would bring technology expertise to help Endeavor’s traditional talent representation businesses better analyze clients’ fanbases and build direct fan-to-creator revenue streams for clients.

If there’s opportunity to eventually expand the membership business model among the top tiers of creators using Patreon.com or Memberful (which Conte hinted at in our interviews), Endeavor could facilitate the initial experiments with major VIPs. If memberships are shown to make more money for top artists, that means more money in the pockets of their agents at WME-IMG and for Endeavor overall, so incentives are aligned.

Endeavor would also rid Patreon of the “starving artist” brand that still accompanies it and could open a lot of doors in for Patreon creators whose careers are gaining momentum. Perhaps other Endeavor companies could access Patreon data to identify specific creators fit for other opportunities.

An Endeavor-Patreon deal would need to occur before Patreon’s valuation gets too high. Endeavor doesn’t have tens of billions in cash sitting on its balance sheet like Google and Facebook do. Endeavor can’t use much debt to buy Patreon either: its leverage ratio is already high, resulting in Moody’s putting its credit rating under review for downgrade in December. Endeavor has repeatedly raised more equity funding though and is likely to do so again; it canceled a $400M investment from the Saudi government at the last minute in October due to political concerns but is likely pitching other investors to take its place.

Patreon has strong revenue growth and the opportunity to retain dominant market share in providing business infrastructure for creators — a market that seems to be growing. Whether it stays independent and can thrive in the public markets sometime or whether it will find more success under the umbrella of a strategic acquirer remains to be seen. Right now the latter path is the more compelling one.

source https://techcrunch.com/2019/02/23/patreons-future-and-potential-exits/

[fmservers]

Patreon’s future and potential exits

Through the Extra Crunch EC-1 on Patreon, I dove into Patreon’s founding story, product roadmap, business model and metrics, underlying thesis, and competitive threats. The six-year-old company last valued around $450 million and likely to soon hit $1 billion is the leading platform for artists to run membership businesses for their superfans.

As a conclusion to my report, I have three core takeaways and some predictions on the possibility of an IPO or acquisition in the company’s future.

The future is bright for creators

First, the future is promising for independent content creators who are building engaged, passionate fanbases.

There is a surge of interest from the biggest social media platforms in creating more features to help them directly monetize their fans — with each trying to one-up the others. There are also a growing number of independent solutions for creators to use as well (Patreon and Memberful, Substack, Pico, etc.).

We live in an economy where a soaring number of people are self-employed, and the rise of more monetization tools for creators to earn a stable income will open the door to more people turning their creative talents into a part-time or full-time business pursuit.

Membership is a niche market and it’s unclear how big the opportunity is

Patreon’s play is to own a niche category of SMB who it recognizes has particular needs and provide them with the comprehensive suite of tools and services they need to manage their businesses. A large portion of creators’ incomes will need to go to Patreon for it to someday earn billions of dollars in annual revenue.

The market for content creators to build membership businesses appears to be growing, however, membership will be only one piece of the fan-to-creator monetization wave. The number of creators who are a fit for the membership business model and could generate $1,000-500,000 per month through Patreon (its target customer profile) is likely measured in the tens of thousands or low hundreds of thousands right now, rather than in the millions.

To get a sense of the revenue math here, Patreon will generate about $35 million this year from the 5,000-6,000 creators who fit its target customer profile; if you believe this market is expanding at a fast clip, capturing 10% of the revenue (Patreon’s current commission) from 20,000 such creators could bring in $140 million. And that’s without factoring in the potential success of Patreon implementing premium pricing options, which is a high priority. If Patreon can increase its commission from 10% to 15%, it would need around 47,500 creators in the $1,000-$500,000/month range (9.5x its current number) to reach $500 million in revenue from them.

There is a compelling opportunity for a company to provide the dominant business hub for creators, with tools to manage their fan (i.e. customer) relationships across platforms and to manage back-office logistics. At a certain point it taps out though.

That’s one of the reasons why Patreon’s vision includes extending into areas like business loans and healthcare. For companies targeting small and medium businesses like Shopify, Salesforce and Dropbox, there is so much more growth tied to their core products that there is no need for them to consider such unrelated offerings as business loans. Patreon has to both expand its market share and also expand the services it offers to those customers if it wants to reach massive scale.

Patreon faces serious competition but is evolving in the right direction

Patreon is the leading contender in this market, and there’s a role for an independent player even if Facebook, YouTube, and other distribution platforms push directly competing functionality. Patreon will need to make three important changes to compete effectively: more aggressively segment its customers, make the consumer-facing side of its platform more customizable by creators, and build out more lightweight talent management services.

What’s next for Patreon?

Having raised over $100 million in funding over the last six years, what is the path to a liquidity event for investors and employees? 

In a worst case scenario, it is unlikely the company would go out of business even if it fell into disarray because it would be strategic for several large companies to takeover at a discount. Patreon may be on the path to IPO (as CEO Jack Conte hopes), but I find it more likely that the company gets acquired sometime in the next couple years.

Path to IPO?

If a public offering is in Patreon’s future, it’s several years out. It now defines itself as a SaaS company and has a plan to earn a higher blended commission on the sales of its customers through premium pricing options. It is a frequently misunderstood company, however, and needs to prove that a big market exists for mid-tail creators building membership businesses. 

According to a summary by Spark Capital’s Alex Clayton, SaaS companies who went public in 2018 typically:

had $100-200 million in revenue over the prior twelve months,

were 14 years old,

had an average year-over-year revenue growth rate of ~40%,

earned 90% of revenue from subscriptions,

had a median gross margin of 73%,

ranged from roughly 500 to 2500 employees,

had a raised a median of $300 million in VC funding,

and IPO’d with a median market cap of $2 billion

Public market companies to benchmark it against will be Shopify (as SaaS infrastructure for small businesses selling to, and managing payments from, consumers) and Zuora (Patreon can be viewed as a media-specific SMB alternative to Zuora’s “Subscription Relationship Management” system). Compared to Shopify, whose market of SMB e-commerce businesses globally is easily understood to be enormous, Patreon would face more skepticism from public investors about the market size of mid-tail content creators.

Patreon’s gross margins can’t be much more than 50% given that almost half of revenue is going toward payment processing. Patreon mirrors Shopify’s topline revenue growth in the run up to its 2015 IPO: Shopify reported $23.7 million for 2012, $50.3 million for 2013, $105 million for 2014 and I estimate Patreon brought in $15 million for 2017, $30 million for 2018, and will hit $55 million for 2019. Most of Shopify’s revenue came from subscriptions, however, with only 37% coming from the “merchant solutions” services where Shopify had to pay out payment processing fees. Patreon’s revenue net of payment processing fees is closer to $7.5 million for 2017, $15 million for 2018, and $27 million (predicted) for 2019.

There’s a lot of capital chasing late-stage startups right now. How long that remains the case is unknown, but Patreon can likely raise the funding to operate unprofitably a few more years — getting topline revenue closer to $150-200 million, proving creators will adopt premium pricing, and showcasing its ability to compete with Facebook and YouTube in a growing market. In that case, it could become a strong IPO candidate.

The acquisition route

The other scenario, of course, is that a larger company buys Patreon. In particular, one of the large social media platforms building directly competitive features may decide it is easier to buy their expansion into membership than build it from scratch. Patreon is the dominant platform without any noteworthy direct competitor among independent companies, so acquiring it would immediately put the parent company in a market-leading position. Competing social platforms wouldn’t have another large Patreon-like startup to acquire in response.

There are three companies that jump out as both the most likely acquirers. Each of these M&A scenarios would be mutually beneficial: advancing Patreon’s mission and providing strategic value to the parent. The first two companies are probably obvious, but the last one may be less known to TechCrunch readers.

Facebook

I highlighted Facebook as the top competitive threat to Patreon. This is also why it’s a natural acquirer. Patreon would bring fan relationship management to the Facebook ecosystem and particularly the company’s Creator App with CRM and analytics specifically fit for creators’ needs. It would also bring a stable of 130,000 creators of all types to make Facebook the primary infrastructure through which they engage their core fans.

Facebook is prioritizing human relationships more and clickbait content less. A natural replacement for the flood of news articles and viral videos is deeper engagement with the creators that Facebook users care the most about.

Since the annual churn rate of Patreon creators who earn $500 per month or more is under 1%, the ~9,200 creators who fit that category would likely stick around as Patreon’s infrastructure integrates with Facebook’s; the vast majority probably already have Facebook pages and possibly use the Creator App.

Facebook’s data on who fans are, what they like, and who their friends are is unrivalled. The insights Facebook could provide Patreon’s creators on their fans could help them substantially grow their number of patrons and build stronger relationships with them.

Like all major social media platforms, Facebook has partnership teams vying to get major celebrities to use its products. Patreon could lock the mid-tail of smaller (but still established) creators into its ecosystem, which means more consumer engagement, more time well spent, and more revenue through both ads and fan-to-creator transactions. Owning and integrating Patreon could have a much bigger financial benefit than solely revenue from the core Patreon product.

As a Facebook subsidiary, Patreon would stick more closely to being a software solution; it wouldn’t develop as robust of a creator support staff and the vision that it may expand to offer business loans and health insurance to creators would almost surely be cut. Facebook would also probably discontinue supporting the roughly 23% of Patreon creators who make not-safe-for-work (NSFW) content.

Given Patreon’s mission to help creators get paid, it may make a bigger impact as part of Facebook nonetheless. Facebook’s ecosystem of apps is where creators and their fans already are. Tens of thousands of creators could start using Patreon’s CRM infrastructure overnight and activating fan memberships to earn stable income.

A Facebook-Patreon deal could happen at any point. I think a deal could just as likely happen in a few months as in a few years. The key will be Facebook’s business strategy: does it want to build serious infrastructure for creators? And does it believe paywalled access to some content and groups fits the future of Facebook? The company is experimenting with both of those right now, but doesn’t appear to be committed as of yet.

YouTube

The other most likely acquirer is Google-owned YouTube. Patreon was birthed by a YouTuber to support himself and fellow creators after their AdSense income dropped substantially. YouTube is becoming a direct competitor through YouTube Memberships and merchandise integrations.

If Patreon shows initial success in getting creators to adopt premium pricing tiers and YouTube sees a strong response to the membership functionality it has rolled out, it’s hard to imagine YouTube not making a play to acquire Patreon and make membership a priority in product development. This would create a whole new market for it to dominate, making money by selling business features to creators and encouraging fan-to-creator payments to happen through its platform.

In the meantime, it seems that YouTube is still searching for an answer to whether membership fits within its scope. It previously removed the ability for creators to paywall some videos and it could view fan-to-creator monetization efforts as a distraction from its dominance as an advertising platform and its growing strength in streaming TV online (through the popular $40/month YouTube TV subscription).

YouTube is also a less compelling acquirer than Facebook because the majority of Patreon’s creators don’t have a place on YouTube since they don’t produce video content (as least as their primary content type). Unless YouTube expands its platform to support podcasts and still images as well, it would be paying a premium to acquire the subset of Patreon creators that it wants. Moreover, as much as a quarter of those may be creators of NSFW content that YouTube prohibits.

YouTube is the potential Patreon acquirer people immediately point to, but it’s not as tight of a fit as Facebook would be…or as Endeavor would be.

Endeavor

The third scenario is that a major company in the entertainment and talent representation sphere sees acquiring Patreon as a strategic play to expand into a whole new category of talent representation with a technology-first approach.  There is only one contender here: Endeavor, the $6.3 billion holding company led by Ari Emanuel and Patrick Whitesell that is backed by Silver Lake, Softbank, Fidelity, and Singapore’s GIC and has been on an acquisition spree.

This pairing shows promise. Facebook and YouTube are the most likely companies to acquire Patreon, but Endeavor may be the company best fit to acquire it.

Endeavor is an ecosystem of companies — with the world’s top talent agency WME-IMG at the center — that can each integrate with each other in different ways to collectively become a driving force in global entertainment, sports and fashion. Among the 25+ companies it has bought are sports leagues like the UFC (for $4 billion) and the video streaming infrastructure startup NeuLion (for $250 million). In September, it launched a division, Endeavor Audio, to develop, finance and market podcasts.

Endeavor wants to leverage its talent and evolve its revenue model toward scalable businesses. In 2015, Emanuel said revenue was 60% from representation and 40% from “the ownership of assets” but quickly shifting; last year Variety noted the revenue split as 50/50.

In alignment with Patreon, Endeavor is a big company centered on guiding the business activities of all types of artists and helping them build out (and maximize) new revenue streams. When you hear Emanuel and Whitesell, they reiterate the same talking points that Patreon CEO Jack Conte does: artists are now multifaceted, and not stuck to one activity. They are building their own businesses and don’t want to be beholden to distribution platforms. Patreon could thrive under Endeavor given their alignment of values and mission. Endeavor would want Patreon to grow in line with Conte’s vision, without fearing that it would cannibalize ad revenue (a concern Facebook and YouTube would both have).

In a June interview, Whitesell noted that Endeavor’s M&A is targeted at companies that either expand their existing businesses or ones where they can uniquely leverage their existing businesses to grow much faster than they otherwise could. Patreon fits both conditions.

Patreon would be the scalable asset that plugs the mid-tail of creators into the Endeavor ecosystem. Whereas WME-IMG is high-touch relationship management with a little bit of tech, Patreon is a tech company with a layer of talent relationship management. Patreon can serve tens of thousands of money-making creators at scale. Endeavor can bring its talent expertise to help Patreon provide better service to creators; Patreon would bring technology expertise to help Endeavor’s traditional talent representation businesses better analyze clients’ fanbases and build direct fan-to-creator revenue streams for clients.

If there’s opportunity to eventually expand the membership business model among the top tiers of creators using Patreon.com or Memberful (which Conte hinted at in our interviews), Endeavor could facilitate the initial experiments with major VIPs. If memberships are shown to make more money for top artists, that means more money in the pockets of their agents at WME-IMG and for Endeavor overall, so incentives are aligned.

Endeavor would also rid Patreon of the “starving artist” brand that still accompanies it and could open a lot of doors in for Patreon creators whose careers are gaining momentum. Perhaps other Endeavor companies could access Patreon data to identify specific creators fit for other opportunities.

An Endeavor-Patreon deal would need to occur before Patreon’s valuation gets too high. Endeavor doesn’t have tens of billions in cash sitting on its balance sheet like Google and Facebook do. Endeavor can’t use much debt to buy Patreon either: its leverage ratio is already high, resulting in Moody’s putting its credit rating under review for downgrade in December. Endeavor has repeatedly raised more equity funding though and is likely to do so again; it canceled a $400M investment from the Saudi government at the last minute in October due to political concerns but is likely pitching other investors to take its place.

Patreon has strong revenue growth and the opportunity to retain dominant market share in providing business infrastructure for creators — a market that seems to be growing. Whether it stays independent and can thrive in the public markets sometime or whether it will find more success under the umbrella of a strategic acquirer remains to be seen. Right now the latter path is the more compelling one.

Via Eric Peckham https://techcrunch.com

[mehmetyildizmelbourne-blog]

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