Substack raises more money, but is that a good thing?

Note: This was originally published as part of the daily newsletter at the Columbia Journalism Review, where I’m the chief digital writer

Axios reported on Tuesday that Substack is raising another $65 million in venture financing, which will give the newsletter-publishing platform a theoretical market value of $650 million. That’s more than ten times what Substack was reportedly worth when it raised its first $15-million round of financing in 2019, which — like the latest round — was led by Silicon Valley investment firm Andreessen Horowitz. In a blog post, the company said that it is going to use the money to expand its program of giving writers and journalists advances (which have to be earned back from their subscription revenues) to allow them to quit their jobs and join the platform, as well as more fellowships, grants, mentorship programs, and other resources. The company said it also wants to invest in initiatives to support local news, in “an effort to kickstart the development of a news ecosystem that thrives on direct support from readers.” Ultimately, Substack says the goal of the new funding is the same as the original round it raised, which is to “build an alternative media economy that unlocks the full potential of the internet and gives more power to writers and readers.”

Although the company doesn’t mention it in its blog post, the extra cash might also come in handy as a war chest, given that both Facebook and Twitter have said they are getting into the newsletter business and would like to eat some of Substack’s lunch. Facebook recently said it will allow writers and journalists to create their own subscription newsletters with the platform’s help, as well as landing pages, and that it will be paying some of the writers in a pilot program — and it won’t charge them anything for its services, unlike Substack, which takes a 10-percent cut of any revenue its authors bring in. Twitter has also shown signs of wanting to move in on Substack’s turf: the company acquired a newsletter platform called Revue recently, and says it plans to help users sign up subscribers, and it only plans to charge a 5-percent fee. “At the end of the day, can Substack create a community or platform or tool which is far and away better than anything Facebook and Twitter can build… or copy?” one observer asked following the news.

Competing with Twitter and Facebook is just one challenge that Substack will have to meet with its newfound cash. The other is just as large, if not larger: namely, meeting the demands and expectations of its funders. Venture capitalists don’t just hand over tens of millions of dollars because they like you, or because they want to dismantle the traditional media — although there is some evidence that Andreessen Horowitz has aspirations towards the latter. Not only has the firm talked about creating its own media entity, but it has also invested in a number of services like the audio-chat platform Clubhouse, which the founders of Andreessen Horowitz have used as an alternative to traditional interviews. But apart from that, VC lenders tend to have very specific expectations about the financial returns they get from their investments, and they are not above pressuring the companies they fund to change the way they do business in order to produce these returns.

Those kinds of pressures have helped force venture-funded companies like BuzzFeed and Vice to close down regional offices and lay off large numbers of staff over the past year or two, and in some cases they have forced others — such as The Outline and Mic — to shut down completely. Will Substack be able to withstand the inevitable expectations that come with a $650-million valuation? That’s about half what BuzzFeed is estimated to be worth currently, and it has about $300 million in annual revenues, while Substack says it gets “tens of millions” from writers who use its platform. One fear is that in order to generate the revenue its investors require, Substack will have to either increase its fees or increase the amount of control it has over its authors, or both. For example, a writer on Substack currently has full control over their mailing list, and can take it with them if they leave. Will that change? One writer said: “congrats I guess, but as a regular user of Substack this fills me with dread. $65M of VC money means the company needs to succeed in a very specific way or it will be acquired and/or sunsetted at some point.”

Substack is also fighting another battle, one focused on the question of whether it is making explicitly editorial decisions when it pays certain writers — including Matt Yglesias, Scott Alexander, and Frederik de Boer — through its Pro program (which some have compared to the advances that book authors get from publishers), or when it decides whose content it chooses to host. The company responded to these criticisms recently in a blog post, saying it is just a platform, not a media entity, and that who it decides to give advances to is not an editorial choice. The company also said that its terms of service don’t allow harassment, abuse, or hate, and yet a number of critics note that one Substack writer’s page contains a number of posts targeting trans people, and several writers have left the platform as a result. “It’s not surprising, but it is illuminating to see Substack get $65 million from VCs while in the midst of losing all its queer & trans writers because it refuses to think about its editorial choices as such,” said journalist Rose Eveleth.

Here’s more on Substack:

Polarized: In the Financial Times, writer Jemima Kelly argues that “Substack’s success shows readers have had enough of polarized media” and says it “points to a demand for diversity of views” (although journalist Danny Gold says “this is literally the exact opposite of what Substack shows”). Kelly says that figures released by Substack show that once the platform has taken its standard 10 per cent cut, and after payment processing fees, “I calculate that Glenn Greenwald is left with between $80,000 and $160,000 a month, or about $1m to $2m a year. Not bad for a mere hack.”

Neutral: Ashley Feinberg launched her Substack newsletter by announcing that she took a deal as part of its Pro campaign, but then went on to criticize it: “There’s a lot I don’t love about how Substack has built its business,” she said. In building Substack Pro, she notes, “the company made the active decision to privilege certain voices that had won followings on other platforms, while remaining entirely agnostic about how those followings were won in the first place. The upshot is that Substack, in chasing high-follower media personalities, has essentially outsourced editorial considerations to the other platforms.”

Flawed: In a piece she wrote for CJR recently, Clio Chang asked: “In general, will Substack replicate the patterns of marginalization found across the media industry, or will it help people locked out of the dominant media sphere to flourish? To a large extent, the answer depends on whether or not Substack’s founders believe they’re in the publishing business. When we spoke, they were adamant that Substack is a platform, not a media company—a familiar refrain of Silicon Valley media ventures. 

Other notable stories:

Vice Media is in advanced talks to merge with 7GC & Co Holdings, a special purpose acquisition company led by tech investor Jack Leeney, according to a report from The Information, based on interviews with “people familiar with the situation.” Vice had previously talked with other SPACs, including one backed by Group Nine Media, a Discovery-backed media firm, and another one led by former Disney executives Tom Staggs and Kevin Mayer. But neither set of talks advanced, The Information says.

Lyz Lenz writes about the harassment she has faced based on her writing, and also interviews writer and journalist Talia Lavin. “The reality is what gets you on the radar of the mob is nothing, a tweet, a joke, a comment, just existing as a woman, a person of color, a woman of color. Doing your job and doing it well. Sometimes all it takes is being successful,” Lenz writes. “People want to attribute the hate to one thing, one moment, one time I messed up, one story I filed. I think people do that because they want to feel safe. They want to think it will never happen to them.”

The New York Daily News on Friday “appeared to stiff its journalists out of a modest bonus it had promised them for their hard work during the pandemic,” says a report in the New York Post. The newspaper successfully delivered on its pledged bonuses to management before announcing that it would be holding back bonuses for everyone else — citing staffers’ efforts to unionize. It’s just the latest slight to the editorial employees who suffered a permanent closing of their newsroom last year, the Post says. The one-time bonuses were suggested in January by Tribune Publishing.

The BBC has moved its China correspondent from Beijing to Taiwan because of “increasing pressure over its reporting in the country,” according to a CNN report. BBC News announced John Sudworth’s relocation on Twitter on Wednesday, saying his work “has exposed the truths the Chinese authorities did not want the world to know.” Sudworth’s move to Taiwan comes as Beijing repeatedly expresses frustration with BBC reporting on the Chinese region of Xinjiang, where authorities are accused of carrying out human rights abuses on Uyghur and other ethnic Muslim minorities.

Nick Clegg, vice-president of global affairs at Facebook, wrote a lengthy post on Medium titled “You and the algorithm: It takes two to tango,” in which he argues that users of the social network are at least partly to blame for the disinformation, hate speech, and other content that people often complain about. “As generations of newspaper sub-editors can attest, emotive language and arresting imagery grab people’s attention and engage them. It’s human nature. But Facebook’s systems are not designed to reward provocative content,” Clegg writes. Craig Silverman of BuzzFeed says the essay is “part of a larger pushback campaign re: polarization underway at Facebook.”

Google will contribute $29.3 million to the new European Media and Information Fund to combat fake news, the company said on Wednesday. The European Media and Information Fund, launched by the Calouste Gulbenkian Foundation and the European University Institute last week, aims to enlist researchers, fact-checkers, not-for-profits and other public interest-oriented bodies to help in the fight against fake news. “While navigating the uncertainty and challenges of the last year, it has proven more important than ever for people to access accurate information, and sort facts from fiction,” Matt Brittin, head of Google’s EMEA Business & Operations, said in a blog post.

On March 31 the journalists of The State newspaper moved to form South Carolina’s largest newspaper union, The State News Guild. “Our mission is to foster an environment in which The State’s journalists can continue producing works of truth, accountability, culture and compassion without constant worry of professional insecurity,” said the Guild. Reporters, photographers and newsroom producers at the newspaper have signed cards expressing a desire to be represented by the Washington-Baltimore News Guild Local 32035 of the Communications Workers of America.

States Newsroom, a large network of state-based nonprofit news outlets, announced the launch of its 21st outlet: The Idaho Capital Sun. Based in Boise, the Capital Sun will report on important state issues, which are often under-covered due to the decline in local news. All of the Capital Sun reporting is available to be republished online or in print by other organizations through Capital Connections, States Newsroom’s free syndication service. The editor in chief will be Cristina Lords, who was recently fired by the Idaho Statesman for tweeting her frustrations about how poorly resourced the newsroom is.

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