Patreon Should Buy Substack to Save Creators

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Let me tell you a dirty little secret: Every media company you know is panicking. Traffic from social media is declining, consumers have subscription fatigue, and the advertising market is still sagging. As a result, layoffs are rampant. More than 500 journalists lost their jobs in January alone. 

You know who else is panicking? Creators, who have been told that creator economy startups like Patreon and Substack will help them escape the shackles of these media companies and run their own businesses. While social media and search engines may send them some traffic, they are subject to similar declines as larger media organizations, making it harder to grow. The real winners have been the platforms that aggregate user attention and turn content creators of all sizes into commodity suppliers—YouTube, X, TikTok, Instagram. 

The societal results of the evolution of our media ecosystem have been mixed. Mark Zuckerberg owns half of the island of Kauai, tech CEOs are buying yachts left and right, and our information ecosystem is broken. The current mix of distribution and incentive structures has yielded a polarized populace, short-form video addiction, and, at least for me, a measurable decrease in IQ. There are—of course—silver linings. This newsletter, for one! We wouldn’t exist without social media. Many other wonderful businesses and causes have come to being within the internet’s current paradigm.

Still, I think there is a better way. We need a new attention aggregator that increases creator earnings and incentivizes creators to produce thoughtful, long-form, sane content. There needs to be a creator economy startup that goes right for social media’s throat. 

And it needs to be a notch more ambitious than the current crop of creator economy startups, which exist as peripheral software suites in the media ecosystem. They manage consumer subscriptions (Patreon) or help creators sell newsletters (Substack), courses (Kajabi), or digital goods (Gumroad). These companies are like mice, satisfied with crumbs of a few hundred million of ARR while YouTube pulled in $31.5 billion last year in revenue. 

To produce a great outcome for investors, creators, and consumers, I propose a solution: a rollup. Patreon should start by raising a large amount of capital and purchasing Substack.

At its last funding round in 2021, Patreon was valued at $4 billion, while Substack was valued at $650 million in a 2023 community fundraising round. Combined, and accounting for the growth in the intervening years, it’s reasonable to assume a roughly $5 billion valuation for the combined entity. This NewCo would have enough creators, users, and credit card data to present as a legitimate challenger to smaller social media providers like Snap, X, or Pinterest. Most importantly, the combination would remove the weight of the historical product roadmap. It could be more ambitious in its vision, more direct in its goals. Both companies have made tentative moves toward competing with Facebook with their apps—this acquisition would give them the space and scale to go all in. 

Here’s how it would work.

The economics of a roll-up

Patreon and Substack are among the biggest winners in the creator economy because they created products that the aggregators weren’t willing to:

Patreon: Cross-platform subscription management

Substack: Paid newsletters (which has transformed into a reader app)

On their own, neither will fix the ecosystem’s problems. Patreon and Substack exist around the edges of social media platforms, which materially shrink their prospects and limit their impact. However, if they are combined, they have a chance at beating them. 

It’s an application of vertical software theory. In software, you want to own the “control point”— have your software do the most important workflow or hold the mission-critical data for a company. That makes it very hard for customers to turn off, thereby reducing churn and making it easier to sell add-on products. Broadly, control points fall into two buckets: front office, which interacts with customers, and back office, which handles all the data and workflows that don't.

Patreon: Back-office customer management, with robust subscription tooling

Substack: Front-office customer management, with a robust customer-facing platform 

These two companies need each other—in order to survive in today’s internet, they have to become attention aggregators. A consumer destination creates demand for your creators. If you don’t have that, then you’re stuck playing second fiddle because the Facebooks of the world satisfy a media company’s most important need—an audience. In this transaction, the Substack app’s writer audience would be the key asset for Patreon. For Substack, the value would be enablement to successfully pull off its fledgling moves into the video, music, and podcasting business without having to build its own cross-platform subscription management.

Creators would stick with Patrestack (Subreon? Pubstack? We’ll workshop it later) because both of these companies combined would own the control point. Substack’s app has become more  of a pure browsing experience, making it a consumer destination. While Patreon has a robust subscription management and backend platform, its app is ass. All it does is provide access to content you’ve paid for without a social media experience. The two together would be a powerhouse.

Patreon had over 8 million subscribers as of 2022, while Substack has 3 million total paid memberships as of this year. Let’s say there are over 10 million paying subscribers across the two platforms in total (which puts the two platforms at roughly the same subscription count as the New York Times). These 10 million subs come with unique email user IDs, credit card information, and, most importantly, behavioral data about their interests. 

Ten million people is enough to kick off a real, honest-to-goodness attention aggregator. For comparison, when Google bought YouTube, the latter had 20 million subscribers. In addition to giving creators an off-ramp from social media, the combined companies could grow the supply side by starting an ad network. A properly managed ad network is good for the entire ecosystem: It would add revenue to non-paywalled content and, crucially, let creators start earning money faster, enabling a middle class of creators to flourish. The current industry leader in creator revenue share is YouTube, which offers a 50 percent split. There is nothing stopping Patrestack from offering more generous terms. 

By combining ad networks, subscriptions, and an attention aggregator app, the companies would be able to solve the majority of creators’ concerns while improving the average revenue per user. 

Over time, giving creators superior economics would incentivize them to funnel their audiences from existing social media platforms to the NewCo’s app. They’d still be able to post on all the other platforms, but because NewCo would have an aggregator app, in-platform organic demand would start to matter more. Even though more power accruing to NewCo’s app would increase platform risk for creators, it would still be net positive, especially if the company continues the Substack tradition of letting creators take users’ emails with them if they want to go off platform. 

A united company would have even more opportunities for acquisitions. Buying Kajabi or Gumroad could give creators the ability to sell high-value digital products, like courses. The company can start providing payments, loans, and banking services to creators by purchasing a fintech company like Karat. There are so many hard problems that come with being a creator that if a single company could provide both the demand and the supporting software, it would win.

Best of all, this NewCo could be opinionated about algorithmic feeds, for much cheaper than ever before. Using LLMs, it could build content moderation algorithms that prioritize well-argued, reasonable content. By marketing itself as the anti-social media social media club, this company could counter-position against social platforms. Consumers want this! A Gartner report estimated that 50 percent of American users want to decrease their social media usage by 2025. 

This is a rare win-win-win. Investors and early employees would make bank. Creators would get a platform that helps them run their businesses and makes them more money. Consumers would get a calmer place on the internet that elevates their consumption experience. Either company should feel free to send me a fee for this proposal (sorta kidding, sorta not).