Media Fortune Fame & Folly

Substack is coming for you

About this time last year, the media industry got terribly excited about newsletters. One of the sources of that excitement was a seemingly left-field tech business called Substack, a then-three-year-old startup that pitched itself as “allowing writers and creators to run their own media empire”.

Having capitalised on the cultural shift to paid for subscriptions popularised by Netflix and Spotify, Substack began wresting control of eyeballs from social media and turning the reader back into the customer. In 2020, it hit critical mass.

Launched in 2017, by techie Chris Best (formerly of messaging app Kik) and journalist Hamish Mackenzie, Substack caught investors’ imagination early on. 

From a $120K pre-seed round funded by Y Combinator, it quickly raised three more rounds, and a total of $82.4M. The last, a series B just six months ago, saw Substack raise $65M at a valuation of $650M, led by Andreessen Horowitz, the VC that has become so ubiquitous in media funding rounds that they might be easy to dismiss, if not for their stated aim to “dismantle traditional media”. This is evidenced in no small part by substantial investments in the likes of Clubhouse and the recent launch of its own standalone media property, Future. Yes.

But, as if the thriving newsletter economy wasn’t enough reason to pay serious attention to Substack, it’s worth bearing in mind that “newsletters” is shorthand for a wider business that not only gives creators control of their content and their IP, but of their paying relationships and direct access to their subscribers.

Think of it as Direct-to-Consumer media and it becomes clearer just why Substack has captured the attention of the DTC-obsessed retail investor economy. Turn media into a DTC business, the thinking goes, and you reduce, in tech parlance, friction; eliminating the obstacles between the creator and the consumer. In short: you cut out the middle (wo)man. In this scenario, the middle (wo)man is the media operator.

It’s not just the much vaunted journalists and star columnists like Andrew Sullivan, Glen Greenwald and Buzzfeed’s Ann Helen Petersen who’ve decamped to Substack. Danny Lavery, founder of the late and lamented site The Toast, signed with SubStack for a two-year advance just short of $500k. Comic book writers – famously tired of allegedly creating globally renowned figures for Marvel and DC comics for a few thousand pounds – have joined them. And, now, high profile authors are trying out Substack. In the last month, both Salman Rushdie and Chuck (Fight Club) Palahniuk have announced they’ll be publishing via Substack (charging $6 per month or $60 and $40 p.a. respectively). 

Cheng Meservey, VP of communications at Substack told the The Bookseller they were “excited” about the UK market “precisely because of its wonderful literary scene and history”. “What we’re not trying to do is get rid of established traditional forms of publishing,” she said. “But we wouldn’t mind replacing some social media. We wouldn’t mind people spending their time on SubStack instead of scrolling through an endless newsfeed.”

It’s about money, of course. (The top 10 writers on Substack are believed to make $20m between them.) It’s about control and copyright. It’s about audience relationships and database. And it’s about timing. Particularly in the case of books, the process can take 12-18 months after the book is delivered. In 2021, who wants to wait that long? But it’s also about trying new things – or very old things in the case of serialising long fiction.

If you’re a creator, that’s a long list of incentives to get into SubStack. But why should it bother, say, a legacy media CEO if a bunch of journalists start sending their own newsletters and charging $5 a month? We’re back to the power of DTC.

Substack has disruption written through it like a stick of rock. It has the potential to transform the way content is delivered and received. Right now, the biggest Substack newsletters have “only” 500k subscribers. That’s starting to look substantial. Vast, even, compared, say, to UK magazine subscriptions; respectable on the other side of the Atlantic too.

In short, while it’s not yet eating your lunch, Substack is certainly making in-roads into the media industry’s breakfast. The potential for growth is huge and it’s global. Big brands and niche thrive in parallel. B2B businesses are already seeing their audiences and traffic being eroded. Eg The Verge’s Casey Newton decamped to SubStack and set up a newsletter called Platformer. He promptly scooped his alma mater with an hour-long live interview with Facebook’s Mark Zuckerberg earlier this year.

A media audience’s time, attention span and money are finite, and Substack is usurping the relationship with them. Not only are audiences actively choosing to engage with (and, in an increasing number of cases, pay for) a Substack newsletter, but also, more importantly, Substack is creating a new habit. Like podcasts. Like Amazon. Like Facebook. Like Google.

But how does SubStack make money? 

In Chris Best’s words “we make money when the writers make money”. In other words, Substack takes 10% of every paying subscriber fee. But its cut is reputed to be substantially higher if the newsletter is part of their high profile pro-program. (According to one source, if the creator has been paid an advance by Substack, the split is flipped for the duration of the contract, meaning Substack are taking a whopping 90% of revenue until you “earn out”.)

Speaking on the CNN Reliable Sources podcast, the Substack foounder would not be drawn on profitability, other than to say the company was, “Not profitable but on a healthy trajectory”.

Still with only approximately 30 employees, and despite Facebook and Twitter making noises about starting newsletters, Substack has no serious competitors to speak of (there’s the tiny, not-for-profit Ghost, and Medium which lost its way several years ago and has yet to rediscover it). As of six months ago, Substack boasted 12m active monthly readers on top of its 500k paying subscribers. That’s a pretty healthy conversion rate – and meteoric growth. But it’s still just a fraction of, say, the New York Times’ 7.5m subscribers.

Even so, the NYT was bothered enough to announce a slew of paid-for newsletters, on top of the 50 or so free ones they already have (which are read by some 15m people).

Despite its surprising adaptability for such an enormous beast, the NYT is right to be worried, because what Substack has tapped into is intimacy. As newsletters and the wider “Creator Economy” grows, making subscribers feel more like a meaningful community (rather than someone who gets sent an advertiser offer once every few weeks) will be key. As Alex Hardiman, chief product officer at the NYT put it: “A lot of the work now is about making sure that every single time you experience [The NYT] as a subscriber, you know it and you feel it.”

“Feeling it” is the difference between a meaningful audience relationship and a floating voter, which is why Substack’s recent acquisition activity is so illuminating. 

In June, Substack acquired “the team behind” Cocoon (a subscription social network for your nearest and dearest). This was swiftly followed in August by the acquisition of public debate platform Letter. The SubStack press release cited “access to a technology that would allow SubStack’s authors to connect and collaborate more” as a key reason for the purchase.

The emphasis is on connections: building them and nurturing them. Connections between writers and other writers, and between writers and readers.

There’s one other thing: speaking recently on The Verge’s Decoder podcast, Chris Best made a passing reference to being “keenly interested” in the death of reader apps (like Nuzzl which was acquired by Twitter last year and promptly vanished). He cited numerous subscribers expressing an interest in “being able to read all their subscriptions in one place”, and didn’t dismiss the possibility of writers banding together to bundle content. Cynics might call that a magazine or a newspaper. If so, it’s one where the subscriber builds their own and chooses the content. Expect to see a Beta version soon…

Clearly Substack, which already also supports podcasts, has no plans to limit itself to newsletter domination. But is it a publisher? Is it a tech company? Is it a DTC media company? Is it all three? Like many other tech behemoths, It doesn’t seem entirely clear. But one thing’s for sure. If you’re any sort of media or publishing company, Substack is going to have a serious impact on your business.