Substack's Secret
For context, I run what used to be the 2nd biggest newsletter on substack by revenue and the biggest by far by paid subscriber count. Apparently they're trying to raise money again at what looks from outside like a pretend-up round; here's what I'd want to know if I were an investor. (Everything here is speculative, I do not have inside information).
As best I can tell, Substack's One Weird Marketing Trick was leveraging the economic interests of traditional media employees against their publishers to get positive "earned media". This is clever, and apparently effective! I'm not sure it's a trick available to many other startups, but it's an interesting thing to noodle on.
When buzzy articles first came out about Substack, people would say "it's crazy that journalists are writing these glowing profiles of their competitor!!!!" But this gets it wrong: Substack competes with publishers like The Atlantic, but it competes for writers at the Atlantic. And since Substack has long had a VC subsidy to throw around, it can compete for those writers at higher prices than most magazines can.
If you're a writer at a legacy publisher and there's a new company in town who is promising to pay writers a lot of money, this increases your leverage against your own employer; it makes sense for you to gush about this new alternative employer for writers. I think the right comparison is well-funded media companies of the past like FusionTV, who hired writers at competitive salaries and got a lot of coverage.
Early on, the coverage of Substack was truly ridiculous: there was a time when e.g. Substack added a feature to allow publishers to change colors of their websites, and got gushing standalone coverage in the Verge. For a while I thought the fawning was just because Substack had raised a lot of money, and people confuse fundraising for income. But competitor Beehiiv launched in 2021, got a bunch of VC funding, and brought in various famous writers e.g. a popular fitness influencer named Arnold Schwarzenegger.
Beehiiv claimed $15 million revenue in 2024, and on previous growth trends will be claiming $30 million revenue at the end of 2025; I suspect they may have more real recurring revenue (more on that in a minute) than Substack. But you still hear infinitely less about Beehiiv than Substack. Why?
Partly it's just self-fulfilling: once you become A Company That People Write About you're a Company That People Write About, and journalists with a quota can just file a fluff piece about whatever random junk you did today and pass the Nobody Every Got Fired For Writing About IBM test. Some of it is possibly the consequences of the paid PR ecosystem. And part of it is Substack's annoying-to-me but ultimately successful gambit to brand-smother actual writers and publishers, while other platforms are much better about letting publishers get credit for their own work.
But ultimately, I think the secret of the Substack Story (TM) is that it gets disproportionate media coverage because it offers lots of money to writers, and (consciously or unconsciously!) writers can then go back to their employers and say "hey wanna see my BATNA? Substack sets my BATNA."
When I say "offers lots of money to writers", I mean that (as best I can tell, though I cannot know for certain: my experience is that publishers who sign deals with Substack do not then talk openly about the contents of those deals), Substack has been compensating famous writers and publishers to be on its platform since day 1, in a way that other platforms are not doing. They suffered some controversy for this in 2021 with the "substack pro" product, which gave "advances" to famous writers to join. But my sense is that the extent of Substack-paying-publishers has never been reported properly: that many important publishers on Substack are getting many special deals and arrangements, in a way that might scare investors if they knew about them.
Why does this matter? Because, per Newcomer, "Substack is telling investors that it’s currently generating about $45 million in annual recurring revenue. The total subscription revenue flowing to Substack creators is roughly $450 million, sources tell me." That implies a 10% take on creator revenue, which is the public "standard" deal. But if in fact a decent share of that $45m is being rebated to publishers – in cash or in kind – to keep them on the platform, the company's economics are completely different from what they seem on the outside.
If I were an investor, the first thing I'd ask about is Substack's "enterprise" offering. If an individual publisher is (supposedly) responsible for more than 1% of Substack's nominal revenue, it becomes really important what deal that publisher is actually on. And there are many ways to rebate to a publisher, for a platform that is willing to do so.
Another "tell" I'd look at is when an established mainstream writer moves to Substack and launches with a ․substack․com domain instead of their own custom domain – again, I'm sure some of these people are on the public Substack plan, but if I were an investor I would try to get a hold of these people and ask in some NDA-circumventing way whether Substack is giving them a special deal.