In my years as a journalist, I have seen more disruption in the business model of the news media than my friends in finance, teaching or the arts. Clearly, the traditional business model of news has long been under severe strain, if it is not already completely broken. Unfortunately, it isn’t just the print news media that has borne the brunt of disruption but also a whole gamut of digital new media that have had their own comeuppance in recent years.
However, a new revolution is underway now that threatens to remake the news media business. High-profile journalists are leaving the newspapers and magazines they work for in droves and venturing out on their own. They are enabled by tech start-ups like the newsletter publisher Substack, which is converting journalists into instant entrepreneurs by making the publishing process easy — and profitable. Substack already has over 600,000 paying subscribers across its network. Most of them have multiple subscriptions. Though critics deride Substack as the Uber of content creation, the ongoing realignment of human capital is likely to upend the business model of news.
Why would any well-known journalist leave a paid job at a top newspaper to become an independent newsletter writer? For one thing: money. The top 10 writers at Substack make over US$15 million ($19.8 million) annually after paying a 10% fee to the platform’s management. Put it another way, top Substack writers are making on aggregate US$1.5 million a year each and they are just getting started on monetising their work. There are several dozen more who make upwards of half a million dollars a year.
What could be more disruptive to publishers who have been focused on cutting costs than to wake up and realise that a bunch of their best journalists or writers have bolted to go make several times what they were being paid? Over the years, newspapers have weathered storms like falling circulations, plunging ad revenues and an attention economy that has moved away towards social media like TikTok. Can news publishers survive the Substack tsunami and the rise of entrepreneurial journalism?
Power shift
There were handwritten newspapers long before Johannes Gutenberg invented the first printing press in 1450. Relation, the first printed newspaper, a weekly, didn’t appear until 1605 in Antwerp, Belgium. Back then, the writers had all the power. Over the years, the power shifted from writers to editors who were responsible for making sure that all the i’s were dotted, t’s crossed and any inadvertent spelling or grammatical errors removed, apart from the overall curation process. As newspapers became a more serious business, the power transferred to circulation managers because, at that time, they brought in most of the revenues. Later, advertising became the key source of revenue in news media. That made ad sales managers more powerful in the business.
At the turn of the century, the advent of the internet began dramatically changing the way media was financed. A huge chunk of display ad revenues was siphoned away by Google and YouTube, Facebook and Instagram, Twitter and Snapchat, while Craigslist decimated classified ads. Instead of passing on some of the rising costs of producing print news publications to readers, publishers chased ad revenues to subsidise costs and boost margins. Ads, once seen as the saviour of news, ironically became the news media’s Achilles heel.
As print display ads vanished, news media tried to develop a new revenue stream: digital advertising. The narrative was how long it would take to replace the lost traditional print ad revenues. Twenty years on, the media has come to the collective realisation that lost ad revenues are probably never going to be replaced by anything, including digital ads. In the developed world, about half of the print newspapers and magazines have already shuttered. TV audiences have moved from ad-supported channels to subscription-based streaming services. More recently, print media has tried chasing subscription revenues without much success. Publishers argue readers are just not willing to pay for news, or for that matter, analysis or opinion. Yet, if the recent boom in paid newsletters at Substack as well as paid podcasts is anything to go by, there are clearly a lot of people willing to fork out a lot more money than what most newspapers charge for a subscription.
Substack threat
As a news junkie, I am a voracious consumer of news. I subscribe to 13 different Substack newsletters covering three main areas of personal interests — US politics, technology and finance — paying between US$5 and US$10 for most of the newsletters. It’s an expensive habit. I pay US$90 a month for all my Substack subscriptions. That’s not much more than what I paid for all my newspapers and magazines a few years ago. Aside from three global newspapers, I don’t subscribe to or buy any other publication. Thirteen of my favourite writers on Substack give me almost all the news and analysis I need.
Launched in late 2017 as a tool for monetising email newsletters, Substack has emerged as the biggest threat to traditional journalism in just three years. Twelve million readers visit the Substack website each month. While most of them read some of the free material on the site, paid subscriptions are soaring. Writers create newsletters that can only be accessed by paid subscribers. They also get a dedicated home page on the web. In addition, there is the opportunity to create podcasts and other content like YouTube videos.
I subscribe to the Substack of former Rolling Stone writer Matt Taibbi who gained fame in 2009 for describing Goldman Sachs as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”. Taibbi charges US$5 a month, writes three pieces a week and reportedly rakes in over US$1 million a year. I can tell you that the US$5 a month — little more than what I pay for a Starbucks Venti latte — is well spent. Another writer I subscribe to is Bill Bishop, who writes the China-focused Sinocism newsletter. He charges US$15 a month.
Substack isn’t just for individual journalists trying to sell their columns or stories online. A bunch of journalists can get together and create a newsletter and share the revenues. One such Substack newsletter is The Dispatch, a right-wing publication that reportedly has over US$1 million in annual revenues.
Currently, Substack takes a 10% cut as a fee for providing basic infrastructure and other tools to journalists to publish their stories and opinion columns, and get paid directly by readers like you and me who subscribe. Substack CEO Chris Best recently said he expects to offer benefits like healthcare, editing and legal services to writers. Substack writers don’t miss the regular salary they used to get from full-time work but they do yearn for three things: Legal help when powerful politicians or businessmen threaten to sue them, access to healthcare benefits when they get sick and some sort of editing service. If they can make a lot more money from Substack than they did from their full-time jobs, they probably won’t mind paying it 12% or 15% in fees, instead of 10% currently for access to a lawyer, an editor and some help with health insurance.
Many journalists thrive in a newsroom environment where they can bounce off ideas and indeed get tips or inspiration for the next story or column from a colleague. With a growing base of writers and readers, Substack is now building a network of sorts that writers and readers can use to their advantage.
Why are well-known writers like Taibbi, who could walk into any editor’s office in the world and get a job where he might write just one piece a week, toiling away at three or four pieces on Substack? For one thing, good writers and columnists don’t want to be told what to write and when or how to navigate around issues such as not antagonising large advertisers or powerful political friends of their publishers. Moreover, big-name writers realise they are powerful brands themselves and as such need to grow independently because publishers don’t have an incentive to create brands within their own newsroom.
Targeted audience
Substack’s basic model is to allow writers and readers to opt out of traditional media and pick and choose what they want to write or read. Think of newspapers the way you look at traditional pay TV bundles. You pay US$80 for 200 channels and find there is nothing to watch. Pay TV firms aim for the lowest common denominator. The viewer is getting what has been curated to attract the biggest possible audience willing to pay a hefty monthly fee. Newspapers aim to curate stories that help attract maximum ad revenues. They are like a buffet. Substack is akin to ordering a la carte.
Substack, which recently raised US$65 million from venture capital (VC) firm Andreessen Horowitz at a US$650 million valuation, is willing to pay big bucks upfront to lure better-known writers to its platform. It guarantees writers a salary that is 50% to 100% more than what they currently make in the first year just to get them started. The New York Times opinion writer Charlie Warzel recently quit to join Substack with a hefty contract. Last week, the newspaper’s politics and pop culture columnist Frank Bruni quit, with the blogosphere speculating that he might be headed for Substack. With VCs pouring in more cash, Substack can lure better known names from big newspapers.
Competitors are coming. Twitter recently bought Revue, a Substack rival, and Facebook is set to splurge tens of millions to lure journalistic talent for its own version. Competition means fees that journalists pay Substack and its ilk will fall and the mega million-dollar advances they command will only grow. That’s bad news for publishers because more of their best talent will flee. The irony is that the likes of Facebook, Google, Twitter and other internet players which hollowed out newsrooms years ago, bankrupting publishers and turning journalists into paupers in the process, are now willing to pay whatever it takes to entice the best writers to their platforms.
Is Substack a flash in the pan? “It amounts to a major human capital realignment in the news business that will ruin many news organisations and propel those smart enough to realise what to do about it,” Jessica Lessin, founder and editor of paid tech website, The Information, wrote in a recent blog post. “It is going to be much harder for news organisations to adapt because it affects their control over their product — their journalism — much more than the business model shift did.” Power is shifting back to the primary content creators, the writers.
Assif Shameen is a technology and business writer based in North America
