After the newsletter boom
The heady days of 2021 are giving way to consolidation
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One of the good parts of living in New York City is you have opportunities to meet up for drinks with newsletter writers at a Brooklyn tiki-themed cocktail bar that serves a $20 concoction called El Diablo that comes with a loud pronouncement and cheer.
After trading tips on selling sponsorships, pricing, the pluses and minuses of subscription models and Substack, and figuring out the impact of an economic downturn, my fellow newsletterer – I’m trying hard to make this a term – expressed relief the newsletter boom of 2021 was beginning to end, which the thinking goes will help by rewarding those who were in it for the long haul vs those who got hopped up on one too many creator economy threads written by someone peddling a writing course.
There’s an old Benjamin Graham quote about the stock market’s gyrations that Jeff Bezos used in the aftermath of the dot-com bust, when Amazon’s stock was trading 80% off its dot-com peak: “In the short term, the stock market is a voting machine; in the long term, it’s a weighing machine.” The meaning is that immediate popularity and surface-level attractiveness gives way in the long term to assessments of substance.
This is the fate of markets overall, not just the stock market for publicly traded companies. I just finished “Slouching Towards Utopia,” an account of 20th century economic history by newsletterer Brad Delong. One of the critical takeaways for me is how unstable and chaotic markets are, a story of boom and bust, repeated again and again. It seems like just yesterday companies were desperate for supply to meet demand, yet now companies like Nike are facing a massive oversupply of inventory. Most people I speak to expect a rough 2023 as the battle to tame inflation drives the economy into recession.
The newsletter mini-boom brought with it plenty of platforms who wanted to become new middlemen, even if they sang the praises of individuals striking out on their own. The unbundling is always followed by the rebundling. Substack got whacked in the voting phase as it tried to raise at an absurdly high valuation despite modest revenue. But I’m more encouraged now by the platform because it has developed a critical distribution feature with Recommendations, which is now driving 40% of (free) subscriptions to Substack newsletters – and could provide the lock-in Substack needs. (That tracks my experience.) Long term, the open question is the quality of these subscribers since the Recommendation process is a bit too frictionless. That said, most writers I speak to who use Substack see these leads as a critical distribution channel to get people to at least sample the product.
As a publisher I might not like it, but the Substack app combined with Recommendations gives it a clear pathway to becoming a true platform. I spoke with a reader of The Rebooting earlier this week who recently graduated from college. He told me he just reads TRB and newsletters through the app; the idea of going to email to read a newsletter seemed slightly embarrassing to him. That was illuminating and alarming.
Ironically, the difficult economics of newsletters, along with the declining economy scotching unprofitable side projects, is helping clear the field. Facebook pulled the plug on Bulletin, the newsletter network it launched in June 2021 with celebrity newsletterers like Masterclass instructor Malcolm Gladwell and dog enthusiast Mitch Albom. Anyone surprised by this development must be just tuning in. The writing was on the wall early that this was another half-hearted and half-baked initiative that didn’t make sense in the context of Facebook’s overall business model of free content that gets attention to monetize through targeted ads. This type of opportunity is simply too small for a company like Facebook that has bigger fish to fry and could be looking at terminal decline if its metaverse fever dreams don’t pan out. It’s hard to imagine an Elon Musk-run Twitter being committed to its Revue email newsletter platform in whatever turnaround plan he eventually implements.
Publishers themselves made noises about building out their own newsletter network. In June 2021, Forbes PR’d a move into building a “massive” newsletter network. Nothing has come of it as the company sorts out its future. The Information also rolled out a small newsletter network. The Atlantic in November 2021 similarly laid out aggressive plans, but the opportunity has turned out rather modest, a nice way to mitigate churn and attract incremental new paid subscribers. The Times added a slew of newsletters in April 2021 as a subscriber perk, inevitably labeled a Substack killer. In reality, the newsletters do a more prosaic but critical job: fight churn. The Times found that subscribers who added a subscriber-only newsletter are 20% less likely to cancel. Since then, three of the seven writers have departed, along with Shira Ovide, who wrote the subscriber-only newsletter On Tech. (The Times still offers 19 subscriber-only newsletters.)
My belief is the biggest long term impact of the newsletter boom will be different than the early results. The focus tended to go to the solo creator and the “threat” to newsrooms. This was always overrated because reporters liked writing about this because it was about them. As Casey Newton noted to me, fewer people took the independent path than he expected after he decamped from The Verge to start Platformer. The most vibrant part of the market of solo newsletter writers is not journalists, but people with expertise who can also write. That’s a rare combination, but it will have more lasting impact than the dime-a-dozen aggregation email newsletters of the boom.
The “winners” of the initial boom will now consolidate their gains. Some will add help in order to scale their solo businesses, others will use their initial success to build regular publishing companies. Newsletters are often central to these models, but they’re complemented by podcasts, video, courses, events, even God forbid websites. Building a brand now often means building a “world” around a tight-knit community. Newslettering is often a means to an end. Some weary of the solo newslettering grind – no really, it’s hard work – will be acquihired by publishers or band together as part of collectives like Defector, Every and Workweek.
The other lasting impact will be on how publishers are built. More publishing brands will start with email as a central part of their distribution strategy. It’s telling that Semafor is launching as, basically, a collection of vertical email newsletters, each with a recognizable person attached. Newsletters are an ideal starting point because they’re an easy-to-launch product and, critically, just as easy to tweak. The success of Punchbowl is a model. It started narrowly focused on Capitol Hill with a Playbook-style must-read newsletter and is now expanding into financial services. This model is spreading as startups like Pluribus News and State Affairs run a similar, well, playbook but for state legislative coverage. A newcomer I also like, not just because she’s a reader of The Rebooting although it doesn’t hurt: Politico vet Helena Bottemiller Evich’s Food Fix, which focuses on food and agriculture policy.
Some will snarkily pooh-pooh this as not much of a revolution. Maybe. Not sure what people were expecting from a media format that dates back to the start of the internet. I believe the publishing products that emerge from an email-first approach will tend to be more durable. Email newsletters incentivize an audience focus and allow for business models that are less adversarial as seen in site-centric publishing. Paying for an email newsletter subscription for many is now a normal behavior, and publishers like Punchbowl and Puck have shown that subscriptions can work very well with advertising. And new options are emerging to make ads a more viable strategy. The no-ads-ever approach will fade away, maybe even from Substack if it can call them something different. I can’t think of an email newsletter experience that’s akin to what it’s like visiting publisher sites that are depending on random traffic from search and social. What’s more, the email address is emerging as a critical part of most publishers’ strategies to mitigate the presumed eventual decline of the third-party cookie as a bulwark of monetization strategies.
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Rollups are great on paper, messy in reality. Recurrent is clearly running into operational issues as it cuts staff following the shuttering of Mel, which it had only bought a year earlier. (I’ve heard of similar issues at another digital publishing rollup.) Industry Dive CEO Sean Griffey noted: “Too many people think that money spent on an acquisition prevents internal investments, but that isn't really how PE works. They will invest in acquisitions but internal efforts have to be funded by operations.”
The rebundling is now taken as a given, and the question is who is going to do the bundling. Ben Thompson makes a good case for cable companies again asserting their bundler role. Brad Berens also leans in the direction of bundling being led by companies that aren’t (mostly) media companies, as in tech platforms and cable providers, even Walmart.
Luxury is going “off algo.” Vox has an interesting piece on how travel has become optimized to the point of losing its charm. Between algorithms and Instagram-worthy best-of lists, going abroad often feels like visiting a theme park. In many popular locations, you’ll find five times more tourists than locals. Great line: “In the age of algorithms, the only way to replicate any semblance of luxury is to take the keystrokes less traveled.” The counter reaction to this – and it’s beyond travel – will be unique experiences unavailable to everyone with a smartphone.
You gotta have a level of confidence to commission a documentary about yourself. Coinbase CEO Brian Armstrong announced a new “documentary” about him and the company he founded. Called “Coin,” it debuts this weekend on various streaming platforms, apparently an attempt for Armstrong to avoid being painted in a negative light because I guess he believes David Fincher is itching to do a movie about him. This feels like the kind of move more suited to boom times than when Coinbase’s stock is down 70% in the last year.
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I'm not sure you can look at the Newsletter boom as independent from the Creator Economy, which is part of the Web3 movement. Revue is not Twitter notes. Having the same readers compete subscribed to more Newsletters does not necessarily produce a lift in conversions. Not only is it a Creator Economy winter, now there's more Newsletter platforms and paid conversion churn as a whole, meaning that the subscription economy boom we saw during the pandemic was an anomaly like so many things, and not a new normal.
I've noticed a lot of writers following the script to say how awesome Recommendations are, If you aren't in the top 10% of Newsletters, it's a very different experience. The fact is we need more creators and more audiences from elsewhere to make Substack work for everyone. There's no masking that, Substack works for the home-runners, not the everyday hitters who don't write "hits" in formulas, or who influencers plucked from the echo-bubbles of Twitter.
The Crypto winter, Creator Economy winter and new venture capital situation for startups like Substack is serious guys. This is not the time to celebrate one or two good features of Substack. What will subscription churn look like in a great recession? If your startup funds your users via just one revenue source (subscriptions), that's not a very well diversified business model for either your platform or the people that depend on you. I'm not clear why nobody cares to point this out.
Great analysis. I love the comment that Substack's recommendation engine is "a bit too frictionless". The worry being that people won't stay, but then, as you say, where's the harm? For the newsletter market as a whole I'm pleased the noise has died down but the underlying strength of newsletters hasn't been appreciated yet. Yes, weighing not voting.