‘Passion economy’ platforms cut costs in tech downturn

Once the travel startups that served Internet creators and influencers were forced to lay off painful jobs, lay off employees and abandon revenue streams due to the decline in technology.

The membership platform Patreon and the newsletter service Substack are among those who have gained a lot of money due to their position at the forefront of international events that involve artists, celebrities and writers who want to create, and benefit from, direct relationships with fans.

Andreessen Horowitz, one of the leading investors in Silicon Valley, called these businesses part of the “desire economy”, providing services, products and infrastructure that allow investors to monetize their big results on the Internet.

Investment in the sector rose from $1.4bn in 2020 to $3.3bn in 2021, according to data provider Dealroom. But this fell by 75 per cent in 2022 to $801mn, the figures show, as investors began to fear a sharp decline in the technology industry.

Patreon, which is expected to raise $4bn in revenue in 2021, told the Financial Times that it is abandoning plans to bring in cryptocurrency and has slowed down previous ambitions to donate to the public.

“Obviously the financial landscape has changed dramatically,” said Julian Gutman, Patreon’s chief corporate officer. “We can’t be immune to this and that’s why we have to change the way we work.”

Venture capital investment ($bn) chart showing Funds drying up for 'passion economy' businesses in 2022

Substack, the media service that was valued at $650mn in March 2021, has told the FT it has abandoned long-term plans to raise additional capital to support the business.

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“Our plan to expand Substack no longer has capital as an important strategic factor,” said CEO Chris Best. “We will have a plan in place to use the cash flow from the growing business to finance the investment we need down the road.”

Some tech groups have been forced in response to the financial crisis and recession to rethink sustainable revenue streams, rather than spending more to achieve rapid growth.

Twitch, the Amazon-owned video streaming service, has announced plans to make a big cut in subscription fees for some of its biggest gamers next year. OnlyFans, known for taking adult user-generated content, added a shopping feature to replace the creator’s revenue in November.

This follow-up by the financial industry represents a revision of the expectations of the former sector. In April 2021, Tiger Global led a $155mn round of funding for San Francisco-based Patreon that saw the business at $4bn, up from $1.2bn in the previous six months.

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Founded in 2013 by former musician Jack Conte and producer Sam Yam, the platform takes between 5 and 12 percent from direct payments fans make to producers.

The company was “swimming in money and people were asking for more money,” according to a former Patreon employee, who added that “they wrote a timeline and a schedule. Advertisers were told ‘if you want to invest, sign up here.’ . That’s not something I’ve ever seen before.”

But six or seven shows encouraging TikTok stars such as influencer Larray to set up Patreon accounts that only donate have failed to bring in as much money as they had hoped, former employees said.

Taking this approach, the company let go about half of its 18-strong team, which oversees the signing and monitoring of interested parties online, as part of a 17 percent layoff in September.

“They have a reputation for struggling artists,” said one former Patreon user. “They wanted to change their minds by following the big money makers. The truth is that it didn’t help.”

Substack also faced difficulties in 2022, leaving the fundraising project in May, and cutting 14 percent of the 100 employees in June, arguing with journalists and popular publishers – such as the political newspaper Dispatch and the student Grace Lavery – to leave the site. .

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However, the company continues to attract attention. Twitter owner Elon Musk tweeted in December that he was “ready” to buy it after Twitter decided to shut down its newsletter service Revue.

Substack said Musk’s acquisition “is not something we are thinking about right now. We are 100 percent committed to building Substack.”

Passion’s financial businesses are also facing a major threat this year: declining consumer spending. A third of people who use paid radio subscriptions, including payments to producers, plan to cut back in the next six months, according to market research firm Mintel.

Services like Netflix offer viewers access to a wide range of content for as little as $7 a month. In contrast, subscribers to Patreon, Substack or OnlyFans can pay more to get access to one creator’s content.

“People are making decisions,” said Rebecca McGrath, Internet analyst at Mintel. “Unless you are loyal to the manufacturer, that can be one of the most obvious things”.

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