Substack as OnlyFans

I’m glad to see Anonymous Banker become a character. He was invited on The Grill Room by Dylan Byers – he called it a “summer fling” – but AB and I had already recorded a mini-episode of The Rebooting Show. So you can get a doubleheader of AB on The Grill Room and The Rebooting Show. Couple other things:

• Nina Gould, chief innovation officer at Forbes, is joining me and BlueConic’s Matt Jarman on Wednesday, June 30, at 1pmET to discuss how Forbes has undertaken the foundational work of getting a unified view of its audience. This is something many publishers need to do as the models for digital publishing shift. Something we’re going to discuss in this hourlong interactive discussion is how you get internal alignment to undertake this kind of infrastructure work at a time when I see many publishers almost paralyzed by the undeniable uncertainty in the macro environment. Note: If you are unable to attend live, you will receive a replay link and cheatsheet with takeaways afterwards if you register. Sign up. 
• That kind of foundational work is in service of maximizing revenue per audience member. The reality of digital publishing on the consumer side is it was premised in large part on scale. That’s shifting. In this project, we want to understand how senior revenue leaders are organizing their teams, managing tradeoffs, and pursuing total monetization. The goal of this is to understand how organizations actually structure teams, where friction lies, and what metrics are used. If you lead revenue at a publisher, please take 10 minutes to take the survey. We’ll give 50% off a TRB Pro subscription to qualified respondents. Take the survey.

Now onto where Substack goes next. First a message from TRB partner Omeda.

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The OnlyFans model

Give Substack a ton of credit. It entered a space with a proposition that sounded a lot like Medium, which became a cautionary tale as its promise to do pretty much the same thing Substack is doing fizzled over multiple pivots. Medium now is emerging from a brutal restructuring and near-death experience to embrace a more niche strategy to be the go-to place for expert content. It’s a far more practical approach to build a sustainable business, yet a shrunken vision that means it will never live up to its lofty valuation, which peaked at $600 million in the heady days of 2021.

Substack, to its credit, has a bigger vision. Its recent fundraising at a $1.1 billion valuation is full of caveats and unknowns. The headline numbers of these raises are sometimes misleading. I remember many journalists fell for Vice’s late raises at big headline numbers like the $450 million it raised from TPG in 2017 that came with a big headline valuation number of $5.7 billion but came with liquidation preferences and preferred equity that quickly became an albatross on a business that was already struggling. The round still got written up as a triumph of Shane Smith pulling a rabbit from a hat; he’d be gone from the CEO role less than a year later with characteristic bluster that didn’t age well. The devil is in the preference stack. 

Anonymous Banker ducked into a wellness room with me last week to explain why this round isn’t typical growth capital and signals Substack’s about to enter a new phase. The headline $1.1 billion number will get the focus, but for AB the raise is a sign that Substack will undergo significant changes in the years ahead.

That new phase will be marked by doing the execution work to finish building out the creator platform and shedding its origin as an email newsletter publisher. Substack rarely mentions email now, as it seeks to become something of an economic engine for individual creators. The comparison that seemed to stick the most with its founders is to OnlyFans, although for PR purposes that is often amended to YouTube. OnlyFans is a better comparison because it succeeded in a highly commoditized market by establishing a direct connection between the creators and their fans. 

The OnlyFans comparison is apt. AB notes that for all the product fumbles Substack has – I have found much of its platform half-built – it has managed to bring some degree of, well, intimacy to the relationship between the audience and the writer, in much the same way as OnlyFans has been able to build a monster business in a crowded category that is hardly without free options for every niche. Like the Bloomberg Terminal, the messaging is the sticky feature. 

The strongest media models will be those that can credibly pull off community. I find media brands don't always lend themselves to true community dynamics. And for whatever reason, Substack has succeeded in encouraging and enabling these. Email newsletters were a fortuitous place to start. I always found they drive proximity. Podcasts too.

Snickers aside, OnlyFans might be the most capital efficient scaled platform in internet history. And it got that way not through a killer algorithm like TikTok. The platform world inevitably will bifurcate between those that are AI-heavy and algorithmic and those that offer an alternative. Much of the discussion about AI is deterministic, as if people will not have a choice, but that’s highly unlikely. As the internet becomes filled with AI content and agents, alternatives will emerge that offer a more human experience. Substack has done a good job of maintaining that, even with uneven execution.

Substack’s Notes social network is mostly Substackers talking Substack to other Substackers. That kind of circular economy is both a strength and weakness of Substack. It has developed a supportive community of creators – it’s time to move beyond “writers” – that mostly skip the zero-sum dynamics of most platforms. Substack’s killer feature, Recommendations, is creators helping other creators grow. That’s a unique dynamic, and Substack deserves a lot of credit for how it has nurtured a collaborative culture among Substackers. There’s something particularly appealing after coming through a period of algorithmic distribution to embracing creator-led distribution mechanics. 

And it fits with Substack’s stronghold. It has created a new type sector of the information space. Publications like The Free Press could easily exist with a WordPress-plus-ESP setup. But Substack has created thousands of publications in niche areas. AB points to Rachel Karten’s Link in Bio, which has attracted a remarkable 100,000 (free) subscribers for a newsletter about social media marketing. The future of the media business is hazy, but it’s clear that there is room for far more Links in Bio. 

By starting with email and then moving to livestreaming, Substack has shown enough flickers of potential in building a flywheel to attract another $100 million in funding. To be clear, the current business does not support unicorn status. Substack’s generated a modest $45 million in revenue, and raising venture is based on potential rather than reality. The potential Substack has is a result, oddly enough, of its decision to not evolve its platform quickly. It has dragged its feet on the most obvious move: advertising. Top Substackers are already running advertising and frequently making more off advertising and other business lines than subscriptions, the only monetization mechanism Substack powers. 

And clearly subscriptions will require some form of bundling. Substack CEO Christ Best and I discussed this over two years ago. Substack has proven doubters wrong by expanding its pool of paying subscribers to 5 million, which exceeds any U.S. news publisher with the exception of The New York Times. It needs to offer some kind of Substack One subscription that allows writers to band together to offer access to a bundle. Nobody likes bundles until they’re paying for 45 different streaming services. 

The funding came with a notable newfound openness to more quickly evolve the platform. It will need to make substantial changes that it has so far resisted in favor of the typically gauzy early Silicon Valley vision phase. It’s easy to espouse principles over business necessities when you are running a business to lose money. That doesn’t last forever, one way or another.

Substack is a remarkable success as a cultural phenomenon. It is synonymous with the accelerated shift from institutional media to individual-led media. It is on its way, for better or worse, to escaping its roots as an email platform. When Stephen Colbert gets axed, Substack was a plausible next option. No, it’s not a true competitor to YouTube yet, but it has a suite of publishing tools now across text, audio and video that makes it a plausible all-in-one creator platform that has yet to emerge.

YouTube is still a video platform despite its strengths in podcasting. If anything, the gravitational pull of YouTube as the new TV is changing podcasting entirely as audio becomes deprioritized in favor of video. There’s something weird about how podcasts are now becoming outwardly video first. I’ve noticed popular podcasts like All-In now default to referring to “viewers” as opposed to “listeners.” (I want to do more video but think too much is made of this since podcasting is an ambient medium, and the content needed for video is different. If you’re going to exist in YouTube, you are going to play the YouTube game, and that will cause optimization that runs counter to what made podcasting popular in the first place, which is that it doesn’t have a lot of those obvious growth hacks.)

The potential is for Substack to truly become the engine for these creators that are stitching together platforms. A star Substacker like Lenny Rachitsky makes far more money off the platform than he does on Substack. The case can be made that if you add up all the revenue Substackers make through ads and other avenues, and assume Substack can find a way to take a 25% cut, it has greatly expanded its total addressable market. All-in-one platforms will be attractive to many creators who do not want to stitch together different tools and platforms. Trust me, it’s a pain. 

At the same time, this sensible bet run counter to past performance. I found Substack both remarkable and frustrating. I was on it for the first two years of publishing The Rebooting. The biggest benefit is you can start a publication in 10 minutes and spend pretty much no time thinking about “product.” The emails got delivered, which sounds simple but is not something to take for granted. And its built-in growth mechanism in Recommendations were a far more dignified than being a time-for-a-thread carnival barker on X.

Yet as The Rebooting’s business evolved beyond the bare-essentials basics, I found its core email functionality and analytics poor. I couldn’t do basic segmentation. It was strange to me that Substack was synonymous with email publishing yet failed to the basics of email. And instead it spent money on writer upfront deals and cloning X instead of improving its core product that I wanted. And its anti-advertising stance was always curious since it flew in the face of how the media business has always operated.

One of the reasons I invested in Beehiiv is that I saw that Substack would inevitably try to be Amazon vs Shopify. The funding by Andreessen and its rollout of Notes were signs that it wasn’t looking to be a next-generation Mailchimp. It was a consumer brand, and that would inevitably lead to dual loyalties when you’re not clear on who the customer is. The simple calculus was that the market for independent media will grow and it will need different options. My bet is that the industry will bifurcate. Many who achieve escape velocity on Substack will want a lot more than solid email deliverability and some livestreaming tools when they’re paying tens of thousands a year to Substack off its 10% cut of subscriptions. 

Now, Substack faces the delicate task of doing all the hard changes it has put off. Give Mark Zuckerberg credit. He has shown over the years an admirable willingness to muscle through dramatic changes to its apps that court backlash that inevitably dies down. Substack hasn’t for the most part, outside some content moderation kerfuffles that are frankly just the cost of doing business as a platform. (For what it’s worth, I think Substack has made the right decision by taking a mostly hands-off approach to content moderation, but this is an issue where it’s impossible to satisfy all parties with some kind of neat uniform policy. You just have to muddle through.) 

The hard changes are to the product itself and economic dynamics underlying it. AB sees TCG and Bond as the type of investors who will be heavily involved in operating the asset, using the comparison to Chernin’s experience with Barstool, which it quickly professionalized, notably by bringing in Erika Nardini (now Baden) to take over from Dave Portnoy as CEO. Erika took a very scruffy operation and put in place the modicum of structure to allow it to rapidly grow to the point where Penn Entertainment paid an uneconomic amount to use Barstool as a front end to its gambling operation. The deal’s logic never panned out, but you put yourself in a good position to benefit from those kinds of manias. 

Listen to my conversation with AB about likely changes to Substack and more on The Rebooting Show, including excerpts of our conversation about Substack with Troy and Alex from last week’s People vs Algorithms.

Thanks for reading. Send me a note with feedback to bmorrissey@therebooting.com.

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