Patreon’s problems and the state of subscription crowdfunding

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c579714ab88d307c8b537f19ccf335ae_400x400Oh these people named Jack who run online things. Patreon co-founder and CEO Jack Conte complained the other day that their business model was not sustainable, and that got a lot of people anxious.

In case you don’t follow it, Patreon is a subscription crowdfunding platform that allows supporters to pledge a certain amount of money for each month or work by artists, writer – and many cartoonists.

This model has seen more $1 billion in payouts to creators.  Patreon sends 90% of the money to creators – $500 million in 2019 alone – keeps a 5% cut and tales 5% for processing fees. It’s a simple, effective system.

For the math challenged that means Patreon will make $55 million this year. But it’s not enough!

Patreon CEO Jack Conte said in an interview with CNBC that the platform will soon be facing the challenge of maintaining a profitable model as the company continues its growth. “The reality is Patreon needs to build new businesses and new services and new revenue lines in order to build a sustainable business,” Conte said. The company does not currently provide contracts, which allows users to retain 100 percent ownership of their work and full control of their brand. The company plans to provide creators with new “value services,” like options for merchandising, to generate new revenue. Creators will be given the opportunity to participate in these services, and it could ultimately reduce Patreon’s generous 90 percent pay-out model.

Considering that Patreon really just runs a platform and makes passive income from it, this urgent need to make more money seems maybe a little weird. And that ownership comment was all kinds of red flags. Patreon has become the lifeblood of thousands of creators, many of them cartoonists, and changing the way it works could mean upheaval for many people. A year or so ago, Patreon tried to change the way it processed pledges, and as Todd Allen reported at the time, it was a fiasco,  and they had to walk it back after handing the fall out awkwardly.

This time, media pundit Dan Olson had a much quoted twitter thread about this  that kicks off here.

The short version: although Patreon’s business model is quite scalable, they got a big round of venture capital and that demands a big big return.

So Patreon has made around $55m in direct revenue, but they’re in hock to Thrive Capital for ~$107m, and Thrive doesn’t just want their money back with interest.

Thrive wants all the money.

And just to add this to the General Apocalypse Unified Theory:

Crowdfunding guru Spike Trotman compared Patreon’s growing pains to Kickstarter’s general aura of helpfulness:

The whole thing:

One of the things that perennially amazes me about Patreon is that, in every piece I’ve read where someone over there in a management position is interviewed, they basically say their client base is just Using The Site Wrong.
Fun tidbit: When Kickstarter launched? They didn’t even HAVE a Comics section. And the original vision was a site where Girl Scout troops could fund trips to the Grand Canyon and soforth. Not Shemue 3 and Pebble watches.
That’s why there’s that “backer rewards” system. It was supposed to be like when you sponsored PBS, and they sent you a mug and a tote bag. Maybe you used the mug and tote bag, but that’s NOT why you were giving PBS money, cuz you had to have that sweet mug.

But people, used the site wrong. And by that, I mean did a WHOLE lotta stuff the founders of KS never imagined they would.

KS’s response wasn’t to try and change a million users. Their response was to change the site to better suit its user base.

I’ve been using KS since the year it launched, and watched them add new categories, an interface to fine-tune shipping rates, referral links, stats, category-specific rules, all KINDS of improvements. And I can attest, a lot of it has been stuff people explicitly ASKED for.
But whenever Patreon’s in the news, it’s always them alienating creators, of trying to figure out how ts squeeze more money out of them, or wistfully fantasizing about Perfect Patreon that only served the top 5% of YouTubers, instead of the filthy rabble.

That’s what you WANTED. Not what you HAVE.

WORK with WHAT you HAVE.

As mentioned, Patreon provides crucial financing for a ton of cartoonists among others. I ran a very succesful Patreon for years, to help run this site while it was privately owned and it was a godsend – however it didn’t really do much for me beyond providing a stable platform to enable regular micropayments from supporters. I talked to a few Petreon people informally about marketing and so on, but that was never a service they offered.

Currently, I continue to support a bunch of creators on Patreon – giving a few people a few bucks a month is a super satisfying way to help support the artists I believe in.

All that said, Patreon doesn’t make it easy for me to find NEW people to support. I just logged in and there is NO front page I can find for Patreon where I could browse categories I might want to support. Instead it asked to login to my FB and Twitter to find people I already know. I signed in for Twitter and there’s been a spinning beachball on that page the whole time I was writing this post (which took me a pretty long time.)

UPDATE: It stopped spinning and didn’t show me ANYONE. Fail. I finally found an “Explore creators” link in a drop down menu and when I clicked on that it showed me about 12 creators, all organized by what kind of rewards they give. Not exactly the kind of thing I’m looking for.

So maybe things like this lack of discoverability is what is not making Patreon sustainable? Clearly they do need to hire some better engineers and UX designers.

Patreon’s weaknesses made the announcement of Kickstarter’s own recurring payment platform, Drip, over a year ago very intriguing. If Patreon is going to start adding on services for pay, will Drip become an alternative?

Well, it turns out after a private beta launch…Drip actually is no more. In a story from last fall that I missed, Kickstarter is partnering with the independent creator focused festival XOXO to start a NEW platform.  

Nearly a year after launching its subscriber-based crowdfunding platform, Kickstarter announced today that Drip is on the way out. Fortunately, for the creators currently working with Drip as well as anyone looking for an alternative to Patreon, Kickstarter isn’t abandoning the platform. Instead, the company is providing seed funding to XOXO festival creators Andy Baio and Andy McMillan to create an entirely new one with an explicit focus on providing financial stability and transparency to independent artists.

The new initiative came about through conversations between Kickstarter founder Perry Chen and Baio, a former Kickstarter CTO. “You start thinking, what’s next, what are the possibilities?” says Chen. “As we talked more and more, I ended up thinking that this could be a good way for this to progress, for [Baio] and [McMillan] to build on what we’ve done with Drip over the last year.”

As promising as the idea may be it sounds a long way from launching, let alone replacing the $500 million cash flow of Patreon.

In the meantime, Kofi has also emerged as a way to directly support creators – according to their front page, they’ve paid out more than $10 million to creators. Kofi is free to use, but funds itself through charging $6 a month for “gold level” services, like private posts. I haven’t followed the discussion about this, but I see more and more people using the platform.

But back t the current issues. Patreon’s Conte responded to Olson’s criticisms in his own long Twitter thread:

Among the things he pointed out: as the user base rises, so does troubleshooting and the infrastructure to support it. Also the need to fight fraud. And requests for new services from both creators and patrons. And also, Josh Kushner is a really great guy.

To which one might add, just making the service more usable. I get it: this started as a way for Conte to fund his own band’s videos and now it’s heading towards being a billion dollar business. Shit happens.

One thing’s for certain: crowdfunding is here to stay, as creators appealing directly to their fans/readers/supporters/patrons is a very authentic and satisfying experience for many people.  Patreon has become an essential tool for makers AND people looking for entertainment/information, and one can only hope there’s room for a sustainable model in there somewhere.

 

 

 

13 COMMENTS

  1. Another issue is people leaving Patreon. Recently the decided to kick off a creator for something controversial they said outside of Patreon. I don’t know the whole story but I’ve heard some people are now boycotting Patreon as a result and other creators are seeing a major drop in their donations..

  2. From a quick read though this article, it seems Patreon is more focused on economic growth and perhaps ROI than user satisfaction. When a company talks about sustained and future growth rather than their client base, it’s a red flag. “Not listening to users”

  3. “crowdfunding is here to stay”

    So is begging. Patronage of the arts and such has a long history but there’s a pretty skeevy side to that history which is also present in crowdfunding.

    And as for listening to users, I don’t know when or how this lesson is coming but I know people are going to learn it eventually. NOTHING EXISTS TO MAKE YOU HAPPY. Not even your mom and dad. Everything from Patreon to Kickstarter and beyond exists to MAKE MONEY. Serving you may be how they make money but making that money is more important than serving you. Thanks to a very unusual combination of economic and cultural developments, that reality has been obscured for a lot of folks. That’s not going to last forever.

    Mike

  4. How can anyone continue to use patreon after how they’ve treated their creators and users? I’m a pretty left wing guy but deleted my account when they felt they were the morality police on who people should be allowed to donate to.

  5. Between this and the recent independent film maker purge over at Amazon, it appears that the little guy is continually being challenged in ways to make money with their art. It’s a shame really.

  6. I use Patreon to make a living off my webcomic. I supplement it through print book sales but Patreon is my main source of income. All this news lately has me wringing my hands.

    What will be, will be, of course. It was nice while it lasted.

  7. Way back in bricks&mortar-time, reality was slow but dependable. Right now, the ever more relied on digital reality is proving to be very fleeting and untrustworthy. Every company making money in the realm of ideas think they can do this digitaly with less costs when compared to product with actual dimensions. Because bits are supposed to be cheaper to ship. Sooner or later, they all realise that because bits are cheaper to ship, people don’t feel like paying as much for them as they used to, and so the profit plummets or doesn’t meet expectations. So they trie to sell you stuff that’s already been made, or try to rip off the people making the stuff in the first place. Without real product and real people making and promoting it, the digital World has no reason or power-base for exsisting, except selling your personal info….

  8. At the end of the day it’s a San Francisco tech company. Growth and scale is the most important thing here. The Product is almost secondary. There’s always a defined exit strategy within a short time frame to pay back early investors ie, go public, get acquired, private equity, merge, liquidate and sell off IP etc etc. simply being profitable is not considered a success unless it keeps growing and scaling. If they feel that they’ve plateaued as a business and not following the growth road map then they’re in a bit of trouble. I think that’s what he meant by not sustainable. We might see a lot of changes or additional products under the brand name to create more growth.

  9. I’m not an economics or business scholar, but this sounds like a tech company problem as Joe points out. A brick and mortar business would be able to control overhead costs through careful expansion and possible franchising new locations to meet new demand. An infinitely expendable online tech service has no way of regulating their scale without limiting new user registrations. So their business of size X can’t sustain itself when demands explodes, unless of course they change the core business model. And companies like Patreon heap the trouble on when they seek venture capital. That should be see money to develop new concepts not a business loan while you figure out how to generate more revenue from the status quo concept. Personally, I don’t see why Patreon doesn’t just gradually increase their percentage from creators. Sure no one will be happy, but make the new policy that all money will be charged 6 percent for site administration. And then use your venture capital money to start a new business altogether. If you lose a few customers, fine. That’s one way to scale back they overhead while increasing profitability of the remaining accounts.

  10. I have a Patreon where I’m posting my graphic novel as I finish it at just $1/page….I have only got 4 patrons, none of which “discovered me on Patreon…I would be better off starting a gofund me and posting it on Facebook….

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