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The Beginning of the End for Patreon

9 February 2019

From The Digital Reader:

There comes a time in the life of many companies when the owners (or investors, or vulture stockholders) decide that they want to extract more profit than is healthy for the company to survive. This is one of the things killing American newspapers, and it’s even impacting B&N, and now it’s about to kill Patreon.

Patreon is fairly healthy, but apparently not profitable enough for its capital investors.

From CNBC:

The number of active patrons supporting artists on the platform in 2019 has seen significant growth, up 1 million over the last year, the company said. The company is also on track to pay out $500 million to content creators in 2019, pushing the company to surpass $1 billion in payouts since its inception in 2013.

Under the company’s current business model, 90 percent of funds are paid directly to content creators. Patreon takes 5 percent, and the remaining 5 percent covers transaction fees.

Patreon CEO Jack Conte said in an interview with CNBC that the platform will soon be facing the challenge of maintaining a profitable model as the company continues its growth.

“The reality is Patreon needs to build new businesses and new services and new revenue lines in order to build a sustainable business,” Conte said.

The company does not currently provide contracts, which allows users to retain 100 percent ownership of their work and full control of their brand.

The company plans to provide creators with new “value services,” like options for merchandising, to generate new revenue. Creators will be given the opportunity to participate in these services, and it could ultimately reduce Patreon’s generous 90 percent pay-out model.

What this means is that Patreon’s investors want the company to be more profitable, and if necessary they’re going to force the company to pay its users less.

. . . .

I do not currently use Patreon; I closed my account when they tried to jack up costs in late 2017. But I had been thinking about going back to Patreon in order to fund the blog through donations and pledges.

Now I think I’ll just still with Paypal (not exactly a nice company either, but beggars can’t be choosers).

The thing about Patreon not being profitable enough is that Paypal has a very similar model and they turn a profit on a smaller cut of the funds they transfer. Paypal only collects payment processing fees (the 5% transaction fees mentioned above) and yet Paypal is so profitable that they spun off Ebay as not being worth the hassle.

Of course, Paypal had a unique advantage when they were starting out; they were acquired by Ebay, which then forced buyers and sellers to use the service (when you’re growing your business, there’s nothing like having a captive audience who can’t say no).

. . . .

Folks, Patreon’s attempts to increase its profitability are doomed not because this is going to drive away users but because their niche is too damn small. Patreon only handles one small segment of payment processing (what are essentially charitable fundraising campaigns); in comparison, Paypal covers dozens of segments.

Link to the rest at The Digital Reader

PG suggests that, unless an internet-based business has some sort of moat around it (patents, must-have technology, unique voices or expertise, etc.), raising prices is very difficult because someone else is always ready to clone the business plan and offer the service for less.

PG is only passingly familiar with Patreon, but is not aware of any patents or similar limits to those who might build a similar platform for the same purposes – providing an online means for people to help fund various creative endeavors.

However, while PG was looking at Patreon’s Terms of Use to see if there were any mentions of patents, trade secrets, etc., he did find a rights grab that may be troubling to authors and other creators:

You keep full ownership of all content that you post on Patreon, but to operate we need licenses from you.

By posting content to Patreon you grant us a royalty-free, perpetual, irrevocable, non-exclusive, sublicensable, worldwide license to use, reproduce, distribute, perform, publicly display or prepare derivative works of your content. The purpose of this license is to allow us to operate Patreon, promote Patreon and promote your content on Patreon. We are not trying to steal your content or use it in an exploitative way.

You may not post content that infringes on others’ intellectual property or proprietary rights.

Patrons may not use content posted by creators in any way not authorized by the creator.

On the front page of Patreon’s site, the company makes a representation that some might construe as conflicting with the quoted portion of the Terms of Use:

You own your content

There are no contracts to sign and you retain 100% ownership of your work. You made it, not us.

Under Patreon’s equivalent to an FAQ, the following is a question and answer about ownership of creative works:

Wait, does Patreon own my content?

Nope! Your content is 100% yours, unless a record label or studio owns part of it, in which case it’s partly theirs too, but it’s definitely not Patreon’s — not even a little.

PG suggests that Patreon’s Terms of Use are, in fact, a contract between Patreon and its creators. It is a “click-to-accept” contract with an electronic signature by the creator which is not physically “signed”, but is still enforceable by Patreon against the content creator.

In the United States, the Electronic Signatures in Global and National Commerce Act (15 U.S. Code Chapter 96) explicitly authorizes electronic signatures in interstate commerce and makes electronically-signed contracts enforceable. Here are the first paragraphs of the law:

(a) In general Notwithstanding any statute, regulation, or other rule of law (other than this subchapter and subchapter II), with respect to any transaction in or affecting interstate or foreign commerce—(1)a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form; and
(2) a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.

In particular, the quoted portion of the Terms of Use above explicitly create a license, which is most definitely a species of contract, between the content creator and Patreon.

Furthermore, the license cannot be unilaterally canceled by the content creator – it is a “perpetual, irrevocable”, “sublicensable, worldwide” license.

What about all the “you own your content” messages on Patreon?

In a traditional publishing contract granting a publisher all rights to an author’s book, the author continues to “own the content” in that the author is the owner of the copyright to the book. However, the publishing contract grants the publisher the exclusive worldwide right to print, publish and sell the book in all its various forms, including the right to license subsidiary rights for movies, television shows, etc.

Under such a contract, the author owns the content, but can’t do anything with it because the publishing contract grants the publisher all rights to exploit the contract.

Let’s briefly unpack the licensing paragraph:

By posting content to Patreon you grant us a royalty-free, perpetual, irrevocable, non-exclusive, sublicensable, worldwide license to use, reproduce, distribute, perform, publicly display or prepare derivative works of your content. The purpose of this license is to allow us to operate Patreon, promote Patreon and promote your content on Patreon. We are not trying to steal your content or use it in an exploitative way.

PG suggests that the first sentence is inconsistent with the second sentence in tone and, perhaps, in the manner in which it may be enforced.

The portion of the first sentence beginning with “you grant” is precise and definitive. The second sentence is squishier. “The purpose of this license is to allow us to” . . . .

Under general principles governing the interpretation of contracts, if there is a conflict between a specific and a general provision, the specific provision will govern. If PG were representing a content creator, he would suggest that the second sentence above be reworded for clarity:

“The license granted in the preceding sentence is expressly limited to grant Patreon the ability to include content created by the author in various ways that are reasonably calculated to promote the author’s content on Patreon’s website. All other rights of author in and to the content are expressly reserved to author, including, without limitation, the exclusive right to grant others the right to print, publish, license and/or sell the content and/or any derivative rights arising from the content to any third party. After termination of this Agreement for any reason, at author’s request, Patreon will provide a document disclaiming all rights to author’s content if reasonably requested by author disclaiming any and all rights in and to the content.”

 

 

Contracts, Copyright/Intellectual Property, The Business of Writing

29 Comments to “The Beginning of the End for Patreon”

  1. Subscribe Star is an alternative to Patreon.

  2. If they can use your content for anything they want, I’m going to cancel my account.

  3. Hmmm…It has been so long since I saw Patreon in action, and then only in a limited use, I misunderstood that people were using it as an actual platform. The people I supported were using it more as the old TIP JAR approach — you gave money to support them, but all their content was free on other sites.

    It wasn’t “pay here to get exclusive content”, although obviously that is more pointed. As such, the people I supported weren’t actually posting any content to Patreon, it was all on their own sites, and thus nothing for Patreon to “use”.

    P.

    • Actually there were those that were using it for either exclusive or ‘early access’ content and then just using teasers on the other sites. And many of them learned it wasn’t the money tree they were hoping it would be.

      (Never used it myself in any way, just saw a lot of side chatter from those that did.)

  4. http://www.Ko-fi.com has a similar model, and it’s free to use.

    That is where I am setting up my donations account.

  5. thank you for your analyses PG, That helped alot. How strange, such a contradiction esp that part about derivative etc rights being ‘non exclusive’ In other words, they can use what they want and you can too. What’s yours is ours too. Sheesh.

  6. PG, you say the Patreon terms constitute “a rights grab that may be troubling to authors and other creators.”

    “By posting content to Patreon you grant us a royalty-free, perpetual, irrevocable, non-exclusive, sublicensable, worldwide license to use, reproduce, distribute, perform, publicly display or prepare derivative works of your content.”

    This doesn’t seem very different from – and in fact in part is the exact same wording – that Amazon uses:

    “You grant (Amazon) a royalty-free, non-exclusive, worldwide, perpetual, irrevocable right and license to use, reproduce, perform, display, distribute, adapt, modify, re-format, create derivative works of, and otherwise commercially or non-commercially exploit in any manner, any and all of Your Materials, and to sublicense the foregoing rights to our Affiliates and operators of Amazon Associated Properties.”

    https://sellercentral.amazon.com/gp/help/external/1791?language=it_IT&ref=efph_1791_cont_521

    • Disingenuous of you to quote only the first half of the sentence and leave out the provisos, which restrict that licence considerably and allow for revocation under certain circumstances.

      Also, that licence is not for books or other intellectual property, but for sellers of general merchandise, and gives Amazon the right to reproduce their trademarks and other trade dress as provided to them by the seller. What it amounts to is that they are allowed to advertise their suppliers’ products using the suppliers’ own brand names and designs.

      The licence for KDP is substantially different. The trouble with Patreon is that their licence is not.

      • Hardly disingenuous, Tom.

        I simply compared the almost identical wording in the text as provided by Patreon and Amazon and left this for PG, as someone with legal expertise that had raised the Patreon text, to offer some legal clarification.

        The relevance to authors – not that TPV is in any way limited to discussion about books and authors where Amazon is concerned, as we see with the Bezos-Pecker discussion – is that many indies sell, as one example, t-shirts with designs from our books, to compliment our book sales, and to do that we use Marketplace and therefore these rules apply to us.

    • Mark – Here are some relevant provisions from the Kindle Direct Publishing agreement:

      2.2 Changes to the Terms of Sections 5.4.1 (Royalties) and 5.5 (Grant of Rights). Changes to terms of this Agreement contained in Sections 5.4.1 (Royalties) and 5.5 (Grant of Rights) will be effective and binding on you on the date 30 days from posting or on the date you accept the changes, whichever first occurs. You accept the changes by either (a) clicking agree or accept where you’re given the option to do so or (b) by using the Program to make additional Books available through the Program. Changes to the terms of Sections 5.4.1 and 5.5 will only apply prospectively with respect to Books sold after the date thirty days from our posting of the changes, unless you accept the changes as provided above. If you do not accept the changes, you must withdraw your Books from further distribution through the Program and terminate your use of the Program prior to the date thirty days from our posting of the changes. Note that we may make acceptance of changes a condition to continued use of the Program.

      . . . .

      3. Term and Termination

      The term of this Agreement will begin upon your acceptance of it and will continue until it is terminated by us or by you. We are entitled to terminate this Agreement and your access to your Program account at any time. We will notify you upon termination. You are entitled to terminate at any time by providing us notice of termination, in which event we will cease selling your Digital Books and on-demand printings of your Print Books within 5 business days from the date you provide us notice of termination.

      . . . .

      5.1.4 Book Withdrawal. You may withdraw your Digital Books from further sale and your Print Books from further on-demand printing in the Program at any time on five business days advance notice by following the then current Program procedures for Book withdrawal or un-publishing. We may fulfill any customer orders completed through the date the Books are available for sale and we may continue to sell any inventory we have of Print Books. All withdrawals of Books will apply prospectively only and not with respect to any customers who purchased the Books prior to the date of removal.

  7. I can’t support Patreon after they closed Lauren Southern’s account without warning. I don’t say this in support of her and what she does, but the concern they can simply end your income.

    • That’s also why I don’t touch paypal, they can freeze your account and hold your money and never even tell you why …

    • “…but the concern they can simply end your income.”

      That’s a risk you run with any internet business. Unless you are your own ISP you are a guest on someone else’s servers and platform. Your objection is not with Patreon, but with how the internet functions.

      Don’t want to be subject to someone else’s ability to cut off your access to customers? Own the whole thing then.

      If your business involves controversial or edgy content make sure your business partners and service providers will back you up when the mob starts trying to shut you down.

      Patreon decided that Lauren Southern’s content did not match up to the kind they wanted on their platform. That’s their business decision. Lauren Southern made a business decision not to diversify her income.

      • *nods* This sort of thing is always on my mind, especially after Amazon pulled Spots the Space Marine. “Yes, this platform is good to me now, but it may become unavailable, whimsically and without recourse, overnight. At which point, pivot or die.”

        *shrug*

    • Then they kicked Carl Benjamin off without him breaking their terms, even under the MOB rule they used on Lauren.

      There was a mass exodus after that, including a number of their top earners. I think that’s what really started killing it—high earning creators leaving because they don’t trust Jack Conte or his team after their treatment of people like Lauren and Carl.

      Sometimes I wonder if these companies realise honouring the agreement in their terms of service is supposed to be a two way street…

  8. Why should we think this is the beginning of the end? Anyone have the financials?

    • Check the early part of this video, starting at the 1:15 mark:

      https://www.youtube.com/watch?v=KQ859M6QIGE

      The CEO said their business model isn’t sustainable. At best that may mean they’re not profitable enough for their investors, at worst they might actually be losing money.

      They have 100,000 customers generating a gross of $25,000,000 a year. For a 5 year old San Francisco-based tech startup with over $100M of investor money that isn’t all that much. The CEO may be right.

      • If the model were unsustainable, then doing nothing might signal the beginning if the end. But it appears they are taking steps to make it sustainable. In that case I question grounds for saying it is the beginning of the end.

        • The reason for the ‘beginning of the end’ talk, as you might have noticed by reading the article, is that the demand for the ‘sustainable’ product is expected to be significantly less. It’s an open question whether they can attract enough business to survive at a price that actually earns them a profit.

          This same problem has killed many thousands of startup businesses before now.

          • Exactly.
            The concern is that if their most popular, “core” product isn’t generating enough net cash after 5 years it probably never will and spending time and money on adding more derivative products will only burn their reserves sooner.

            A likely scenario is they might go the way of PRONOUN, spending a couple of years pivoting from one model to another only to eventually sell out to a semi-interested party for peanuts, who would then shut them down.

            If it were just one or two of their customers freaking out it would be easy to ignore them but it isn’t. And the CEO’s followup simply added fuel to the fire. Too many people remember how this same thing happened over and over during the dot.com bust.

            Also: telling your customer base your business isn’t sustainable is telling them to look for alternatives. Not exactly helpful. Death spirals typically follow.

          • It’s an open question whether they can attract enough business to survive at a price that actually earns them a profit.

            An open question is not sufficient grounds for saying it is the beginning of the end.

            • In the vast majority of cases, that particular open question is more than sufficient. When you are in a service business and the service you provide is neither unique nor protected by IP law, price elasticity is generally very high.

              Felix has it exactly right: this happened over and over when the dot-com bubble went bust. The laws of economics haven’t changed.

      • Consider that after Patreon nuked several high-profile accounts, a bunch more dropped them including Jordan Peterson — who if that figure for their gross is right, was ~5% of their income all by himself — add to that everyone else who dumped Patreon due to this debacle, and that’s a serious blip on their quarterly bottom line.

        • I just watched a Peterson Youtube from 2018, and he said he made $80,000 per month from Patreon. He ran through his major earning sources in answer to a French interviewer. The guy is making a fortune, including two million books at a royalty of $1.50 each. Appearances at $35k – $50k.

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