The rise of social media has democratized content creation and consumption, leading to a rapidly expanding digital creative economy. In this new paradigm, creators who produce online content no longer rely on traditional media corporations to distribute and monetize it. Instead, creators can directly connect with audiences across digital platforms like YouTube, Instagram, or TikTok. Creators have found a receptive audience, with consumption of digital content having doubled in 2020, driven by the COVID-19 pandemic and global lockdowns. But the digital habits picked up during the pandemic have persisted, with 55% of people spending more time each day consuming digital content than they did pre-pandemic. The appetite for digital content is enormous, with consumers spending more than 25% of their day on average engaged with online content.

Despite the demand for digital content and the ability to leverage social media platforms for reach, creators struggle to effectively monetize their content and build stable careers, with over half of influencers making less than $10K annually. Content creators often face numerous challenges in monetizing their work and establishing stable careers. The reliance on ad-based revenue from social media platforms can lead to unpredictable and often insufficient income due to fluctuating engagement and changes in ad rates. Creator funds provided by social media platforms are viewed as ineffective and unreliable. The competitive nature of the online content market, coupled with difficulties with monetizing, creates challenges for creators seeking to make content creation a full-time career.

Sitting at the intersection of these trends is Patreon, a membership platform that enables creators to monetize their work directly via subscriptions from their audience. It allows creators to focus on their creativity without worrying about unpredictable ad revenue or platform policies. Creators can offer various membership tiers with exclusive content, early access, and other benefits, fostering a sense of community and direct engagement with their audience. Patreon's business model is positioned to ride the growth of digital content consumption, and the challenges creators face in making content creation a stable career.

Source: Inc

Patreon was founded in 2013 by Jack Conte (CEO) and Sam Yam (CTO). While studying master’s degree in computer science at Stanford, Yam took a leave of absence to become one of the first engineers at the social-mapping startup Loopt. In 2006, Loopt was acquired for $43 million. Yam then founded AdWhirl, which allowed iPhone developers to choose ad networks dynamically. In 2009, AdMob acquired AdWhirl, before AdMob itself was subsequently purchased by Google.. After a brief stint at Google, Yam explored startup ideas for 3 years and spent time working out of the Dogpatch Labs incubator space alongside Kevin Systrom and Mike Krieger, who were developing the early version of Instagram.

In 2013, Conte found himself in a troublesome financial situation, expecting to spend $10K on producing a music video. Since the ad revenue he anticipated from YouTube would not cover the cost. Conte had amassed a following of 100K subscribers on YouTube and saw an opportunity. He believed a subset of his fans would be willing to support his creative endeavors financially, and with this in mind, he reached out to Yam – his old college roommate – to develop a platform where subscribers could support their favorite creators.

The pair met for a coffee to discuss Conte’s idea. Yam, who was in the midst of launching a freelance photographer marketplace named OurSpot, immediately saw the potential of a platform allowing fans to fund artists directly. Conte's specific proposal impressed Yam instantly. Initially, Yam asserted that an NDA wasn't needed, as ideas are common and execution is paramount. However, in the end, Yam encouraged Conte to keep the idea confidential. As inbound interest from press coverage of OurSpot trickled in, Yam followed his intuition and began building the Patreon platform. He maintained OurSpot until Patreon secured its seed round.

Patreon’s product is a membership platform that enables creators to manage, grow, and monetize their following. Paying subscribers are called ‘patrons’. The company offers services bundled into three membership plans.

Each plan includes:

• Direct relationships: Creators can develop relationships with their patrons through exclusive posts, messages, and emails.

• Business tools: Creators can track and manage patron payments, lifetime value, and notes to help manage relationships with them.

• Flexible payouts: Patreon enables creators to get paid whenever they want, and receive monthly auto payouts from the creator balance via direct deposit, PayPal, or Payoneer.

• Patron support: Patreon handles patrons’ questions, payments, and concerns, ensuring creators can focus on their business.

• Creator-first education: Patreon helps creators learn how to run their creative businesses with workshops and resources.

• Mobile app: Creators can use the app to message their patrons and monitor the business.

Lite

Patreon Lite is a basic subscription plan for creators seeking a low-friction way to monetize their content and engage with their supporters without extensive customization options. This plan includes the following services:

• Hosted creator page: A dedicated page for the creator on patreon.com where the creator can invite fans to become patrons and provide hosted content to patrons on the page.

• Patron communication tools: Methods for a creator to communicate with their patrons, including via email, posts on the page, or direct messages on Patreon.

• Patreon workshops: Support from Patreon’s Creator Success team for creators on effectively utilizing the platform, growing their following, and monetizing their patrons.

Pro

Patreon Pro, the next tier of Patreon's platform, is designed for creators who want more control over their relationships with their patrons. This tier allows creators to customize their page extensively and set up multiple membership tiers, each with its own benefits. This flexibility allows creators to reward their most dedicated supporters with exclusive content, merchandise, or other perks. This plan includes all of the services included in Patreon Lite as well as:

• Membership tiers: Allows creators to offer various membership tiers to patrons, each with different prices and benefits.

• Analytics and insights: Tools that provide creators with insights into their patrons' behavior and page performance.

• Special Offers promo tool: Enables creators to offer promotional offers, pricing, or benefits to grow their following on Patreon.

• Creator-led workshops: Live stream workshops hosted by Patreon’s top creators who provide advice and guidance on building a sustainable career on Patreon.

• App integrations: Native integrations with other applications and platforms, like Discord, Vimeo, and WordPress, allow creators to streamline their workflow and manage their community more effectively.

• Priority customer support: Prioritized support from Patreon to assist with issues, questions, or inquiries that creators may have about the platform.

Source: YouTube

Premium

Patreon Premium is the most feature-rich tier of Patreon's platform, targeted at established creators and creative businesses who need a robust set of tools to manage their membership program. In addition to all the features offered by Patreon Pro, Patreon Premium provides users with dedicated partner support, team accounts, and a merch for membership feature, allowing creators to offer physical merchandise as part of a membership. The additional services included in Premium include:

• Dedicated partner manager: A Patreon Partner Manager is a membership expert who assists a creator with growing their business, providing insights and a direct line of communication to the Patreon team.

• Merch for membership: A white glove merchandise service where creators can provide their patrons with branded merchandise while Patreon handles shipping, tracking, and merchandise support.

• Team accounts: Patreon Premium allows a creator to invite team members to manage their creator page and business with unique logins and permissions.

Customer

Patreon's potential customers come in two categories: creators who want an income from their work, and supporters willing to pay for exclusive content or to support the creators they love. The company's reach spans different industries, including music, podcasting, visual arts, writing, gaming, and more.

Creators on Patreon tend to have a dedicated following, often cultivated through various social media or content platforms. They leverage Patreon as a means to monetize their following and offer additional value to their patrons. This is not limited to small or individual creators, with many well-established entities and influencers also using Patreon to offer premium content to their fans.

Patrons range from fans seeking additional content or closer engagement with their favorite creators to those who wish to support the arts or specific creators whose work they believe in. Patrons are generally characterized by their willingness to pay for digital content and their desire for exclusive or early access to content.

Market Size

Patreon operates within the creator economy, a market segment comprising artists, content creators, influencers, and anyone who monetizes their content directly with their audience. The global creator economy was estimated at $250 billion in 2023 and is expected to grow to $480 billion by 2027. The primary drivers of this growth include (1) an increasing number of creators looking to monetize their content, (2) expanding internet penetration leading to a larger potential audience for creators, and (3) the rise of creator-friendly platforms like Patreon that enable monetization through direct-to-audience models.

Competition

Substack: Launched in 2017, Substack is a publishing platform that allows writers to monetize their newsletters directly from their audience. Substack provides a viable alternative to Patreon for creators looking to directly monetize written content, with a creator-friendly revenue split of 90% to the creator and 10% to Substack. Patreon offers a broader suite of tools for creators than Substack. Unlike Patreon, Substack focuses on written media. It has grown from 500K paid subscriptions in February 2021 to 2 million by February 2023. It has raised $82 million in funding.

Medium: Medium is an online publishing platform founded in 2011 by Twitter co-founder Evan Williams. Medium's Partner Program pays writers based on how much members engage with their articles and provides direct competition to Patreon for writing and blogging creators. Unlike Patreon's subscription model, Medium allows writers to earn money directly from their readers' engagement. It offers an alternative for writers to monetize their work without maintaining a subscription base. Medium's large reader base and built-in distribution tools also give writers a larger audience than they might reach via Patreon. It has raised $163 million in funding.

Gumroad: Founded in 2012, Gumroad is a platform that enables creators to sell their work directly to their audience. Gumroad presents a viable alternative to Patreon for creators seeking to sell digital products, such as ebooks, courses, and music. Gumroad's pay-what-you-want model, which allows customers to set their prices for products, is popular among creators. Gumroad also charges no monthly subscription fees to creators, differentiating it from Patreon’s subscription model. It has raised $16 million in funding.

Twitch: Acquired by Amazon in 2014 for $970 million, Twitch is one of the largest live-streaming platforms for gamers and hosts a variety of other content. As of March 2023, Twitch reported an average of 31 million daily visitors. Twitch’s Partner Program, which allows streamers to monetize their streams through subscriptions and ads, is a direct competitor to Patreon, particularly for creators in the gaming industry. While Patreon offers a more generalized platform for various types of creators, Twitch’s focus on live streaming and its integration with Amazon Prime via Twitch Prime gives it a unique position in the creator economy.

YouTube: Launched in 2005 and acquired by Google in 2006, YouTube is the world's largest video-sharing platform, and the second-most visited website in the world. YouTube’s Partner Program, which allows creators to monetize their content through ads, channel memberships, and merchandise shelves, is a competitor to Patreon. YouTube's audience and content monetization options provide creators with an alternative to Patreon, particularly for video content creators. Furthermore, YouTube's recent expansion of its Super Chat and Super Sticker features, allowing fans to pay creators directly during live streams, has increased its competitiveness in the creator economy.

Twitter: Founded in 2006 as a microblogging service, Twitter has grown to become one of the world’s largest social media platforms. It has naturally served as a distribution network and growth engine for content creators of all stripes, though it has historically struggled to enable them to monetize on the platform itself, with efforts like Super Follows seeing very limited success. However, in the wake of Twitter’s 2022 acquisition, new owner Elon Musk has emphasized creator monetization as a desirable substitute for advertising revenue, relaunching Super Follows as Subscriptions and giving them much greater prominence in the platform’s user interface.

Patreon operates a commission-based business model with three plans, catering to the needs of creators at different levels of their careers:

• The "Lite" plan, charging a 5% fee, is designed for creators seeking a simple and effective way to monetize their content.

• The "Pro" plan, with an 8% fee, offers additional tools and features for creators aiming to grow and engage their audience more effectively.

• The "Premium" plan, with a 12% fee, is tailored for established creators requiring advanced features and personalized support to manage and scale their operations.

Patreon also charges creators using its platform a variable amount for payment processing:

• 2.9% + $0.30 for payments over $3

• 5% + $0.10 for payments under $3

Source: Patreon

In 2018, Patreon facilitated income generation for creators from over 3 million active patrons, a 50% year-over-year increase from the 2 million patrons it processed payments for in 2017. In May 2018, the CEO said they would process $300 million in payments that year, implying $30 million in revenue in 2018. By April 2021, the company stated that it hosted over 200K creators, earning over $100 million monthly from more than 7 million patrons. Patreon said it added more than 30K creators during the pandemic in the first weeks of March 2020.

The website Graphtreon uses publicly available data from Patreon to estimate the total monthly payouts on platform. While some creators elect not to make their monthly earnings public — and are therefore excluded from this total — it nonetheless provides an indication of a general growth trend, namely a spike in the early months of the pandemic and less aggressive growth since 2021.

Source: Graphtreon

In April 2021, Patreon announced a $155 million Series F led by Tiger Global, which valued the creator economy platform at $4 billion. Key investors also included New Enterprise Associates and Woodline Partners.

Patreon reported that over 200K creators collectively earned over $100 million monthly in April 2021. Assuming creator earnings totaled $1.2 billion annually in 2021 and Patreon earns between 5-12% of creator income based on the Patreon plan a creator is subscribed to, Patreon’s revenue in 2021 is estimated between $60 million to $144 million. Based on this revenue estimate, the Series F valued Patreon at a range of 27-66x revenue. This estimate does not account for other potential sources of revenue for Patreon.

In 2021, Patreon was considering a public listing and had been approached by special purpose acquisition companies (SPACs). As of 2023, it is yet to go public. The company went through layoffs and a 70% drop in its 409A valuation in 2022. The company experienced a 70% drop in its 409A valuation in 2022. The same year, it laid off 17% of its workforce, pared back its creator partnerships team, and shuttered several international offices.

Creator Sponsorships

Expanding to include corporate sponsorships for creators represents an opportunity for Patreon. By providing a platform for businesses to sponsor creators, Patreon could tap into a new revenue stream while facilitating direct, meaningful connections between brands and niche audiences. The influencer marketing industry is expected to grow to $21.3 billion in 2023, with 89% of marketers increasing or maintaining their investment. This can be particularly appealing to businesses looking to reach specific demographics or engage with communities centered around particular interests or passions, which Patreon creators often embody.

An expansion into corporate sponsorships could be a potential revenue driver for Patreon and a means to make the platform more attractive for creators. The additional financial support could help creators to continue producing content, reduce their reliance on individual patrons, and attract more creators to the platform.

Creator Financial Services

Patreon could expand into financial services to further support its community of creators, adding value to its platform and generating additional revenue. The irregular income streams and unconventional business models of many creators can make it difficult for them to secure financing from traditional institutions. Patreon has unique insight into a creator's income and financial position based on their history and performance on the platform. This could allow Patreon to offer tailored loan products that consider the unique circumstances of creators, providing them with the funding they need to invest in their work and grow their businesses.

Additionally, as many Patreon creators are independent and may not have access to traditional employment-based benefits, health insurance is another potential area for expansion. Patreon could partner with insurance providers to offer health insurance plans tailored to the needs of self-employed individuals or small businesses, much like the Freelancers Union does for its members. This would add an attractive benefit for creators and help to attract and retain users on the platform.

Native Platform Creator Tools

Patreon's business model could face risks as other platforms continue building their tools for creators. These platforms integrate monetization features directly into their product offerings, potentially reducing the need for creators to rely on Patreon for their income. Social media giants like YouTube, Facebook, Instagram, TikTok, and Twitter are actively developing monetization features, many of which have been rolled out. For example, YouTube has a channel membership feature, Instagram offers a "Badges" program for live videos, and TikTok has a creator fund. These platforms increasingly provide creators with ways to earn money directly from their platforms, which could threaten Patreon.

As these platforms continue to integrate monetization tools, they can offer a more seamless experience for creators and their fans. For instance, a YouTube creator can offer channel memberships directly within the YouTube ecosystem without directing fans to an external platform like Patreon. This integrated experience could be more attractive to creators and fans alike, potentially drawing users away from Patreon. Creators could migrate their fan base from Patreon to these other platforms if they find the integrated tools more convenient or lucrative, leading to a decline in Patreon's user base and revenue.

Content Moderation

Patreon's reputation and platform integrity is contingent upon its ability to moderate content and ensure adherence to platform guidelines effectively. However, content moderation is a complex and resource-intensive task. In 2018, Patreon suspended many adult content creators on its platform due to pressure from payment partners. If Patreon is perceived as too strict or inconsistent in its moderation policies, it could face backlash from creators who feel their freedom of expression is unduly limited. High-profile creators Jordan Peterson and Dave Rubin announced they would leave Patreon in early 2019, citing perceived political bias in moderation decisions.

Future changes in laws and regulations around digital content could impose further obligations on Patreon, increasing the costs and complexities of content moderation. US regulators have discussed repealing Section 230, a law that protects internet platforms from liability for what third parties say or do to them. Repealing Section 230 would require tech companies to moderate their platforms or face potential liability, with Laurent Crenshaw, head of policy at Patreon, stating:

Patreon has carved out a niche in the creator economy by providing a platform for creators to monetize their content through recurring subscriptions from their fans. This direct monetization model gives creators a more predictable income stream, reducing their reliance on ad revenue and sponsorships. Patreon's success, however, has drawn the attention of larger social media platforms, many of which have begun to roll out similar subscription-based features, posing a significant competitive threat. Maintaining and growing its base of creators and patrons, essential for Patreon's business model, could become increasingly challenging in an environment where creators are able to monetize natively on popular platforms. To maintain its leadership position in the creator economy, Patreon must continue delivering value for both creators and patrons, while carefully managing the potential risks associated with platform moderation and content policies.