Unpacking The David Dobrik Controversy

Previously: We spoke to Turner Novak about the recent backlash over Substack Pro, Twitter Spaces versus Clubhouse, and more! Check out our conversation as a podcast or on YouTube!

And now, onto the news…

Top Stories in the Passion Economy, 03/27/21

Content warning: rape, sexual assault

Unpacking The David Dobrik Controversy

What Happened?

An investigation by Business Insider recently exposed rape accusations againt Dom Zeglaitis (known as Durte Dom), a member of famous YouTuber David Dobrik’s entourage—the Vlog Squad.
The accusation has led to many angry fans unsubscribing from his channel, and 13 brands withdrawing their association with him. Dobrik also stepped down from Dispo, the photo-sharing app he co-founded.
Spark Capital, the VC firm that recently led Dispo’s $20 million Series A funding round just weeks ago, also announced it was severing all ties with the company and was taking steps to ensure it would not profit from its investment.

Spark Capital@sparkcapital

1/ In light of recent news about the Vlog Squad and David Dobrik, the cofounder of Dispo, we have made the decision to sever all ties with the company.

YouTube recently announced that they will be temporarily demonetizing David Dobrik’s channels.

What it Means:

First and foremost, this is a terrible situation for the person who came forward with these allegations. Our heart goes out to them. The most important part of this story is that justice is served.

The situation also highlights implications for how founders, employees, investors, and users should approach creator-led companies going forward. We unpack why these companies can have unique risks vs. traditional founder-led companies, despite their advantages in customer distribution, and how investors should proceed.

Investing in creator-led companies has unique advantages but also risks

Creator-led companies are those whose product or service is tied to a single person. In 2018, Li wrote that creator-led brands needed to transition away from being tied to a single creator and endeavor to become “purpose brands” (one that solves a real customer need) in order to build sustainable, standalone businesses:

Li Jin@ljin18

1/ Kylie Cosmetics did $600m sales in its first 18 mos, driven by social media. But that’s just the beginning. To become an enduring, standalone business, it's necessary for all influencer brands to go beyond being tied to a single person, and create a "purpose brand.”

“To build a sustainable brand, companies need to tap into a deeper connection with consumers--whether that's by creating a differentiated product or a superior user experience, or attaching to a larger movement that has longer-term appeal after the underlying celebrity fades,” she wrote.

When a creator-led startup first launches, the business is precarious because the company’s value is strongly tied to a single person, and customers are largely seeking it out due to affinity with the creator. The relevance and trajectory of individual creators can be highly volatile: popular creators today may not remain popular forever--and in fact, with algorithmic-driven discovery, it’s becoming more challenging for online creators to maintain fan affinity. Products may get an initial burst of traffic from the creator’s audience, but if the creator fades in relevancy, or worse yet--becomes canceled--the business suffers as a result.

Dispo’s initial success and popularity was strongly tied to David Dobrik’s brand and audienceThe controversy around Vlog Squad has a huge impact on the app and users’ willingness to adopt it and continue to engage.

For both creator-led startups and traditional startups, the founders are of utmost importance. But there is a fundamental difference.

Creator-led companies are a bet on an unfair distribution advantage

Investing in a traditional startup is largely a founder bet: a bet on the founder’s vision for the future, their ability to deliver a product that users want, and their ability to aid that product in getting to mass adoption. On the other hand, investing in an early-stage creator-led company is largely a bet on the unique strength of one of those dimensions: distribution. Creators have a loyal audience, and betting on a creator startup is largely a bet on the creator’s power to find distribution for that product.

But if the company lacks a solid vision or product, all of the distribution advantages in the world won’t save the business. A good example of this dynamic at work is Casey Neistat’s Beme—it launched with great fanfare but struggled to retain users. The company was later acquired by CNN.

Could creators’ fanbases be counter-productive?

Creators bring a large fanbase to a new product early on. This can be exciting, but when thousands of engaged fans are using a new product largely out of support for the creator, it can obscure weaknesses with the value proposition and hurt the team’s ability to find broader success.

It’s analogous to companies that raise too much money too early. When venture dollars create a seemingly bottomless bank account, startups aren’t forced to prioritize, make hard trade-offs, and discover suitable business models

VCs Should Perform Thorough Due Diligence

We’re not saying that investors should never invest in creator-led companies. In a world with so many products vying for consumer attention, having a leg up in distribution is a massive advantage. But creator-led businesses are susceptible to the particular set of risks we outlined above.

Dispo was especially risk-prone. David Dobrik’s content is synonymous with shock and awe: it relies on edgy humor and pranks to keep the audience engaged. If someone like that is the face of your company, it’s a risk that they could go too far.

This whole situation might have been avoided if Dispo’s investors had gone back and watched David Dobrik’s content archive. This was not the first time Dobrik has faced issues related to sexual consent or harassment in his videos.

Investing in a creator is one instance of taking a massive team bet. That means it’s crucial to conduct thorough due diligence on the people involved. Creators live their lives in public--which comes with both benefits and risks to the business.

Spark’s Decision to Drop Dispo is a Huge Deal

VC is a reputation-based business, and VC firms have a strong incentive to protect their reputations, especially after the #MeToo movement. Spark likely considered the downside risk of continuing to be associated with Dispo, vs. the upside of their $20 million investment. In this case, distancing themselves from the company and forgoing profits from the deal “cost less” than the reputational damage of continuing to be affiliated with the company.

OnlyFans Is Launching A Creative Fund

What Happened?

The OnlyFans Creative Fund will focus on music creators in its inaugural year. The fund will offer a £20,000 grant and professional mentorship to 4 chosen music creators.
“With so many music artists including Cardi B, Jermaine Dupri, Franc Moody, and many more joining the site, OnlyFans wants to support up-and-coming artists in the creative community.”
As of December, the platform had 85 million users, and was paying out $20 million per month to its 1 million creators. The platform has a take-rate of 20%.

What it Means:

OnlyFans Wants To Enter The Mainstream

By specifically targeting musicians, OnlyFans is trying to position their brand beyond adult entertainment, and get the resultant marketing glow, without allocating too much time or money into it (giving out four £20K grants is miniscule for a platform as profitable as OnlyFans). However, it’s unlikely for aspiring musicians to want to start their career on OnlyFans. The artists who decide to opt-in are obviously going to be aligned with the existing OnlyFans brand—which doesn’t really solve their problem.

#BookTok Is Leading To A Resurgence of Book Sales

What Happened?

Young TikTokers creating emotional content under #BookTok is leading to an unexpected spike in book sales.
Money quote from article: “These creators are unafraid to be open and emotional about the books that make them cry and sob or scream or become so angry they throw it across the room, and it becomes this very emotional 45-second video that people immediately connect with,” said Shannon DeVito, director of books at Barnes & Noble. “We haven’t seen these types of crazy sales — I mean tens of thousands of copies a month — with other social media formats.”
For example: the book “Song of Achilles” published in 2012 by Madeline Miller is selling 10,000 copies a week, which is 9x more than its sales after winning the prestigious Orange Prize for Fiction.
Publishers have noticed this and are approaching famous #BookTok creators. Around 24 of them have formed a group on Instagram discussing how much to charge, as well as other business related doubts.

What this means:

Brands Are Vying For ‘Creator-Market-Fit’ on TikTok

Brands have been trying to leverage TikTok’s distribution power for a while now, but there has been a gradual shift—they have realized that leveraging this distribution means finding ‘creator-market-fit.’

This is because creators are more culturally attuned to what trends might go viral or be more engaging. From a brand’s perspective, this means spending more time on finding the right creators that align with the brand, instead of working on a specific creative brief. And that’s what these book publishers have done.

The right creators organically adapt to formats that are best-suited for the product being promoted. Books are not that visually engaging. So #BookTok video creators are using sad books that trigger an emotional response from the viewer to make their content more engaging.

YouTube Shorts Launches In the U.S. With Monetisation Plans

What Happened?

‘Shorts’ is YouTube’s answer to TikTok. The Shorts interface is similar to TikTok’s FYP. It will be housed in a new carousel within the mobile app’s home screen.
YouTube plans to roll out more content creation features in the future. Currently, Shorts does not have TikTok’s collaborative features like ‘duet’ or ‘stitch.’
Shorts that use a song can link to the music video, and creators will have a combined subscriber count across Shorts and their normal YouTube channel. (MrBeast opted for a separate channel for his Shorts with 5.4 million subscribers.)
Shorts Product Lead Todd Sherman also revealed that they are working on potential monetization options for creators.
Since its launch in India last year, Shorts have been garnering 6.5 billion daily views globally.

Facebook Is Planning To Use the Substack Pro Approach

What Happened?

Facebook is planning to offer deals to independent writers as a part of its newsletter product launch.
The publishing platform will be integrated with Facebook Pages, giving writers the ability to share status updates through Stories or Live Video.
Writers will be able to monetize through paid subscriptions, with access to reader analytics.
Recommended Reading: Casey Newton’s deep dive.

Addison Rae Released A New Single and Announced A Netflix Deal

What Happened?

Addison Rae Easterling, TikTok’s second most popular creator with 78.4 million followers and $5 million in revenue, recently released her debut single ‘Obsessed’. In around 24 hours, the song had 5 million views on YouTube.
Unlike other TikTok creators like Dixie D’Amelio, Nessa Barrett, Jaden Hossler who have delved into music, Addison released her song without a label.
Also, Netflix recently acquired Addison’s gender role reversed take on ‘She’s All That’ called ‘He’s All That’ for $20 million.

r/WallStreetBets Founder Signs With UTA On The Back Of Hollywood Demand

What Happened?

The Founder of infamous subreddit Jaime Rogozinski recently signed with United Talent Agency, which is trying to procure speaking engagements, podcasts and Hollywood projects for him.
There are at least 9 commissioned projects based on the Gamestop saga in Hollywood.
Metro Goldwyn-Mayer is making a movie based on Ben Mezrich’s (author behind The Social Network) upcoming book. Jason Blum is producing one for HBO as well.

13,000 (0.4%) of Spotify Artists Were Paid Out $50,000 Last Year

What Happened?

Spotify recently launched Loud & Clear—a website aiming to clarify the economics of music streaming. The website lets artists calculate their streaming royalties, as well as answer related FAQs.
Spotify also revealed key data regarding streaming royalty payouts: They paid out $5 Billion to copyright holders last year.
90% of Spotify streams are garnered by the top 1% of artists. This highly skewed power law in music streaming has been under the spotlight recently, with a parliamentary inquiry in the UK.
Daniel Ek tweeted out how much the long tail of music creators on Spotify are being paid out.

Daniel Ek@eldsjal

Replying to @eldsjal

And it’s happening. From streaming on Spotify alone, we’re seeing growth from artists at all stages of their career: since 2017, the number of artists generating more than $50K/yr is up 80%; more than $100K/yr is up 85%; and more than $1M/year is up 90%.

MrBeast’s Management Company Launched a New Venture Fund

What Happened?

Night Media, a talent management agency that represents celebrity YouTubers like MrBeast (55 million subscribers) has launched a $20 million venture fund backed by its roster of creators.
The fund will be investing in early-stage gaming, consumer social, and creator economy startups.
Night Media has invested in 15 companies so far. It’s portfolio includes: Bitcoin rewards app Lolli, luxury product marketplace Italic, sports card investment platform Alt, TikTok collab matchmaker Pearpop, and others.

NFT News Roundup

What Happened?

Kevin Roose, a columnist for the New York Times, recently sold his column for $560,000.
A “hand-painted” self-portrait created by the humanoid robot Sophia recently sold for $688,000.
Async launched a platform designed for producing programmable music using NFTs.

Facebook is Building An Alternate Version Of Instagram For Kids Under 13

What Happened?

Instagram's current policy bars kids under 13 to create an account. Specific details have not been revealed yet, but the Head of Instagram Adam Mosseri hinted that the app will let parents have a greater degree of control over their kids’ in-app activity.

Ryan Mac🙃@RMac18

Facebook is building an Instagram for children under the age of 13, based on internal docs and interview with @mosseri. My latest with @CraigSilverman.

ICYMI: Mark Zuckerberg, Daniel Ek and Tobi Lütke On The Creator Economy

What Happened?

Mark Zuckerberg joined Spotify CEO Daniel Ek and Shopify CEO Tobi Lütke on Clubhouse for Josh Constine’s Show, Press Club.
During their conversation, they addressed three themes related to the creator economy: the diversification of creator revenue streams, Apple’s restrictive App Store policies, and how wireless earbuds have opened the floodgates for new audio content formats.

Product Spotlight: A Sponsorship Marketplace for Clubhouse Creators

What Happened?

Clubmarket, a marketplace that’s aiming to connect Clubhouse creators with global brands recently launched on Product Hunt.
The platform has a calculator that lets hosts determine how much they can charge for hosting a brand-integrated room on Clubhouse.

K-pop Sensation BTS Conducted A Census of 400,000 fans

What Happened?

‘BTS Army’, the well-known community of BTS superfans, recently published the results from a census of 400,000 fans across the world.

BTS ARMY Census 💜🌍📊@ARMYCensus

Presenting the results of the BTS #ARMYCensus [2020] 🌎✨

Thank you to the 400K+ participants and 46 translators who made this possible. Join the conversation and spread the word: #ARMYCensus 💜

VIEW RESULTS:
https://t.co/wSm3g0mMwG

WATCH VIDEO:
https://t.co/vi4aTAYJ0D

State of Podcasting: Infinite Dial 2021 Is Out

What Happened?

Podcasting industry expert Nick Quah recently published a tl;dr version of Infinite Dial—Edison Research’s annual report on the podcasting industry. Here are the key takeaways:
41% of the total U.S. population over the age of twelve, (116 million), can now be considered monthly podcast listeners, up from 37% the year before.
28% of the total U.S. population, (80 million), can now be considered habitual weekly podcast listeners, up from 24% the year before.
Spotify has played a role in the increased consumption of podcasts among younger demographics.
The growth curve of audiobooks is flattening back out, after a spike in 2019.
The consumption of terrestrial AM/FM dropped from 81% to 75% of the population, due to the lack of commuting during the pandemic.

Passion Economy Financings:

OpenReel, a platform that provides tools to simplify remote video production, recently raised a $19 million Series A funding round led by Five Elms Capital. OpenReel has 200 enterprise clients like Dell, Hubspot, ViacomCBS, and Verizon Media. Their ARR has increased by 12x over the last year.
Overwolf, the user-generated gaming platform that lets users build, distribute, and monetize in-game apps recently raised a $52.5 million Series C funding round co-led by Griffin Gaming Partners and Insight Partners. Currently, Overwolf has 30,000 creators and 18 million monthly active users.