Apparently that struck a nerve. A (actually very good) journalist for a billionaire-owned news org complained, suggesting that it was unfair of me to call out other media organizations for choosing to annoy people for money. Which billionaire? Does it matter? The list is long enough that you could throw a dart.
The crux of the argument seemed to be that there just aren’t that many ways for news orgs (billionaire-owned or not) to make money these days, and thus I shouldn’t call out those who have chosen an “annoy people until they pay” method.
I disagree.
One of the very earliest areas of coverage on Techdirt was about the changing music industry, and how the record labels’ Napster-era strategy of disrespecting music’s biggest fans by accusing them of all being thieves was not in their long-term best interests. Rather, working on finding a better business model that enabled fans to enjoy more music would be the better, more sustainable strategy. Today I would argue that I was correct.
I think the same is true in the news business. Insisting that the only way that a news org can make money is to be actively hostile to your readers/watchers/listeners strikes me as unsustainable and going down the wrong road.
Tragically, one thing that we’re seeing is that the news orgs with the least community-hostile approach tend to be right wing MAGA shitpost factories. They’re running on dark money or extracting cash from the perpetually credulous, but either way they’ve figured out that not actively pissing off your audience creates loyalty. It’s a depressing lesson in how the worst actors sometimes understand community dynamics better than legacy institutions.
But it would be nice if we could show the world a better way. That you can have a publication that does, in fact, respect its community. That doesn’t want to annoy you into paying. That doesn’t want to only make its content shareable if you have a subscription or if you first give up all sorts of private data about yourself.
And that’s where you come in. While Techdirt will accept donations year-round, if you want to get one of these cool new commemorative challenge coins, you have until Monday, January 5th, to make your donation. On Tuesday we’ll be submitting our order of how many coins get minted, so we’re down to our final week if you want in.
Help show the world that a good, thoughtful news site can be reader supported, but without having to use tactics that disrespect its community to do so.
But here’s the real reason to support Techdirt: we’re one of the rare remaining websites on the internet that doesn’t believe in annoying people as a business model.
You know the drill. You open a news article. There’s a banner ad at the top that won’t scroll away. Another at the bottom, also stuck. A skyscraper ad bisecting the text. You try to scroll past it and accidentally click, launching some garbage in a new tab. Or worse: the article itself is freely readable, but only after you’ve dismissed three different popups begging you to subscribe, register, or turn off your ad blocker.
Or you get six paragraphs in—just enough to get invested—and hit this:
Bait and switch. Every time.
Techdirt does none of that. You can read the site for free. You can also get the full text of all our posts via RSS or in your email with our newsletter. You don’t need to pay or register. Hell, you don’t even need to register to comment. We don’t cover the page in ads. We don’t pop up annoying reminders. You can share our content freely, safe from anyone saying “paywall, can’t read” in response.
When sites do that, it feels like the first stage of Cory Doctorow’s “enshittification” curve, where a site starts to figure out ways to annoy users to extract value from them by making them pay to avoid the annoyance. It’s deliberately decreasing the value in the hopes you’ll pay to get rid of the annoyance.
And while the “paid newsletter” Substack-style setup is a fascinating business model, when I’ve asked supporters of Techdirt how they would feel if we offered something similar, the response was almost unanimous: people love reading Techdirt in part to share what’s here, and they’d get annoyed if they felt they couldn’t share our stories any more.
I’d rather people pay here not because we’ve annoyed them into supporting us, but because they feel they get genuine value from what we do here and would like to enable much more of that.
But this is about more than just keeping Techdirt running. It’s about proving that a different model can work—that you can run a news site by treating readers like people you respect, not resources to be mined. Here’s our work, we think it’s valuable, and if you agree, support it.
Every other model on the internet right now assumes you need to annoy people into paying. Frustrate them with paywalls. Interrupt them with popups. Make the experience just bad enough that they’ll hand over money to make it stop. That’s not a relationship. That’s a hostage negotiation.
We’re betting that if you get value from what we do, you’ll support it because you want more of it—not because we’ve made it impossible to read otherwise.
If you think that model deserves to exist, back it. Because if this works, it proves something: that you can build a sustainable news site by trusting your audience, not by annoying them into submission.
Walled Culture the book (free digital versions available) concluded with a look at “true fans,” an alternative way of funding creators that avoids the main problems of the current copyright system. The approach is based on nurturing the connection between artists and their most dedicated fans, allowing the former to generate extra revenue by providing the latter with tailored offers. When the book appeared in 2022, the idea of “true fans” was not widely known, but since then, the idea has been gaining currency and supporters. One of the best-known names in the world of fan-supported creativity is Patreon. A couple of months ago, it published its “State of Create 2025” report, which surveyed over 1,000 creators and 2,000 fans to learn more about both and their interrelationship.
According to Patreon’s research, “over half of the $290 [billion] that encompasses today’s creator economy comes from direct-to-fan value like ticket sales, courses, livestreams, and paid memberships.” Moreover, it’s not just financial support that true fans – or “core fans” as Patreon calls them – offer their artists:
Core fans are more likely to energize the rest of a creator’s community by engaging with other fans. In doing so, they can help snowball the fandom into a community that generates value on its own, even when the creator is not posting new work.
Not only does this added value make the community even more appealing for newer fans to want to join, it also takes the pressure off of the creator to be constantly creating.
As a result, Patreon believes:
Creators are overwhelmingly seeking out more ways to deepen connections with their biggest fans. That’s not to say follower count isn’t important to creators – it’s just not the only end goal any more. The new driver motivating creators to build a large follower count is to have more chances to turn followers into fans, and fans into core fans.
According to Patreon’s research, 74% of creators want more fan interaction, and 87% of them value the importance of having a fan community around their work. Of course, Patreon has a vested interest in promoting the idea of true fans and their value to creators, since it makes its money by acting as an intermediary between them. But it is striking how even the biggest and most successful media companies are joining the true fan fan club.
One big name that embraced the direct-to-fan approach some while back is Universal Music Group, as Walled Culture noted last year. There is no sign of any diminished enthusiasm for the idea in Chairman and CEO Sir Lucian Grainge’s annual New Year note to UMG staff, where he writes about the company’s “superfan” strategy:
In 2025, we’ll also be reaching out in new ways to engage fans. In addition to listening to their favorite artists’ music, fans want to build deeper connections to artists they love. Last year, in accelerating our direct-to-consumer and superfan strategy, we formed a strategic partnership and became an investor in NTWRK and Complex to build a premium live-video shopping platform for superfan culture. This year will see us expanding our product offerings to fans, as we continue to redefine the “merch” category and create superfan collectibles and experiences.
the platform’s user base grew consistently across all continents, with an average growth rate of 19% last year.
Sixteen separate global artist teams joined Weverse during the year, with high-profile international stars like Ariana Grande, Dua Lipa, Megan Thee Stallion, and Conan Gray driving double-digit user growth across North America, Europe, and Asia.
Tencent Music Entertainment, China’s largest music streaming company, is also banking on superfans to grow its business. The company recently reported a significant surge in its paying user base and improved average revenue per paying user (ARPPU), which was partly boosted by its ‘Super VIP’ (SVIP) tier.
As this indicates, the true fans idea has entered the mainstream now. That is good news for artists seeking to connect with their fans, and to generate extra income from that deeper relationship, but there’s an underlying problem, despite this embrace of the idea by big names. In an excellent discussion of the Patreon “State of Create 2025” report on her Posting Nexus blog, Julia Alexander points out a fundamental challenge facing the true fans model. Services like Patreon provide a way for true fans to support the artists they love, but they don’t help creators find those true fans in the first place. For that, big platforms like YouTube and TikTok are needed, but they make it hard for people to move across to true fan sites in order to support artists directly. As Alexander writes:
If the Instagrams, YouTubes, and TikToks of the world want creators to continue putting in the effort of full-time labor to produce videos, they need to make it easier for those creators to survive off of smaller audiences. That only happens by encouraging core fans to follow their absolutely favorite creators to third-party websites where those creators can maintain a stronger direct-to-fan relationship rather than the simple direct-to-consumer one that isn’t working as the creator economy grows.
What that means is that these platforms need to understand that it is in their own interest to make it easy for visitors to become true fans using established sites like Patreon and the new ones that are being launched. Making it hard to do that in a misguided attempt to maximize the time that people spend on sites like YouTube and TikTok will ultimately harm the creators they depend on. Whether they are called true fans, core fans or superfans, they are vital for the future of creativity, not least in a world beyond copyright.
Copyright is built on a lie that most people seem to accept: artists can make a decent living from the current system of rewards that copyright provides. As Walled Culture the book (free digital versions available) explores, all the data about artist remuneration shows that isn’t true. Alongside such dry statistics, it’s good to hear about the personal experiences of creators, and I recently came across a fascinating post by the writer Monica Byrne, published in May this year. Its title is self-explanatory: “Can an author make a living from royalties?”. The post is particularly valuable because Byrne generously gives all the details of her earnings arising from her second novel, making it possible to see the reality of copyright for a modern creator who seems to be thriving:
First things first: by most measures in traditional publishing, my second novel The Actual Star was a success. It earned out its higher-than-average advance, which was $40,000*, less agent fee.
“Earned out” refers to the system of paying authors an advance against possible future earnings from royalties. It is only after that advance has been “earned out” by actual royalties that additional money is paid to an author. Byrne says that The Actual Star is in the top 20% of all books published in terms of earning out. But the additional royalties she has received after earning out are rather small: for the past calendar year they amounted to just $4,370.67, and to $6,936.14 in total. Looking at the overall income, she writes:
“But Monica, you were paid $34,000 up front.” (That’s $40,000 less the 15% agent fee.)
Yes, this is true! So that brings my total earnings for the book to $40,936 [$34,000+$6,936].
If we average that over the time since we sold the book (October 2019), that’s $8,187/year.
If we average that over the time since I actually began to research and write the book (January 2012) to today, that’s $3,411/year.
Clearly, it’s not possible to live on such a meager income. Byrne explains how she manages:
The reason I can survive is because I have the incredible support of a direct patronage community. The amount of support fluctuates from month to month, and the changes Musk made to Twitter have severely damaged my ability to advertise. As of now, I can still pay for basics—housing, food, healthcare, transportation—especially now that I’ve left the U.S. to save money. But my situation is very rare. And maintaining it is its own full-time job.
She says that she earns about $43,200 from such direct patronage – a decent sum, but one that requires a lot of work in terms of encouraging fans to contribute, an activity that takes away time from her creative writing. For what it’s worth, it precisely the model that I advocate in Walled Culture, and it’s interesting to see it working here. But the fact that a successful author like Byrne depends on patronage underlines the point that copyright simply does not do what most people think it does: provide a decent income for a good writer. Commenting on the reasons why today’s copyright model is not working for her or others, Byrne writes:
“But Publishing Is A Business, Monica.” I’ve heard this many times from many quarters. Yes! I agree! But it’s a business built on the unpaid and underpaid labor of the very workers who generate its product. Art is labor, no different from any other kind of labor; just as artists are human, no different from any other kind of human. To take it a step further, humans deserve the basic means of life independent of their ability or desire to perform labor, and that’s a whole other conversation; for now, while we advocate for Universal Basic Income, I welcome alternative compensation models for authors. And I appreciate whenever publishing professionals welcome them, too.
The suggestion that a Universal Basic Income should be introduced is a good one. There are lots of advantages for society as a whole, especially for those at the bottom of the financial hierarchy. For artists, it would amount to state patronage of precisely the kind that produced most of the great works of art created in past millennia, but extended to everyone. It would not replace direct patronage from fans, but it would provide a solid foundation for artists to build on as they sought to build this kind of support, as Byrne has done. Even the smallest Universal Basic Income would be better than nothing, and almost certainly better than the few crumbs that today’s creators are granted from the rich banquet enjoyed by the copyright industry.
The problems and unfairness of the copyright system are so manifest that many would like to adopt alternative approaches. But that’s a big step, and one that undoubtedly requires a certain courage. Every example that shows how the move worked for others is important, since it not only demonstrates that alternatives exist, but that they work. Here’s another data point, reported by the News Revenue Hub:
The Forward has a storied history. Founded in 1897 as a Yiddish-language daily, it soon became a national publication — and the most widely read Jewish newspaper in the world. In 1990, the English version of the Forward launched as a weekly publication. In 2019, the Forward went fully digital.
And on December 5, 2023, the Forward marked its latest milestone: The publication removed the paywall for all of its coverage.
The results have been amazing:
In the first three months since dropping the paywall, the newsroom welcomed 1,254 new donors who hadn’t previously paid to access their coverage. From December 5, 2023 to March 15, 2024, the Forward received nearly $583,000 in donations under $5,000 — a 37% increase over paid subscription revenue during the same time frame the previous year.
In December, the month the Forward removed the paywall, the nonprofit saw a 103% increase in reader revenue under $5,000, compared to the same time last year. That includes 176 new monthly recurring donors, averaging $16/month. Previously, an annual digital subscription brought in $51.21, just over $4/month.
It’s great to have those figures showing how trusting your readers to support you can work. Too often sceptics claim that people are only too happy to get something for nothing, and to access online material without ever giving back. The experience of The Forward is an excellent counterexample to that. Another crucial point to emerge from the News Revenue Hub post is the importance of preparing thoroughly for the paywall removal, not least by carrying out research among current readers and supporters:
“A lot of important research needs to happen before a news organization can be ready to take down its paywall,” [Mary Walter-Brown, the News Revenue Hub’s founder and chief executive officer] explained. In particular, the Hub helped the Forward with deep audience analysis, surveying each audience and donor segment to gauge their feelings about removing the paywall and moving to a volunteer donor model.
We learned a lot from those surveys,” Walter-Brown said. “For example, we found that the Forward’s older demographic was motivated by making content available for future generations.” Survey results also showed that most Forward readers were willing to convert their paid subscriptions to donations and consider increasing their gift amount to fund more reporting.”
The report about The Forward moving away from paywalls to donations makes clear how important the support of the News Revenue Hub was in this case. The latter describes itself as “a nonprofit B2B that helps news organizations build membership and crowdfunding programs.” The News Revenue Hub is itself funded by “individual donations, member fees, and foundation grants.” The latter include support from Democracy Fund, Draper Richards Kaplan Foundation, The Granada Fund, Google News Initiative, The John S. and James L. Knight Foundation, and The John and Florence Newman Foundation. In other words, an organization that helps news publishers move to what is effectively a patronage model, is itself funded in the same way. That’s interesting to see, since Walled Culture the book (free digital versions available) also suggested that a shift back to this tried and tested funding approach could offer a viable alternative to today’s dysfunctional copyright system.
Hey Google, can you spare a few hundred million to keep Rupert Murdoch’s yacht afloat? That’s essentially what some legislators are demanding with their harebrained schemes to force tech companies to fund journalism.
It is no secret that the journalism business is in trouble these days. News organizations are failing and journalists are being laid off in record numbers. There have been precious few attempts at carefully thinking through this situation and exploring alternative business models. The current state of the art thinking seems to be either (1) a secretive hedge fund buying up newspapers, selling off the pieces and sucking out any remaining cash, (2) replacing competent journalists with terrible AI-written content or (3) putting all the good reporting behind a paywall so that disinformation peddlers get to spread nonsense to the vast majority of the public for free.
Then, there’s the legislative side. Some legislators have (rightly!) determined that the death of journalism isn’t great for the future of democracy. But, so far, their solutions have been incredibly problematic and dangerous. Pushed by the likes of Rupert Murdoch, whose loud and proud support for “free market capitalism” crumbled to dust the second his own news business started failing, leading him to demand government handouts for his own failures in the market. The private equity folks buying up newspapers (mainly Alden Capital) jumped into the game as well, demanding that the government force Google and Meta to subsidize their strip-mining of the journalism field.
The end result has mostly been disastrous link taxes, which were pioneered in Europe a decade ago. They failed massively before being revived more recently in Australia and Canada, where they have alsofailed (despite people pretending they have succeeded).
For no good reason, the US Congress and California’s legislature are still considering their own versions of this disastrous policy that has proven (1) terrible for journalism and (2) even worse for the open web.
Recently, California Senator Steve Glazer offered up an alternative approach, SB 1327 that is getting a fair bit of attention. Instead of taxing links like all those other proposals, it would directly tax the digital advertising business model and use that tax to create a fund for journalism. Specifically, it would apply a tax on what it refers to (in a dystopian Orwellian way) as a “data extraction transaction.” It refers to the tax as a “data extraction mitigation fee” and that tax would be used to provide credits for “qualified” media entities.
I’ve seen very mixed opinions on this. It’s not surprising that some folks are embracing this as a potential path to funding journalism. Casey Newton described it as a “better way for platforms to fund journalism.”
Unlike the bargaining codes, this bill starts with the right question, which is how to fund more jobs in journalism. Its answer is to use tax credits, a time-tested form of public-private partnership. It structures those credits to incentivize small publishers and even freelance journalism just as much as it helps to support large, existing media companies.
And it does all of that without breaking the principles of the open internet.
And, I mean, when compared to link taxes, it is potentially marginally better (but also, with some very scary potential side effects). The always thoughtful Brandon Silverman (who created CrowdTangle and has worked to increase transparency from tech companies) also endorses the bill as “a potential path forward.”
It’s a simple bill designed to help revive local journalism. Instead of complicated usage-based mechanisms, this approach is very straightforward. It’s an online advertising tax that funds tax credits to support education and journalism. In this case, it’s a 7.25% ad tax (matching the state’s sales and use tax rate) on companies with more than $2.5 billion in revenue.
And here’s the rub: it would raise more than $500 million.
That’s every year.
To put it in context, the single largest philanthropic commitment to local news in the U.S. was the MacArthur announcement I mentioned in the first of this post. That funding represents $100 million a year and is spread across the entire country. This would be 5x that number, would grow over time, has no end date, and is just for California. Of course, as I understand it, some of this money would have to go to the general fund and be directed towards education in the state…that’s also a great use of the funds and there would still an enormous amount left for news (we’ll know more on these exact numbers as more official analysis is completed).
But that is a staggering amount of money and a game-changing amount of potential funding for news in the state. And it’s something that could easily replicated across the country.
But I tend to agree much more with journalism professor Jeff Jarvis who highlights the fundamental problems of the bill and the framework it creates. As I’ve pointed out with link taxes, the oft-ignored point of a tax on something is to get less of it. You tax something bad because that tax decreases how much of it is out there. And, as Jarvis points out here, this is basically a tax on information:
Data are information and information is knowledge. To demonize and tax the collection of information should be abhorrent in an enlightened society. His rhetoric at moral-panic pitch sets a perilous precedent.
Furthermore, Jarvis rightly points out that Glazer’s bill is positioned as something unique when users give their attention to internet companies, but explicitly carves out when users give their attention to other types of media companies. This sets up a problematically tiered system for when attention gets taxed and when it doesn’t:
He argues that he is taxing a barter exchange users make when they give data to internet platforms and receive free content in return. Well then, shouldn’t that tax apply to the exchange we all make when we give our valuable attention to TV and radio and much of the web in exchange for free content? But the bill exempts news media.
Indeed, the entire framing of the bill seems to suggest that data and advertising is a sort of “pollution,” that needs to be taxed in order to minimize it. And that seems particularly troublesome.
As Jarvis also notes, the true beneficiaries of a law like this would still be those rapacious hedge funds that have bought up a bunch of news orgs:
The hedge funds that now own 18 of the state’s top 25 newspapers — the hedge funds that are ruining journalism in California and across America — will benefit. They should not receive a penny. If anyone’s cash flow should be taxed, if anyone should be punished for the state of news today, it is them. Though the money is intended to go to supporting reporters, money is fungible and it will doubtless support hedge funds’ bottom lines more than journalists.
Indeed, the structure of the bill is one that will continue to benefit the failed news organizations, rather than incentivizing newer, better news organizations. That is the problem with all of these approaches, which assume that the answer must be to prop up the businesses that failed to innovate, rather than creating better incentives for more innovative approaches.
Google has warned that, if the bill passed, it would likely stop funding a bunch of other news initiatives that it has funded for years. This shouldn’t be surprising. If Google has already been funneling a ton of money into news initiatives, and then the California government is forcing them to direct hundreds of millions of dollars to its preferred news initiative, it would make sense that the company would drop its other programs and redirect the money to this one.
And, again, that highlights the problematic nature of this whole setup. It’s based on having the government decide who should be taxed and who gets funded. And when it comes to journalism, we should be pretty worried about the government picking and choosing winners and losers. Because that raises serious First Amendment issues and is very prone to just supporting news organizations that treat the deciding politicians nicely, rather than those that do deep investigative reporting and expose corruption and malfeasance.
Not surprisingly, Glazer did not take Google’s announcement well. He obnoxiously declared, “When people asks [sic] who is in charge of protecting our democracy and independent news— now you know.”
But, if the alternative is that the California legislature gets to pick and choose who “protects independent news,” I’m not sure that’s any better.
Honestly, if Glazer didn’t think that his plan would lead Google (and Meta) to pull the money they already put into funding journalists as duplicative, what was he even thinking?
And I say this as someone who could conceivably benefit from this bill. But I don’t trust the California legislature not to play favorites.
A few years back, I visited some elected California legislators to talk about a bunch of policy-related issues. My first meeting with a California state senator set the tone. He asked me if I had heard about a new committee he had set up, and I told him I had. He then said he noticed that I had not reported on that committee. I pointed out that the mere creation of a committee didn’t seem all that newsworthy, but when the committee did something that I thought was worth covering, I would then write about it.
His response was kind of chilling and has stuck with me for years: “well, if you’re not willing to write about what I’m doing, why should I even listen to you?”
It was a demand for political quid pro quo, which is not something we do here at Techdirt.
But I fear that a bill like Glazer’s effectively makes this mandatory. Journalism orgs will need to scratch the California government’s back to get access to these funds.
There are all sorts of reasons why tech companies should consider funding journalism. I think their desire for high-quality data for training AI is a good one, for example. But having the state step in and set the rules seems prone to all sorts of corruption.
Journalism needs new business models. We’re all experimenting all the time with different ideas (and if you’d like to help, there are lots of ways to support us). But we should be pretty wary of governments stepping in with half-baked solutions that could distort the overall world of journalism and the open internet.
One of the commonest arguments from supporters of copyright is that creators need to be rewarded and that copyright is the only realistic way of doing that. The first statement may be true, but the second certainly isn’t. As Walled Culture the book (free digital versions available) notes, most art was created without copyright, when the dominant way of rewarding creators was patronage – from royalty, nobility, the church etc. Indeed, nearly all of the greatest works of art were produced under this system, not under copyright.
It’s true that it is no longer possible to depend on these outdated institutions to sustain a large-scale modern creative ecosystem, but the good news is we don’t have to. The rise of the Internet means that not only can anyone become a patron, sending money to their favorite creators, but that collectively that support can amount to serious sums of money. The first person to articulate this Internet-based approach was Kevin Kelly, in his 1998 2008 essay “1000 True Fans”:
A true fan is defined as a fan that will buy anything you produce. These diehard fans will drive 200 miles to see you sing; they will buy the hardback and paperback and audible versions of your book; they will purchase your next figurine sight unseen; they will pay for the “best-of” DVD version of your free youtube channel; they will come to your chef’s table once a month. If you have roughly a thousand of true fans like this (also known as super fans), you can make a living — if you are content to make a living but not a fortune.
It’s taken a while, but the music industry in particular is finally waking up to the potential of this approach. For example a 2023 post on MusicBusiness Worldwide, with the title “15% of the general population in the US are ‘superfans.’ Here’s what that means for the music business” reported that the incidence of superfans was probably even higher in some groups, for example among customers of Universal Music Group (UMG):
Speaking on UMG’s Q1 earnings call, Michael Nash, UMG’s EVP and Chief Digital Officer, indicated that an “artist-centric” model would look to increase revenue flow from “superfans” – or in other words, individuals who are willing to pay more for subscriptions in exchange for additional content.
“Our consumer research says that among [music streaming] subscribers, about 30% are superfans of one or more of our artists,” said Nash.
In January of this year, the head of UMG, Sir Lucian Grainge gave another signal that superfans were a key component of the company’s future strategy: “The next focus of our strategy will be to grow the pie for all artists, by strengthening the artist-fan relationship through superfan experiences and products.” Spotify, too, is joining the superfan fan club, writing that “we’re looking forward to a future of superfan clubs”. UMG started implementing its superfan strategy just a few weeks later. MusicBusiness Worldwide reported it was joining a move to create a new superfan destination:
A press release issued by Universal Music Group today stated that the NTWRK consortium’s acquisition of [the youth-orientated media platform] Complex will “create a new destination for ‘superfan’ culture that will define the future of commerce, digital media, and music”.
In Goldman’s latest Music In The Air report, it claimed that if 20% of paid streaming subscribers today could be categorized as ‘superfans’ and, furthermore, if these ‘superfans’ were willing to spend double what a non-superfan spends on digital music each year, it implies a $4.2 billion (currently untapped) annual revenue opportunity for the record industry.
For the music industry, then, it’s about making even more money from their customers – no surprise there. But this validation of the true fans/superfans idea goes well beyond that. By acknowledging the power and value of the relationship between creators and their most enthusiastic supporters, the music companies are also providing a huge hint to artists that there’s a better way than the unbalanced and unfair deals they currently sign up to. When it comes to making a decent living from creativity, what matters is not using heavy-handed enforcement of copyright law to make people pay, but building on the unique and natural connection between creators and their true fans, who want to pay.
But, still, plenty of people were uneasy with this setup. And there were good reasons to be concerned. The online ad market is, inherently, cyclical and seems to go through fads. It also raises questions regarding what power the advertisers have over the content. And, of course, there are many security concerns regarding online ads as well. But, most of all, ads tend to be pretty damn annoying in many cases. They are often intrusive and not at all helpful. There are some exceptions, and there are cases where well done ads can actually have value, but those tend to be few and far between.
And so it was inevitable that people would begin to seek out alternatives. A few early internet services started to find some level of success by offering a free version of their service and then eventually upselling users to a premium offering. Venture capitalist Fred Wilson noticed this pattern in 2006 and talked about how it was his favorite business model, but that it needed a name.
Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.
He correctly noted that this kind of setup wasn’t entirely new, pointing to shareware and other offerings, but also highlighted that it worked even better on the internet:
It works even better with web native services. A customer is only a click away and if you can convert them without forcing them into a price/value decision you can build a customer base fairly rapidly and efficiently. It is important that you require as little as possible in the initial customer acquisition process. Asking for a credit card even though you won’t charge anything to it is not a good idea. Even forced registration is a bad idea. You’ll want to do some of this sort of thing once you’ve acquired the customer but not in the initial interaction.
While there were various comments suggesting what this could be called, it wasn’t long until a comment from Jarid Lukin won the day, naming this business model “Freemium.” This caught on almost immediately, and became a pretty standard strategy for many online services, though with mixed levels of success and failure. As an article about the early days of Freemium highlights, Wilson named six companies in his original blog post, and two of them still have a similar freemium setup, two of them still have it but in a deprecated and hidden manner, and two others have dumped the freemium setup altogether.
It’s not a golden bullet, but it remains a useful tool for many web services. Of course, web service is not the same as pure web content, and experiments in freemium for content are a more recent phenomena.
The trickier part when it comes to content is providing that “extra” value that makes the paying part worth it. With a web service, you can figure out some interesting layer of scarcity to make pay-only: it could be more storage, or more features, or less intrusive branding, or more users. There are a variety of different levers you can pull.
With content, it’s harder. To make it work, it still needs to be something scarce to make it worthwhile to purchase, as anything widely available is trickier to convince people to pay for at any reasonable scale. Here at Techdirt, we actually started experimenting with “premium” scarce features back in 2009. We offered merch (scarce), physical signed books (scarce), and even a chance to have lunch or spend a work day with me (something a surprising number of fans actually did!).
We’ve also experiment with other kinds of scarcity such as our Crystal Ball, that lets you access many Techdirt articles before anyone else can see them or access to our Insider Discord chat.
To us, these were always examples of a kind of freemium setup, in which the content (abundant) remained available, but the scarcities cost money. However, the real leap forward with freemium and content came a bit later with various services that offered a kind of hybrid subscription model, which is what we’ll discuss in the next edition (which will come after the holidays, early next year).
Today is the official one year anniversary of Elon getting control over what used to be called Twitter, and now is simply exTwitter. It was supposed to be tomorrow, but in a sign of what was to come, Elon and his buddies maneuvered to close the deal in the afternoon a day early, just to maximize their assholish tendencies.
The closing of the Twitter deal had been scheduled for that Friday. An orderly transition had been scripted for the opening of the stock market that morning. The money would transfer, the stock would be delisted, and Musk would be in control. That would permit Agrawal and his top Twitter deputies to collect severance and have their stock options vest.
But Musk decided that he did not want that. On the afternoon before the scheduled close he methodically planned a jiu-jitsu maneuver: He would force a fast close that night. If his lawyers and bankers timed everything right, he could fire Agrawal and other top Twitter executives “for cause” before their stock options could vest.
It was audacious, even ruthless. But it was justified in Musk’s mind because of his conviction that Twitter’s management had misled him. “There’s a 200-million differential in the cookie jar between closing tonight and doing it tomorrow morning,” he told me late Thursday afternoon in the war room as the plan unfolded.
Of course, it was never true that Twitter management misled Elon. What is true is that Elon didn’t bother to do even the most basic due diligence (and, in fact, waived the right to do so), and signed a contract which basically everyone admits was a massive overpay, that also saddled the company with significant debt.
If we take stock of how things are looking one year in, it can be summed up simply by saying “not great, Bob.” Musk told bankers that he had a clear plan to get the company to be worth $250 billion before long, and the bankers bought it. But so far, basically none of his plan worked. The pitchdeck claimed that he would quadruple revenue to $26.4 billion by 2028. Instead, he’s cut it by at least 60%.
He said he’d more than triple users to 900 million by 2028. Instead, user numbers have been dropping. Indeed, the Wall Street Journal got access to some more data (beyond what we had in the previous post) showing that exTwitter seems alone in losing users, as other sites are gaining them:
Also, you see how it was a gradual decline, and then a steeper cliff after July? Want to know why that is? It coincides, almost exactly, with Musk’s big “rebrand” to “X.”
These aren’t issues of “market conditions” or things that were screwed up through outside forces. Every one of the problems stems directly from Elon Musk having no fucking clue what he’s doing.
He claimed he’d increase average revenue per user by $5.39, and his big idea there seems to have been to co-opt Twitter Blue (which had the kernel of a good idea, but wasn’t marketed very well by old Twitter) and turn it into X Premium (while also, ridiculously, getting rid of actual verification and pretending that X Premium was verification). And that program cannot be described as anything but a colossal failure, with even those who were interested in paying gradually losing interest in continuing. The value just isn’t there.
The best estimate I’ve seen for how many people are paying for X premium is somewhere around a million people. This is well less than half a percent of Twitter’s claimed user base. Now, converting people to premium offerings is always harder than people think, but less than half a percent is embarrassing. Those are the kinds of results that gets people fired. It also means that Elon gave up something in the range of $2.5 to $3 billion in ad revenue… to get back about $100 million in subscription numbers. That’s… bad.
So, no, it does not look like the ARPU numbers are going up to $5.39, and I doubt the plan to charge $1/year for everyone is going to help.
Of course, the banks who lent Elon all this money are now pissed off. They’ve been unable to unload the loans like they’d planned, and are recognizing just how much money they’ve lost on this deal. Apparently, the banks own investors are asking how the banks could have been so fucking stupid to loan Elon money for Twitter:
The X deal should have been a fee bonanza for the banks, who stood to earn tens of millions of dollars on the debt. Instead, their inability to resell it has been an albatross on their lending businesses and prompted questions from their own investors.
Banks limit how much risk they take on at any given time, so holding X’s debt has taken up loan-book capacity that their deal makers would prefer to allocate elsewhere.
But really, the banks have no one to blame but themselves. Too many people fell for the myth of Elon having the Midas Touch, and insisted that he was some sort of ultra genius who could turn any company he touched to gold. But it was fucking obvious from the jump that no matter how much he might have (or might not have) contributed to his other companies, he never had the slightest fucking clue how social media works.
And the astounding thing is that one year in, it’s clear he’s still learned nothing.
Most social media startup CEOs end up going through the learning curve. Eventually, they figure things out. Sometimes it’s too late. But, by the end, they start to understand the basics. The incredible thing with Elon is that he doesn’t appear to have learned anything from his mistakes here.
Perhaps more tragic is that he’s basically destroyed what had been the best place to go for rapid breaking news coverage and analysis. While Twitter was always smaller than the other platforms, it made up for it in being the best “real time” source of news when something big was happening. But, as we’ve learned over the past few weeks, going to exTwitter to find out what’s happening with, say, Israel/Palestine or with the shooting in Maine is an utter disaster. Musk himself initially promoted two grifter accounts with a history of posting completely false nonsense to follow about the Israel/Palestine situation, and given that many more respected/trustworthy news purveyors have reasonably abandoned or limited their use of the platform, exTwitter’s greatest value is basically gone.
That said, he has inspired some unique experimentation in the social media space. At the six month anniversary of the takeover, I wrote about what appeared to be the three big “contenders” to take over the void that Twitter had left open for real time news. Six months later, and there are still tons of interesting things happening. I feel like Mastodon lost a ton of its early momentum by being effectively hostile to people who wanted a new Twitter-like space. I think it’s clear that the team behind Mastodon has realized it needed to adapt, but it feels a little like Mastodon is going to be saddled with being the “Linux” of short form social media: never quite going mainstream, no matter how often its many fans (and I remain one) insist that it’s not as hard to use as you’ve heard.
The new entrant since that post six months ago is Threads, from Meta/Instagram. That obviously hit the market with a huge splash and tons of hype, and then… lost a lot of its momentum, and has been trying to rebuild a space for itself in the market. There have been reports lately that suggest maybe it’s finding its footing, but it still seems a bit shakey. Some of the problem is that it still doesn’t seem to know what it wants to be. At times it acts like it wants to be the Twitter replacement, but then the people behind it keep saying that they’re downplaying the discussion of news on the platform, mainly because they know it gets impossible to moderate. But that also makes people who do want to discuss the news feels somewhat unwelcome.
The big unknown, of course, is if Meta ever actually lives up to its stated plan to federate Threads with ActivityPub, enabling Mastodon users (and users of other Mastodon-compatible ActivityPub implementations) to communicate with people on Threads. People at Meta insist it’s still a part of the plan, and that could be really interesting depending on how it’s implemented. But we just don’t know the details yet.
Six months ago, I had also mentioned nostr, which remains a fun project in its complete embrace of openness, but the project’s leaders seem so naive about what it takes to set up a social media protocol that it’s driving away basically anyone who doesn’t want to just talk crypto all day. I’m still hopeful for interesting projects to come out of nostr, because it has some advantages over the alternatives, but for now it’s just not getting usage outside of a niche.
And then, there’s Bluesky. This remains the one that I’m most hopeful about, and where I’m spending more and more of my time. Six months ago it only had around 100k users, and now it just surpassed 1.75 million, with over 1 million users having posted on the platform at least once. And that’s with it still being gated by an invitation system. I’m unaware of any invite-only app that has gotten that big.
It’s also the one that feels the most like early Twitter.
And also, it’s the one that is clearly thinking about how to actually function as a mainstream platform in the real world, while still setting itself up to be decentralized and not just beholden to whoever controls the company. A few months ago, someone from Bluesky explained that they saw their own future company as a potential threat, and were designing accordingly. Of course, it’s one thing to say that, and it’s another to do it. So far, they’ve been talking the talk, but at some point they need to start walking the walk too. I’m still confident they will, but I know some are quite skeptical. Once Bluesky finally goes federated, we’ll see if they can really find the right balance.
And so, one year in, it’s pretty safe to say that Elon Musk has been truly great at inspiring new and creative ides for better social media platforms. Just not his own.
One of the things we’ve tried to get across over the years (perhaps unsuccessfully), is that not only are laws to get rid of hate speech almost always abused, they’re also counterproductive in the actual fight against hate. For those who support those laws, they seem to think that without them, that means that there is nothing at all that can be done about “hate speech.” But that’s false. There are all sorts of ways to actually combat hate speech, and part of that is in making it socially and economically unacceptable.
For years, people have kept insisting that social media companies have “no incentive” to keep hate speech off of their platforms, and for years, we’ve explained why that’s wrong. If your platform is overrun with hate speech it’s bad for the platform. Users start to go elsewhere. And if your business model is advertising, so do the advertisers.
And now we have some empirical evidence to show this. CCIA has released a report on the impact of harmful content on brands and advertising, done through creating surveys of users in hypothetical scenarios on social media where hate speech is and is not moderated Turns out, as we said, if you allow hate speech on your website it drives users and advertisers away (someone should tell Elon). It also makes users think poorly of the advertisers who remain.
In a hypothetical scenario where hate speech was not moderated on social media services, research also found negative implications for brands that advertise on the services when hate speech was viewed. Proximity to content that included hate speech resulted in some respondents reporting that the content made them like the advertiser less. It also resulted in a slight decrease in favorable opinions of the advertiser brand, as well as a larger change in net favorability, with some of the movement shifting from favorable opinions to neutral (i.e., neither favorable nor unfavorable) opinions. Respondents who viewed content with hate speech also reported a lower likelihood of purchasing the advertised brand that directly preceded the content, compared to those respondents who viewed social media content with a positive or neutral tone right after the ad.
The results suggest that consumer sentiment toward a social media service would decline if it did not remove user-generated hate speech, and that consumer sentiment would also decline for brands that advertise on the same platform adjacent to said content. These findings indicate that social media services have a rational incentive to moderate harmful content such as hate speech and are consistent with digital services’ assertions that not all engagement adds value and that, in fact, some engagement is of negative value.
While this particular paper actually seems targeted at responding to laws on the other side of the aisle — such as the contested laws in Texas and Florida that would create “must carry” requirements for certain forms of speech, I think the argument applies equally as well to states like New York and California that are trying to pressure companies with legal mandates to remove such information.
However, a number of “must-carry” bills have been proposed in various jurisdictions that, if enacted, could limit social media services’ ability to remove or deprioritize harmful user-generated content. Two such bills recently became law in Texas and Florida, but are not yet in effect, due to pending consideration by the U.S. Supreme Court. Until this paper, there has been little public-facing research exploring the implications of hypothetical legal requirements that would require social media services to display content that would otherwise violate their current hate speech policies.
The study here is basically highlighting that both types of laws are bad. For Texas and Florida, it’s bad in that it would do real damage to the business models of these companies, because the market (remember when the GOP was supposed to be the party supporting the free market?) is telling websites and advertisers that they don’t want hate speech on their platforms.
As these surveys show, websites moderating hate speech are doing so for perfectly legitimate business reasons (to avoid having users and advertisers flee). It’s not because they’re “woke” or trying to silence anyone. They’re just trying to keep the people on their platform from killing each other.
And, the study is also suggesting that the laws in California and New York don’t help either, as the companies have financial incentives to avoid platforming hate speech as well. They don’t need a law to come in and tell them this. The market actually functions just fine as a motivator.
