An idea: I think the our stage of capitalism means you don’t get to keep on liking anything over the long term, at least. Having people like something is a form of value, and value is something you monetize and extract.
Sometimes this is fairly benign, like how every franchise has to be run into the ground, because if people aren’t sick of it then there is more to earn – but at least the old stuff is still there, and often they do try to make it worth continuing. Others it is malignant, like with leveraged buyouts, where building a company of worth only serves to give job creators something to load with their debt, pillage, and burn to the ground. But I think the principle is there: if people still like something, keep going.
Those were my thoughts hearing about Patreon today. Someone else could probably summarize better, but: it seems a lot of on-line artists have been embracing this as a good way to live off a wide base of fans, to the point where I would have thought it well on its way to becoming the popular standard. Which, of course, means they should change.
This is a typical representative, but most creators I’ve seen using Patreon have been saying they’re already losing subscribers, calling for the changes to be reversed, or looking for a replacement. And since there may be good replacements, Patreon might find the fees were premature.
But it would be silly to make a service people like and then leave it that way, right?
No, I don’t think so. But creative destruction and the ideology of constant growth has got to go if we’re going to have this. The goal should be sustainability (in multiple meanings of the word) and not just growth for growth’s sake.
I understand that Patreon is designed for small pledges, but he’s misrepresenting the +.35 fee in his article. It’s added for every pledge, not every dollar.
So, $1.37 (or 8) for a dollar, but $10.66 for 10, $103.27 for 100 (I don’t know, does it go this high?). They’re suggesting the same model PayPal and Etsy use.
ETA: @nimelennar points out that the fee is compounded to consider several individual payments as one deposit, but with no discount for volume, which is pretty crappy.
I think what he’s saying is, for instance, if you’re paying $1 per update, and the comic updates five times in a month, Patreon isn’t going to charge your card five times. They’re going to lump it into one transaction and take it off your card as one $5 charge.
However, each of those dollars you give for an update is counted as a different pledge, so even though it’s taken off your card as one $5 transaction, you’ll be charged the 35¢ fee five times (making the total charge $6.75). Even though, purely from a payment-processing perspective, it’s no different than having pledged $5 once in that month (which would only be charged the 35¢ fee once, for a total of $5.35).
Except that a lot of the small-time (and many of the medium-time) artists do receive loads of $1 pledges. Plus there are a lot of patrons who spread many $1 pledges over several artists.
I recently signed up to pledge an indie magazine for $5 an issue. The publisher wrote her patrons today: she’s lost nearly 40 patrons just since the fee change announcement, and that’s in the middle of her running a patron drive where she was closing in on a milestone goal. Her magazine is what I’d call a medium-sized endeavour too – it’s been around for over ten years and only started on Patreon because ad revenue had dried up in the last five years.
As it has been explained to us, if you’re pledging a dollar each to twenty different creators, you’ll be charged $27.60 ($1.38 times 20) instead of just $20. (NOTE: it’s possible we’re getting this wrong, but the verbiage on the page linked above explicitly says that the fees are applied “to each of your individual pledges.”)
The only Patreon stuff I’m supporting is already per month rather than per item, so it’s not hitting the creators I’m supporting quite as hard. But still, it seems to discourage small pledges.
The last couple of years, I’ve been recording hundreds of songs and posting them all. For next year I’m still going to record a lot but I’m just going to release my favorites in album format. I had thought about setting up a Patreon so subscribers could get access to everything, but read an article saying it really only works well for bands that have an established following (dedicated local fans or millions of YouTube followers). That’s probably going to be even more true now.
Which is exactly their intention. It’s a business decision. And it makes sense from a business perspective-- now is the time to extract some additional profits, before any alternative patronage services can get established that creators can move to.
Patreon the company has apparently decided that they can’t make enough money on people making very small pledges. They’re trying to expand and “pivot” (how I hate that term) from their startup “disruptive” business model into something that’s more stable and profitable. Currently they rely on VCs and angels to feed them money, and they’re in their fourth or fifth round of funding without much to show for it.
Yes, there have been tons of users, and a lot of patrons and creators have adopted the model, but it doesn’t make any money for the company. The investors are starting to get nervous. Yeah, that’s naked greedy capitalism, but what other option is there? They’re trying to expand into other fields-- witness their several recent acquisitions of other companies that they think will round out their services as they move into a long-term business model.
Patreon suffers from the same problem as many companies and service providers on the internet. The users, both patrons and creators, want the service to be free. But the company staff has to get paid. Investors have to see some profit. The business is in a fragile place, and it needs to either grow or die.
The thing is, many businesses start out small and run at a loss to get customers. Then they decide to fix the loss problem by increasing volume. And now they’re losing money much faster because the expenses actually grow faster than volume in the first stages. VCs are supposed to allow for this and predict when things will become profitable. But sometimes (Tesla, Twitter, ahem, ahem) it seems to be the case that things will never ever be profitable. And then they have the problem - do you raise prices or do you discourage unprofitable lines?
Patreon is trying to discourage unprofitable lines by charging more for small payments, because it costs as much to process $1 as $1 million. It may not work.
Mad Magazine, which was often spot on when it came to the business world, had a jingle about this:
"When I was a used car salesman/ I heard the boss man say/ ‘Give free balloons to kiddies/ but not this Ford away’."
Many supposed web 2.0 companies forgot this basic rule. It isn’t capitalism per se; it’s poor, overoptimistic business planning. When Ugg found that selling knapped flints at one banana per arrowhead didn’t provide enough to feed his family, and that if he put the price up people stopped buying his flints, he was making the same discovery. Pricing isn’t just important; it’s mission critical from Day One.
I’d write this differently. Patreon is in a place suffered by many other service providers on the internet, but it’s not that users expect it to be for free. They already pay fees today. There are patron fees creators often eat today, and there are fees for creators to withdraw their money.
Many creators are happy to eat the fees – the reduction in income is balanced off by having happier patrons more willing to publicise the creator.
The issue is Patreon has mandated patron-visible fees for the first time, with nothing creators can do about it. At the same time, they’re increasing the fees. The increase in fees is quite a lot – more than double on some spreadsheet analyses I’ve seen.
In return neither creators nor patrons will enjoy any new features. Parreon made some noises about the new way being better for creators, but all the creators I’ve heard from are unconvinced of that.
Patreon has placed themselves in the middle between creators and patrons. Their value add was that they made things easier and more convenient for both parties. If the new fees make creators lose patrons (inconvenient) and more difficult to gain new patrons (inconvenient), while meanwhile imposing mandatory fees on patrons for the first time (inconvenient and introduces sticker shock), they’re going to lose both creators and patrons.
Supposedly they have done the math and think they’ll gain overall. We’ll see.
Update on that magazine I support via Patreon: the publisher has set up a PayPal site so people can give her money but avoid the new fees.
In the meantime, she reports that as of the e-mail sent out this morning, she has lost 105 patrons… and counting.
Again, this is a well-established, on-line knitting magazine which has also published a few books over the years (knitty.com if you want to check it out).
I don’t even want to think how this is hitting small-timers who may be just one of twenty other artists a typical fan of their work follows, or people who wanted to publicise their art on the side and receive some compensation for the trouble.
The field of economics calls this phenomenon—which we all like when we can get it—“consumer surplus”, though I prefer to call it customer surplus. The greatest sin for economists working for ubercorps is to allow customer surplus to occur. So with market power comes the ability to jack prices up at the beginning rather than having to wait until the model is established before taking all the surplus and killing the model due to righteous indignation on the part of the customers.
So somebody fucked up.
No doubt the change was due to payment processors realizing that they were leaving a few pennies on the ground for the creators.
That’s a good explanation. I still see it as a way to give artists a chance to focus more on their art, rather than vending merch or taking on a day job to pay the bills, and with their own creative freedom rather than a record label or corporate sponsor telling them what to do. An extra 64¢ doesn’t really matter that much to me if I believe in an artist enough to pledge $10.
But I don’t do lots of $1 pledges - in that case it does make a big difference. Really they should’ve gone with a fixed % so that 10x$1 is no different than 1x$100. They have the data, they could easily average the transaction costs to get a single % that would work. They chose not to either because they want to discourage small pledges or just out of laziness. Also, as described in the article, their previous model was more fitting to donations. If they could just standardize on that end and say something like ‘90% goes to the artist’ (instead of 85%-93%) while keeping the pledges even $ amounts, it would work fine and they’d make the same amount (assuming they averaged everything out using the data that they have).
The problem, as I note above, is that the transaction cost is the same for $1 or $1 000 000.
Credit cards charge a percentage for historical reasons, but debit cards are usually flat fee. Not only does it reflect the real world, it encourages people to make fewer, higher value transactions which reduces system load.
This is one reason you usually get discounts for annual rather than monthly payments even when interest rates are very low, as they are now.
And it’s also why Patreon tends to wait until you have a few pledges to collect and then collects them all at once.
If they collected the pledges one at a time, I can see these changes being somewhat reasonable. Or, if they charged the $0.35+.03% on the aggregated transaction. But collecting it all at once to lower your own overhead, and then not passing those savings on to the patrons was just a bad idea.