Links Roundup 12/08/17

Written by Natalie Luhrs

I'm a lifelong geek with a passion for books and social justice.
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December 8, 2017

Well. Hi. I spent entirely too much time yesterday on Twitter yelling about Patreon but at the same time: it has been ages since I’ve had that much fun on Twitter, so I’m calling it a wash. I have a lot more thoughts based on additional information I’ve found since my previous post about Patreon’s changes, so you’re going to have to bear with me.

Jack Conte, CEO of Patreon, tweeted that they have to de-aggregate pledges and charge all those extra fees because of one reason and one reason only: for the creators who require their patrons to make payment upon subscription instead of as part of the regular billing cycle, which they added fairly late in the game to prevent people from subscribing, sucking up all the patron-only content, and then unsubscribing before the billing date.

There are a few solutions to this. You can track access to the patron-only content and if someone does this repeatedly, you ban their ass from your platform. You can restrict access to the last 30 days of patron-only content and once their payment goes through at the beginning of the month, the rest is unlocked. There are solutions to this which do not require de-aggregating pledges and the chart where they’ve got the current system payment process laid out is a bald-faced lie, as they currently aggregate monthly and per item pledges together and bill them all together as opposed to billing the per item pledges as they occur. The fact that Patreon didn’t design their internal system to be flexible enough to manage three different types of pledge is not the problem of the creators or of the patrons and the solution should not be on the backs of the $1 patrons.

But apart from that, what I find most interesting about this is the fact that they will now be collecting a steady stream of money throughout the month instead of once a month. This gives them much steadier cashflow, for one. For another, I’d like to know how they propose to make these pledges–collected throughout the month–available to creators. Will they be disbursing them as they come in? Will they be collecting and batching them out once a week? Once a month? How long will creators have to wait to withdraw the funds?

I did some back of the envelope calculations on Twitter based on their estimated $150 million total payout to creators in 2017 (citation) and they’re grossing roughly $12.5 million a month. If they’re pulling that in over 30 days, that’s around $400,000 per day. Give or take a few thousand. And that money just isn’t sitting there, doing nothing. It’s earning interest. Interest which is being compounded, probably on a daily basis. That could add up to a substantial amount of money, especially if Patreon has lengthened the time between collection from patrons and withdrawal availability to creators. As long as that money is sitting in a Patreon account, it is earning money for Patreon, not the creators. They are also, per this screencap, planning to eliminate creator-to-creator payments within their system, which means more fees for everyone! Do this enough and eventually Patreon will have all the money!

This article makes it clear that Patreon primarily values their most successful creators. These would be creators that they can use to attract other successful creators into what they call a “virality loop”–oh my god it’s the techbro version of the Law of Attraction.  At the same time, the unnecessary de-aggregation of pledges manages to make their service much less attractive to people who pledge below $5 and those creators who haven’t become what Patreon calls a FSC–a Financially Successful Creator (which they won’t divulge the financial criteria for, but apparently one of the other criteria is the professionalism of said creator’s public-facing materials which is, right there, some gatekeeping bullshit). And this comes on the heels of their crackdown on adult content which happened right after they received $60 million in Series C venture capital.

I find all of this very, very interesting. To say the least.

On to the links!

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14 Comments

  1. Aliette

    So hum, hang on. They’ve admitted that they’re charging the patrons for the payment processing fees of their processors? Isn’t that illegal if you’re a provider of credit card services?

    • Natalie Luhrs

      Aliette, I think they’re skirting that issue by calling it a “Patreon processing and transaction fee” but in the blog post it’s super clear that it’s the PayPal/Stripe fees–which is not only an open violation of Visa and MasterCard merchant agreements but is also illegal in some states.

  2. Aliette

    @Natalie: nodnod that’s what I thought. It was fine when they were calling it processing fees, but the blog post is rather damning in that respect… Wonder if anyone brought that up to Visa & Mastercard?

    • Natalie Luhrs

      I can’t imagine that they didn’t negotiate with PayPal and Stripe to figure out a way around it.

  3. Aliette

    @Natalie: true

  4. ULTRAGOTHA

    “I have never heard this story before. So glad you aired it out here, Mom.”
    I’m CRYING. OMG.

    “Everyone is “pretty flawed.” Isn’t the whole idea that you grow up and realize nobody is perfect and learn to live with the ways you’re messed up?”
    Wow.

    That was amazing. Hannah also seems to be a better writer than her mom.

    • Natalie Luhrs

      I know! Hannah is pretty great.

  5. Jason

    > I did some back of the envelope calculations on Twitter based on their estimated $150 million total payout to creators in 2017 (citation) and they’re grossing roughly $12.5 million a month.

    How did you get 12.5 million/month in gross revenue for Patreon? 5% of $150m is roughly 7.5m in fees earned for the entire year or $625k/month in net revenue. The transaction fee above 5% just goes to Stripe.

    • Natalie Luhrs

      Because the payout to creators is the net, not the gross. Per my citation, they have a million users donating an average $12/month. Which only comes to 144M per year so I divided 150 by 95% to get to 158 per year collected from patrons, which is 13.2 million a month out of which the transaction fees must come and 750k seemed reasonable without knowing the precise number of transactions in the aggregate model.

  6. Jason

    I think you are wayyy overestimating Patreon’s sophistication when it comes to financial engineering as an earnings stream for them. They are using Stripe’s marketplace platform to take in money and pay out to creators – none of the money that sits in Patreon’s Stripe account earns interest payable to Patreon. It’s only whatever Patreon withdraws from Stripe (i.e. net revenue) to its own bank account that would earn any interest, and my guess is that they are nowhere near cash flow positive, so whatever interest they’re earning from their bank is going to mostly just come from whatever is left of the VC money they have raised, not really any of the $600k in cash they are generating from creators each month.

    I just don’t understand this narrative about Patreon being this greedy machine – they are making a tiny amount of money given their huge valuation. $8m/year in revenue can barely pay for 40 employees a year and they have 250+. If anything, I don’t see them surviving for very long…it’s frankly a pretty poor business model altogether.

    • Natalie Luhrs

      Ha. I probably am. However, I have a Stripe account. I make very small freelance dollars. Stripe send me any money I have in there weekly (less their cut, of course). If I had more regular income through that channel, they’d send it to me more frequently. So after Patreon moves to the de-aggregation model, they may very well be getting daily deposits from Stripe—which they can earn interest on until they pay it out to creators. And continue earning interest until the creators transfer the money out of Patreon. Interest on $10 million a month surely adds up.

  7. Jason

    I think you’re missing the fact that Patreon is a marketplace and you are not. They aren’t using the same “Stripe Checkout” product you are but instead “Stripe Connect”, which is specifically designed to handle payments from buyers and pay out (i.e. remit) money to sellers (https://stripe.com/connect) through Patreon’s Stripe account. Stripe is not an acquirer (i.e. they don’t offer merchant accounts), so as long as Patreon uses Stripe for payment processing there is no way that Patreon could be a customer of Stripe Connect and do what you have described (i.e. have gross revenue deposited into their external bank account and, when the time comes to pay, have that money transferred from their external bank account back to Stripe to be paid out to creators).

    Even if you assumed they moved away from Stripe and went with a payment processing solution that enabled them to pay creators out of their own bank account, the interest earned on, say, and average balance of $15m/month, would be something like $12k-$13k/month with a 1% APY (fairly generous). That income would, after tax, pay half an engineer’s salary. I can’t imagine that what you described in Patreon’s secret evil plan to make a ton of $$$$.

    • Natalie Luhrs

      That’s it. You’re done.

      You’re bound & determined to prove me wrong, aren’t you?

      A bit of poking around on Stripe Connect tells me that they offer volume pricing for platforms that are processing more than $150,000, so. That’s a thing. And I simply cannot imagine that any halfway competent company wouldn’t negotiate a better deal than the base rates, which are the ones that are being charged the patrons.

      I wouldn’t expect the interest to make a tremendous difference to the bottom line, but every bit counts when you’re aiming for that IPO.

  8. Selki

    Donated to the Internet Archive and NYPL. Would to Slate if there were an obvious way to do so without subscribing.

    Auto safety: I hadn’t heard of Hugh DeHaven before. Hero.

    Forwarded the Alcott article to my book club which read some of her gory/Gothic stories, thanks.

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