Calcutta Club: How Does Patreon Make Money?
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Calcutta Club: How Does Patreon Make Money?

Before we begin today’s musings, it was announced last week that one of the key actresses for the upcoming survival horror game Resident Evil: Village passed away. Jeanette Maus was well known as an acting teacher and numerous rolls across television and film. Her role in Village was to be her first video game credit. The cause was a complication due to colon cancer which Ms. Maus had been getting treatment for since last year. She was just 39. Our deepest sympathies and prayers go to the family and friends of Jeannette Maus during this difficult time.

Jeannette Maus
1982 – 2021

Cigar of the Day: CAO Flathead

‘How does [x]make money?’ is the dream killer on Wall Street. No matter how good of an idea you think you have and no matter how many people you get to fantasize about this idea with you, once people start asking that question you better have a good answer. The latest victim of said question was Quibi when, after months of promising returns, it couldn’t because it didn’t make money. On the surface, Patreon faces a similar issue and I want to take some time today discussing it, the larger issue facing crowdfunding they all seem to agree on as well as what it means for the creators that see Patreon as a source of revenue.

Let’s get one thing out of the way right off the bat: crowdfunding is not profitable. I understand a lot of people will not agree with my assessment because I’ve been saying this since 2014 are people have always disagreed. However, if you look at all platforms and methods of crowdfunding, the stated intent is not to produce a profitable product or generate revenue for the people behind the campaigns. The intent is to have people pay for your idea exist. That’s it. This is why both large and small publishers and content creators can and do use crowdfunding platforms equally because there are different audiences in the world who are happy to pay for an idea they like to exist. The idea of a marketplace based on perpetuating individual or collective existence rather than perpetuate financial growth is fairly new in world history. Even before Capitalism, all markets existed on growth and decline, planting and harvest, etc….as well as annual pillaging for those who were so inclined. It’s also why I’ve always said and stick to the idea that if you are given more money than you asked for in a crowdfunding campaign, it’s not revenue. Again, these terms are connected to product, growth, decline; known economic theory. People giving you more money because they think you deserve it, or they want to make a statement in their support or just want the idea you’re putting into the world to exist is still charity and the larger issue facing crowdfunding was always if you could build a business model around non-traditional means of charity.

While I don’t think we should make a definitive statement until at least 2022 at the earliest and 2024 at the latest, the results are mixed. Yes, campaigns on the various platforms have done very well last year Kickstarter, arguably the market leader for crowdfunding platforms, laid off 40% of its workforce. During this turnover, Kickstarter CEO Aziz Hasan did an interview with The Verge and was asked a variant of The Question: specifically is Kickstarter looking for other ways to make money? Let’s take a look at his response,

What this has really showed us is that in order to make sure that we’re a longstanding and reliable platform, we need to be able to manage our business a little bit differently. We’ve been operating on modest income and really thin margins for a while, just as I think any small, independent business might. And what the pandemic really put into focus for us was how resilient to shocks we might be as a business, and that we have to do more to make sure that the platform remains kind of available and nimble.

This isn’t separated from the rest of the crowdfunding market. In 2019, Patreon CEO Jack Conte said flat-out that the model would not work for very long,

“The reality is Patreon needs to build new businesses and new services and new revenue lines in order to build a sustainable business,” 

So we have a mutual agreement within the industry that just existing in their currently unique forms is not a viable corporate structure and change is needed down the road: especially if Patreon, Kickstarter or Indiegogo attempts an IPO. For now though, this is still the main way these platforms making money. To bring it back to Patreon, in September 2020 Variety reported on Patreon’s Series E fundraising goals. The feature also included a snapshot of Patreon’s financials and their future goals. According to the article, Patreon was successful in raising $90 Million in new funding with $255 Million raised since it’s founding. To get a better idea of how much money that is for the company, you have to factor in how much its subscribers have made by host subscription accounts on their platform. Patreon takes between 5% and 12% of subscribers’ contributions per month and, at least according to Jack Conte, Patreon creators have earned $2 Billion collectively combining the history of the platform. So, for the company, this allows for an estimate of between $100 Million and $240 Million combined since its existed which means the actual year-to-year revenue from the site itself isn’t even close to the combined total. It would also explain why they continue their fundraising pushes and also why every quarter or so, they float the idea of altering how they divide contributions to creators.

Some of you may be asking, ‘Well, JP, if $500 Million (between hypothetical revenue and fundraising) isn’t enough money for the company in seven years, how much is?’ Conte’s goals it to grow the platform so their combined creators will earn $1.2 Billion annual. If they can accomplish this, the company would earn somewhere in the ballpark of $60 Million and $140 Million a year. If they can make that for five years straight, I would still argue their investors and fundraisers would push for revenue somewhere around a quarter of a billion dollars annually to make Patreon a viable, continued investment. It’s an extremely bold undertaking and something that will fundamentally change Patreon by 2030, if not 2025, if they can stick to their goals.

What this means for you, reading this musing and imaging billowing clouds of fragrant aromatic premium cigar smoke both first and second hand is that, depending on how you use crowdfunding, you have to start planning a transition or at minimum restructured so you’re not dependent on crowdfunding entirely. Hopefully Patreon will able to answer the question on its profitability soon, but no one currently reliant on the model has the luxury of hope in this situation.  Eventually, how they distribution contributions will change. New membership and subscription options will take the place of the tiered ‘Pay What You Want’ model. It will take more than a few people off, but if those same angry users are tied to the system, it’s not at that point about keeping them happy: it’s about ensuring the company’s future. Since that is how Patreon is going forward these next five to ten years, many of you will have to function in the same way. Not out of a desire to be cruel or because this is what the evils of Capitalism demand or anything like that, but rather because just like Patreon wants to continue to exist, I would hope you would want your ventures to continue forward with or without them.

While I will not tell you how to make money, I will offer some advice that you are free to take or ignore: it’s no skin off my nose. You do not have to answer this out loud, but do give it some thought: as a content creator regardless of the type of content, what is your main source of revenue? Is it based off of sales of your content? Subscriptions? Crowfunding? Something else entirely disconnected from your creative process like a day job? You do not have to purely profit off of your art, but it could help your future planning to at least know where it ranks when it comes to your bank account. And for those about to presume, no; I’m not saying shut down your Patreon accounts right now so you can maximize revenue or any sort of corporate scheme. I’m saying just like its good to have an idea how Patreon makes it money, you should know how YOU make money. As I warned all throughout this, that question can be, no matter who you ask it to, a Dream Killer. JP3: OUT.

Written by JP3 - February 2, 2021