The Patreon Effect — The Dangers of Tipping Culture, and is There a Better Way
The history of technology in the 2010s is the story of unintended consequences. Big tech companies like Facebook, Instagram, Amazon, Airbnb, Tinder, have all had incredible effects on our lives, but rarely have they lived up to their promises of a better, more open, more democratized world. From a dopamine addicted userbase on Instagram, to flake culture on Tinder, to the cover up of rapes in AirBnbs, to binge watching on Netflix, to Amazon’s dominance of brick and mortal retail, the only consistent thread in tech innovation, besides a willful desire to blindly follow a misguided vision, is that of unintended consequences.
As one of the veritable newcomers to the 2010s tech boom, Patreon is not immune to this effect. It is the worlds largest platform for artists and creatives to monetize their work, currently valued at over 4 Billion as of this April.
In the dawn of personal content monetization, advertising revenue sharing and product marketing were the only ways for content creators to make money. Platforms like Youtube share a percentage of revenue with creators as an incentive for those creators to fill the platform with fresh, engaging content, and brands advertise through celebrities and influencers via places like instagram and Tik Tok.
The founders of Patreon challenged this status quo with the idea that advertising revenue, while valuable to some creatives, wasn’t effective for other types of creatives. Those with niche audiences, those in music or traditional art, and those who’s content couldn’t be easily advertised on. While some Youtubers, writers, podcasters, and instagram influencers become wealthy from the advertising economy, others flounder in a sea of click-bait content. Patreon is their remedy. As a subscription based platform that allows users to subscribe to creators and send them a monthly fee, the platform has provided creators millions in revenue that would otherwise not exist.
At first glance Patreon represents one of the purest examples of the decades-old promises of big-tech; democratization between creators and consumers, and personal freedom through individual empowerment. Never before have creatives been able to be so free to produce niche content; as long as their fans are satisfied with the content quality and topic matter, they can continue to earn a relatively consistent monthly income. Youtube channels like the crafting youtube couple Evan & Katelyn, irreverent and hilarious long-form blogger Wait But Why, and the highly artistic educational videos of Kurtzgezat, all rely on this income stream to bring tens of thousands of dollars in revenue each month. This same model has been copied for other services, like Spotify, which is testing its own tipping strategy.
All of this otherwise untapped revenue is good. Creators getting paid more is good. Creators having control over their content, instead of publishers, is good. We are still early in the cycle of innovation for a platform like Patreon. How things evolve from here, and what the outcomes of continuing to grow, it is impossible to say with accuracy. However, just as Facebook made us less connected over time, instagram created dopamine dependent interactions, uber reduced the average income of being a taxi driver, and with almost any tech innovation in the last decade, there are unintended consequences of the world that Patreon is building.
Patreon and other similar content monetization platforms, for all of their good intentions, are effectively tipping services. Consumers pay a provider directly for services and content they like. Those that produce more popular content and services make more money. Those with unpopular niche content, those with small social followings, and those that chose not to engage with their fans consistently make less money. On the surface this isn’t so bad. However, as we’ve seen with the type of tipping that most American’s are familiar with at restaurants, tipping culture creates a very dangerous trap for creators and consumers.
To consumers, tipping culture creates an uneven distribution of cost of content. To some consumers, those that feel unable, or unmotivated to tip, have a $0 cost for content consumption. This can be because they just don’t like the content that much, but other things get in the way of tipping. Just like tipping at a restaurant, “Patreons” as they’re called, might not subscribe because they do not feel morally obligated (“content should be free”), or they might simply not think to tip, or they might take offense at a political or social position the creator has and withhold their money while still consuming the content. As should be obvious, this would lead to a muting of creator’s political or social voices, and will mean that those that choose to tip, whether out of moral imperative or pure love for the content, will be paying dramatically more for the content then their peers.
To creators, tipping is an immediate and welcome source of extra income, on top of their already generating advertising revenue. However, this income is not without strings, and lots of them. Tippers, as they do at restaurants, expect special treatment for their monetary contribution. Tippers often expect rewards in return for tipping, which can be in the format of special content, early updates, special access, or otherwise preferential treatment. This creates more overhead for the creator, who instead of creating content, must now spend time catering to the desires of their tippers. Furthermore, creators must spent countless hours on social media or time within their content promoting their Patreon.
However the most damaging result of tipping culture is a reduction in primary income. For a service like NPR, it’s government funding that is reduced. For restaurant employees, hourly wages have remained incredibly low, sometimes as low as $2 an hour, as restauranteurs know employees can make up the difference in tips. For content creators on platforms like Patreon, it’s a reduction in advertising revenue. Platforms that know their creators can make money elsewhere end up reducing their payouts to increase their bottom line. Even if payouts to creators don’t decrease, oftentimes payouts were low enough to begin with, that tipping become a necessity, not a luxury, for many creators. On Spotify, only 7,500 artists make more than $100,000/yr, a pitiful number considering how many listeners and artists Spotify hosts. On Youtube, the numbers are better, but not much. In 2018 The median views for a new upload was less than 1000, and with an average conservative estimate of around $1 per 1000 views, most creators make little to nothing on each video upload, while a few percent prosper. Youtube takes 50% of the revenue for every partner, and considering most of their content is self created and published, it’s an incredible amount that dwarfs the most aggressive publishing & media companies. In essence, as with everything that relies on donations, tips, or other forms of donations, there’s a marked increase in effort/time required, income consistency, and ultimately, a reduction in the primary source of income as a result.
Thankfully, some platforms are moving towards a model that weighs more positively for the content creators than the Patreon model. Services like the gaming streaming platform Twitch, the music service Bandcamp, and the NSFW instagram clone OnlyFans both employ a more creator positive model. Twitch syncs a monthly donation/subscription with access to features, so on certain channels on those who are subscribed can comment and engage with the creator. This creates little extra overhead, since gaming streaming is naturally an interactive endeavor anyway. However, Twitch also takes an absurd cut of revenues, at 50/50, and most subscriptions cost around $5/mo per streamer. This high cost (mostly due to the massive margin Twitch employs) is prohibitive, especially for the main consumers of gaming media (teens) and means only the top percent of streamers make significant income. Furthermore, twitch still has ads while sharing none of it’s revenue with the content producer, significantly worse than youtube’s model. However, it protects the streamer from the pitfalls of tipping culture, and is a step in the right direction.
The better solution is something more like Bandcamp’s or OnlyFans‘s monetization strategy. While both sufferer from other anti-consumer and creator issues, their models are the most creator friendly. Creators can charge as much as they want for their content, can choose what content they charge for, and creators get as much as 80% of the revenue on Onlyfans and 90% on Bandcamp, while tipping is an afterthought. While there is still a large disparity in income from the highest revenue earners to the lowest, it is easier and faster to grow revenue on these services than a service like Twitch, Spotify, or Youtube. For pure ROI, direct subscriptions or purchases for content is the best model.
And for consumers, why tip for nothing in return, instead of paying directly for access to content? Patreon’s model relies completely on altruism, for people to donate without receiving much of anything except a warm fuzzy feeling. A direct subscription or purchase allows consumers of content to pay directly for the content they love, instead of relying on the most altruistic users to prop up it’s creation.
Furthermore, direct subscriptions or payments on a content platform enable the holy grail of content monetization — a revenue share. Youtube already does this with advertising revenue, but again, it’s limited to less than 50% of revenue, and it’s distributed extremely unevenly across creators because advertising revenue is tied to view. If a platform were to share even 10% of all subscriptions, equally, across all creators, you would see a drastic uptick in engagement from the newest creators and those in niche markets, the creators who make platforms colorful and are the future stars.
One of our clients at Skyward, studio BE, has this very model, and we are proud to be supporting them in their growth as the team behind their technology. As a yoga, mindfulness, and wellness platform, their creators are everything. To subsidize their creators, they pay out a certain percentage of subscription revenue each quarter to their creators as an incentive for adding value to the platform. In addition, each creator is rewarded for every subscription they create on the service with the majority of that revenue. Furthermore, they allow creators to directly monetize their specialized content such as workshops and teacher trainings, while only taking a fraction of the revenue. This enable creators to have multiple revenue streams — the revenue share from studio BE, the subscriptions they are directly responsible for, and selling their own content on the platform. Hearing from the content creators on the platform, this model is working exceptionally well, with great reviews from most content creators. Consumers, on the other had, hardly notice this is what’s happening at all. Subscriptions are attributed to teachers without effect on the consumer, consumers know nothing of the revenue share, and subscribers receive a discount on all premium content. Thus the main effects, in the consumers mind, are the quality of content that studio BE produces.
Imagining a world where consumers pay for individual content, instead of paying through advertising or tipping, might not sound preferable on the surface, but it’s by far the most creator-friendly revenue model. In contrast to tipping culture, a more creator friendly model means higher quality content, a wider breadth of content, less clickbait and copycats, higher and more consistent earnings for creators, and the ability for ecosystems to support more overall creators.
Patreon and digital tipping is not a bad thing. But as with all big tech, there are unintended consequences to going too far down a single road. As Patreon and its copycat services grow, content platforms should adjust their models to capture some of this revenue and apply it directly to content. Tipping should be limited to ancillary income, and more creators should be paid fairly for their work.