How Substack is Changing the Game for Writers The Rise of the Newsletter Economy

At the end of March, the Substack service, which allows you to create content mailings. And which was called “OnlyFans for journalists”, invited the authors of the platform to become investors in a startup. To do this, the platform announced a collection of $2 million on the Wefunder crowdfunding platform, and later increased the amount to $5 million. At the time of publication, about 6,500 investors announced their readiness to invest more than $7.5 million. One of the investors was Bill Bishop, an expert on US-China relations and the first author of Substack. Who began to work on a paid subscription model – he will invest $ 25,000. Previously, Bishop has already invested $ 100,000 in the platform.

The Substack Funding Saga: Navigating Startup Investment in a Bear Market

The minimum investment threshold is $100, but if Substack receives more funding than it can handle. It will favor creators who charge for their content, as well as paid subscribers. “We want to be clear that just because you have the option to invest in Substack doesn’t mean you should. Investing is risky, especially when it comes to investing in startups that have a habit of dying, changing direction, or simply not making enough money. Substack is only five years old and we are still proving that there is a large market for subscription content. If you do not have extra money, do not spend it, ”the announcement of the collection says.

In 2023, Substack tried to attract investments, but abandoned these plans due to a difficult market situation, writes Axios. With an economic downturn that has made it harder to get private funding, more companies are looking into public funding rounds. At the same time, TechCruch admits that Substack will be able to develop normally without venture capital investment.

The Substack Revolution: How a Newsletter Platform is Disrupting the Media Landscape

Substack positions itself as an alternative to well-known media outlets and claims. That its model provides creators with a fairer share of the income from their work. The company takes 10% of the total income that authors receive from subscribers to their newsletters. Another 4% goes to Stripe, Substack’s payment processor. This year, Substack reported that the creators of the platform received more than $300 million from their subscribers. Make Money on Commission Trading

The company also reported active subscriptions, estimating their number at more than 35 million, 2 million of which are paid. Substack estimates that it earns more than 17,000 creators. And the top 10 channels on Substack collectively earn more than $25 million a year. Among the authors who publish on Substack, for example, popular writersMargaret Atwood and Chuck Palahniuk , singer and poet Patti Smith. Co-founder of the Andreessen Horowitz venture capital fund (the main investor in Substack) Mark Andreessen. And the founder of the collapsed FTX crypto exchange Sam Bankman-Fried .

In 2022, Substack greatly expanded the functionality of the platform, adding support for podcasts , videos , and chat. Where creators can interact with their subscribers. In addition, the startup launched an app and introduced recommendations. A feature that allows creators to recommend each other to their subscribers. But it all started with the most simple tools.

On the threshold of the media revolution

In July 2017, the founders of Substack wrote that the business model where the media generated revenue from advertising ushered in the golden age of mass media But those days are almost over. Now almost all advertising revenue goes to Google and Facebook and the media business is in crisis. The great journalistic totems of the last century are dying, say the founders of Substack. The media are forced to use increasingly desperate measures to survive, and journalistic content has lost much of its value in the eyes of readers.

According to the creators of the platform, content farms, clickbait headlines and an epidemic of fake news have become a sign of the times. “But in every crisis there is an opportunity. We believe that journalistic content has value and should not be given away for free. We think what you read matters. And we believe that now is the right time to uphold and defend these ideals. We are so convinced of this that we created a company to accelerate the onset of a new golden age of publishing. The story of Substack began with such ambitious statements.

The advantages of the subscription model, according to the creators of the platform, are that in the era of the Internet and information glut. It is very valuable to select content so as not to drown in informational noise. The founders called their mission to help create media that earns on subscription. Among the potential authors of Substack, they named both professional writers and journalists. And representatives of other professions – insurance agents, salesmen, scientists, insisting that anyone can start their own small publication on their platform.

Substack: Media Revolution or Reputation Risk? The Platform’s Democratizing Effect Comes Under Scrutiny

The founders called the transition to such a model the democratization of the industry, which can lead to its growth, comparing the situation in the media with how the taxi market developed before and after the advent of aggregators. “We are on the threshold of a new revolution in the media business. The time to mourn the loss of the old media model is over.urged the founders of the platform.

In terms of its diversity, Substack is reminiscent of the blogosphere: professional journalists, bloggers, writers. And specialists in various fields who want to develop a personal brand or are looking for additional tools for earning are published on the platform. The most successful Substack mailing lists are almost always written by people who have already gained an audience in traditional publications or social networks, wrote The New Yorker author Anna Viner in 2020.

She doubts people really want to live in a world where platforms like Substack compete with traditional media. Wiener emphasizes that in the media, any article is the result of cooperation between authors, editors, fact checkers and other specialists. On the Substack platform, among other things, material was postedjournalist Seymour Hersh about blowing up Nord Stream. Hersh was reproached for basing his article on the words of one source, which is considered incorrect in the traditional media that monitor their reputation.

Attracting investments

Substack received the first external investment that became known in January 2018 through the Y Combinator accelerator. In April of the same year, the company raised $2 million in a seed round, and in mid-2019, during a round A, the platform received $15.3 million from a group of investors led by venture capital fund Andreessen Horowitz (invested in Facebook, Twitter and Clubhouse. In March 2021, the startup continued to increase funding and attractedalready $ 65 million, round B was headed by the same Andreessen Horowitz.

After that, the company’s valuation reached $650 million. “Now it is clear that the Substack model, based on a subscription, and not on advertising, works. Writers get the independence they need in order to work better, and readers get texts created for them, and not for an economy based on interaction algorithms,” Hamish McKenzie, one of the founders of the platform, wrote at the time. Technically announced in 2023, the contributor fundraiser is a continuation of the 2021 Round B.

Many media outlets wrote about the increased popularity of Substack at that time – Axios , The New York Times , Bloomberg . During the pandemic, the platform experienced a real boom along with other sites that provided content creators with the opportunity to receive money directly from subscribers. Among them are  Medium , Patreon , Pico , Ghost . Facebook also had its own similar platform for authors of texts and podcasts , but this year the Bulletin project was closed .

Substack’s Funding Struggles: Navigating the Venture Capital Chill as a Media Startu

The same fate befell the Revue service in January 2023 , which was bought by Twitter in 2021. Mackenzie scathingly welcomed the new projects of the tech giants when they were announced, but later corrected the tone, adding that in fact more such projects would be useful for the development of a new media ecosystem. At the end of 2021, Substack reported to investors about $9 million in revenue, and in May 2022, it held talks with potential investors to raise from $75 to $100 million. During the discussions, it was estimated at $750 to $1 billion, much higher than that estimate , about which its financial results speak, wrote the New York Times. As a result, Substack decided to postponeround C.

The New York Times explained this decision by the fact that the venture capital market has cooled. “Now investors are preaching austerity and stopping new deals, especially with companies that have been aggressively spending money on growth without any sign of profit,” the newspaper wrote, noting that against the backdrop of other companies that are laying off employees, Substack, on the contrary, continues to hiring. The same circumstance, as evidence that the company is growing, was also mentioned by the representative of the platform, refusing, however, to go into details of financial indicators.

However, the company was able to use this argument for a short time: already in June it was announced the reduction of 14% of the staff (13 out of 94 employees). The platform explained this decision by the fact that “macroeconomic prospects are becoming increasingly uncertain” and it is necessary to prepare for a difficult period that can last for years. The company said it still has cash but wants to reduce its reliance on constantly raising money to fund business through layoffs.

Platform claims and six-figure advances to wealthy white men

In 2022, some authors had complaints about Substack, wrote the New York Times. They expressed dissatisfaction with the policy of non-interference in content, which led to the fact that anti-vaccine statements were distributed on the platform, for example. In addition, the company was accused of the fact that the platform, which declares support for independent authors, actually pays six-figure advances predominantly to “famous white men.”

In 2021, Substack announced the launch of the Substack Pro Creator Support Program. According to Mackenzie, the platform has already tested a scheme to attract creators by paying $10,000 to $30,000 in advances that could cover their expenses for several months while they develop their media on Substack. After some time, the authors returned advances due to the growth in popularity and, accordingly, the income of their media under a separate agreement.

“The Substack advance was effectively an interest-free loan that would not be repaid if the media failed. At the same time, although the writer will have a good cash cushion for the first few months, he will have to go through a payback period before he begins to earn income. So we came up with a new structure that allowed us to take on more risk on behalf of an author, ensuring that they get paid for a year of work no matter how good their product is,” McKenzie explained.

Substack’s Content Gamble: The Pros and Cons of the Platform’s Controversial Writer Advance Program

As part of the program, the service pays the author an advance to cover their first year on the platform. The idea is that his income from Substack can be more attractive than the salary, respectively, the author does not need to stay in his current job. Which is not so interesting for him and distracts from creativity. In exchange for this financial security, the professional writer agrees. To let Substack keep 85% of the first year’s subscription revenue. A year later, a coup occurs: the author no longer receives the minimum income. But from that moment on he retains 90% of the subscription income.

“We take most of the risk for them,” McKenzie says, specifying that Substack does not interfere with editorial policy. And does not contact subscribers without permission. The only requirement is a minimum posting frequency. According to him, the main thing that is taken into account when considering an author for inclusion in the program is the likelihood of his success on Substack. The size of the author’s audience, the activity of his subscribers in social networks. The status among readers and colleagues, as well as the track record are taken into account. In addition, the platform wants confirmation that it is capable of posting multiple articles a week for an extended period of time.

The Substack Advance Backlash: Are Lucrative Upfront Deals Worth Sacrificing Long-Term Earnings?

However, this approach did not suit everyone: the service, for example, was criticized for lack of transparency in the choice of authors who are accepted into the Pro program. So, former Vox employee Matt Iglesias said that he agreed. With the platform to pay $ 250,000 and 15% of the revenue from subscribing to his content. In a year, the share of his income will increase to 90%, but he will not receive any additional payments. The Toast humor blogger Danny Lavery talked about a two-year, $430,000 contract. While his wife, Grace, a UC Berkeley professor, signed a $125,000 contract . did not take an advance from the platform.

The NYT claims that many of the authors who signed up with the platform now regret it. The newspaper believes, would have earned more with the usual scheme of working with the site. Iglesias estimated that after receiving the advance, he paid the platform nearly $400,000 in subscription revenue. Author Roxanne Gay paid back her advance within two months of launching. The Audacity blog at a subscription cost of $60 per year and an audience of 36,000 people (the share of paid subscribers was about 20%).

How you can earn on Substack

After registration, you need to set up a profile and media design: color scheme, font, logo. For example, for a logo, it is recommended to use an image with clear lines and a small amount of detail. You can learn more about media design here. On the About page, you can succinctly tell potential readers about the author’s biography, media topics and style. As well as the benefits that are provided for paid subscribers (and at the same time you can explain why you decided to enter a paid subscription). In addition, you need to prepare a welcome letter for subscribers.

To find the first subscribers, it is recommended to leave a link to your media everywhere. Add it to your email signature, personal website, social networks (you can also pin a post about your Substack there). In addition, it is recommended to add a “Subscribe” button to the first messages. And in each message ask readers to comment and share the material. You can also connect your Substack account to your Twitter profile.  In this case, social network subscribers will receive a notification about your publication on Substack. To simplify the search, media can be identified with three tags that can be changed at any time.

Growing Your Readership on Substack Tips for Building an Engaged Audience and Converting to Paid Subscriptions

It is recommended that you send your publications to friends and publish them on social networks. As well as develop a network of contacts by sending private messages to authors of interest to you. Collaboration with them along with regular publications will help develop the media. Ideally, it is better to write weekly, and the format is not so important: it can be both a long text and audio, or a short post for discussion.

In order to convert free to paid subscribers, you need to determine who your audience is. And it is recommended to narrow this group of subscribers as much as possible by evaluating why readers might want to pay for a subscription. What they need and what of their problems your media can solve. Substack authors explain the need for a paid subscription in different ways and call for switching to a paid version. Investigative authors promise to solve even more crimes. Others say that they will be able to share even more educational content, some give feedback from satisfied subscribers. Others say they need to save money for the education of children or treatment. More detailed recommendations on how to work with a paid subscription can be read here .

Newsletters outlived their peak?

“Following the surge in hype around the potential of paid email to transform the media industry. There are signs that the bubble could burst,” writes the New York Times. Newsletters have been part of the toolkit of media startups like Politico, Axios and others. And journalists use newsletters to connect directly with readers. This format has become especially popular during the pandemic, the newspaper notes. Bulletin writer A Media Operator Jacob Cohen Donnelly explains this by saying that everyone “had time to both create and consume.” Now that time is gone.

At the beginning of this year, Meta and Twitter  announced the closure of their projects similar to Substack. And Substack itself reduced the advances that it offered to authors in order to lure them to the platform, sources told the newspaper . Some media that distributed content through Substack left to develop on their own. Among them, for example, one of the most widely read political publications of the platform. The Dispatch, which has announced its desire to create its own independent media company. At the same time, the New York Times does not expect such a format to disappear any time soon, and notes that some have achieved success in it.