Patreon: Creators, Come Get Paid

Patreon was born as a crowdfunding solution for YouTube musician Jack Conte, who sought to better capture value from the artistic content he was producing [1]. Since its founding in 2013, the platform has amassed 50k monthly active creators (those seeking funding), 1mm monthly active patrons (those providing funding), and facilitated the payment of more than $150mm to creators [2]. Defining “creators” as a catch-all phrase for artists, Patreon welcomes everyone from gaming streamers to comic book illustrators. Patreon claims that “an average patron pays more on a monthly basis than consumers pay for Netflix, Spotify, or Amazon Prime [3].”

Exhibit 1 -What is Patreon?

How Does It Work?

Very simply, Patreon is a two-sided platform comprising of creators on the supply side and patrons on the demand side. Patrons can peruse the full list of creators on the site, select a creator or creators to support, pay the creator(s) on either a per month or a per content basis via credit card or PayPal, and finally gain access to the artistic content [4]. In addition, creators can offer exclusive rewards in exchange for certain payment tiers (see Exhibit 2) [5]. A particularly attractive feature to creators is the fact that they retain 100% ownership of their work disseminated on the platform. Patreon has found popularity especially with YouTubers, as recent algorithms have reduced the amount of income previously enjoyed from ad revenues.

Exhibit 2 – Illustrative Payment Tiers

Value Creation

Prior to Patreon, budding artists faced constant anxiety around when and how they could monetize their content. Consider, for example, the photographer who may have to constantly publish new content for free before securing a one-off sponsorship weeks or months later. Better matching the timing of product delivery (i.e. when content is published) and revenue recognition, Patreon smooths out a creator’s revenue stream. Contrary to conventional wisdom, Patreon encourages multi-homing, meaning that creators are free to continue running their monetization schemes elsewhere, whether it be YouTube ads or sponsored blog posts. In this way, Patreon aims to supplement, but not replace, a creator’s revenue stream. Aside from the monetary benefits, creators are provided a suite of analytical tools and dashboards that enable them to evaluate content performance and extract growth insights [6]. Additional value-added services include handling all patron questions, protecting creators from chargebacks, and screening for fraudulent transactions [3].

On the patron side, Patreon delivers value by removing ads from the content consumption process, thus theoretically enhancing the patron’s enjoyment. In addition, Patreon helps to strengthen the relationship between creator and fans by identifying and cultivating a highly engaged audience.

Value Capture

Patreon takes a 5% cut of the creator’s revenue stream, while another 5% (on average) is reserved for transaction processing costs. Thus, a creator on average nets 90% of total funds [3].

Risks and Challenges

Disintermediation risks exist in two ways. First, as a creator gains popularity, he or she can very well ask his or her patrons to move off the platform and into a Venmo or the “Friends and Family” Paypal option to bypass both the Patreon fee and the payment processing fee. Second, smaller creators can expect to amass scale through the platform, and once they do, they have more power to pursue traditional partnerships and sponsorships with larger patrons (e.g. brands who are looking for content creators). As such, Patreon may be inadvertently helping its creators grow to a point where they no longer need the platform.

Not everyone’s a fan of Patreon. A number of creators and think pieces have pointed to the bifurcation in earnings between the more popular creators and the not-so-popular ones. Some have claimed that only 2% of creators make more than the federal minimum wage of $7.25 per hour for their efforts [7]. In late 2017, Patreon faced significant backlash when it attempted to change its fee structure by shifting costs to patrons, a move that was intended to increase creator earnings [8]. The platform has since reverted back to its original fee structure. Lastly, the platform’s popularity has enticed incumbents to jump on the bandwagon. In 2016, Kickstarter acquired Patreon competitor Drip [9] and relaunched the platform in 2017 [10]. Key differences include a time constraint during which patrons who sign up will receive special perks and a function allowing creators and patrons to move the project to other platforms.

In response to these challenges, Patreon has sought to fortify its business by moving into adjacencies. It recently released the Patreon Lens app, a Snapchat-esque tool for creators to share temporary content (i.e. photos and videos that disappear after 24 hrs) with patrons who donate at least $1 per month [11], and partnered with live-streaming company Crowdcast, arming creators with streaming capabilities [6].

Source

[1] https://www.fastcompany.com/40457448/how-crowdfunding-site-patreon-is-helping-artists-build-media-empires

[2] https://www.patreon.com/about

[3] https://www.patreon.com/create-on-patreon

[4] https://patreon.zendesk.com/hc/en-us/articles/204606315-What-is-Patreon-

[5] https://patreon.zendesk.com/hc/en-us/articles/203913709-How-do-I-become-a-patron-to-a-creator-

[6] https://www.fastcompany.com/4040723/patreon-wants-to-help-creators-turn-fan-followings-into-media-companies

[7] https://theoutline.com/post/2571/no-one-makes-a-living-on-patreon?zd=1&zi=4x4paipe

[8] https://techcrunch.com/2017/12/07/patreons-new-service-fee-spurs-concern-that-creators-will-lose-patrons

[9] https://www.kickstarter.com/blog/drip-joins-kickstarter

[10] https://www.engadget.com/2017/11/15/kickstarter-drip-patreon-subscription-crowdfunding

[11] https://techcrunch.com/2018/02/06/patreon-lens