Episode Summary
Executive Summary: In this episode of This Week in Startups, host Jason Calacanis interviews Chris Best, the CEO and co-founder of Substack. They discuss the broken media landscape dominated by the Google/Facebook duopoly, and how email newsletters provide a resilient alternative. Substack allows writers to own their audience and monetize directly through subscriptions, taking a 10% cut. The conversation covers Substack's business model, the value of direct creator-audience relationships, challenges like email formatting and content moderation, and the broader implications for the future of media and independent writing.
Main Topics: The Broken Media Landscape and the Duopoly (Priority: 5/5): Discussion on how Google and Facebook dominate digital advertising, capturing 90% of revenue gains, making it nearly impossible for other media companies to compete. The algorithmic feeds prioritize engagement, leading to clickbait and low-quality content. Substack's Value Proposition and Business Model (Priority: 5/5): Substack is a platform for independent writers to publish and monetize email newsletters directly. It takes 10% of subscription revenue, charges no fees for free newsletters, and allows writers to retain ownership of their email lists. The Power of Direct Creator-Audience Relationships (Priority: 4/5): Email newsletters bypass algorithmic curation, giving creators a direct, high-trust channel to their audience. Paid subscriptions filter for quality, as readers make deliberate choices to support writers they value. Competing for Writers and Platform Stickiness (Priority: 4/5): Substack faces potential competition from other platforms like WordPress. Its defense is providing value that exceeds the 10% fee, such as discovery tools and saving writers time on technical tasks. Elite writers are unlikely to leave because of the independence and control Substack offers. Content Diversity and Moderation Challenges (Priority: 3/5): Substack hosts a wide range of topics, from niche hobbies to LGBTQ+ content and even a serialized novel about drug dealing. Moderation is an evolving issue, with the platform preferring a permissive approach but navigating constraints from payment processors like Stripe. The Shift from Attention Scarcity to Quality Control (Priority: 4/5): After the internet and social media filled every available moment, people are now revaluing their attention. This creates demand for higher-quality, paid content that helps users spend time more wisely, similar to services like Calm.com. Comparison with Other Media and Startup Models (Priority: 3/5): The podcast contrasts Substack's model with Luminary's failed attempt to control podcasters, and discusses Chris's previous startup Kik, lessons learned, and the importance of being 'default alive' (profitable without further investment).
Key Arguments: Google and Facebook have created a duopoly on advertising, making it nearly impossible for other media to compete. 90% of ad revenue gains go to these two players. Email newsletters are the last channel not controlled by big tech platforms, allowing writers to own their relationship with their audience directly. Paid newsletters improve content quality because readers make deliberate subscription choices, unlike the addictive, low-quality engagement on algorithmic feeds. Substack's 10% cut is worth it for writers because it saves them time and provides tools for growth; the platform's value increases as writers earn more. The future of media is in independent, creator-owned models where writers keep the upside, analogous to podcasting's move away from network control. The 'default alive' (profitable) model gives startups independence and leverage, as opposed to relying on constant fundraising. Short-term, high-intensity work (hustle culture) can be valuable if aligned with passion, but shouldn't be pursued blindly without purpose.
Data Points: Percentage of ad revenue gains captured by Google and Facebook: 90% - Jason Calacanis states that most advertising revenue growth goes to these two companies. Substack's fee on subscription revenue: 10% - Chris Best confirms Substack takes 10% of paid subscription revenue. Typical conversion rate from free to paid subscribers: 10% - Chris Best notes that about 10% of free readers convert to paying subscribers. Andreessen Horowitz Series A investment in Substack: $15 million - Chris Best reveals the size of the Series A investment at a valuation he implies is high. Number of paying subscribers for successful newsletters: Thousands to tens of thousands - Examples cited: Bill Bishop has 'thousands of subscribers at $15 a month'; 'The Browser' has 'tens of thousands of subscribers at $5'. Highest annual subscription price on Substack: $7,000 per year - Chris Best mentions that the most expensive newsletter on the platform charges $7,000 annually, targeting a niche professional audience. Recommended minimum monthly subscription price: $5 per month - Chris Best explains that Substack encourages writers to charge at least $5/month. Number of founders initially working on Substack: 3 - Chris Best states the company began with three co-founders in his living room. User growth example from Kik: 1 million users in 10 days - Chris Best describes scaling challenges from his previous startup.
Pivotal Quotes: "Email is the last place where you can have a direct channel with your audience that's not controlled by one of the major, like one of those Google, Facebook, Twitter people." — Chris Best: Explaining the fundamental advantage of email newsletters over platform-dependent content. "The goal of the algorithm is to maximize attention, and that's exactly what it does. The problem is that when you maximize for attention, you get lots of bad emergent behaviors." — Chris Best: Critique of social media platforms' incentive structures leading to low-quality content. "If you can make somebody mad, or you can have something that's like, titillating or clickbaity... those are the things that tend to win because that's how the algorithm has evolved to make you win on the network." — Chris Best: Describing how algorithmic feeds prioritize engagement over quality.
Implications: Substack's model signals a broader shift towards creator-owned media, challenging the dominance of ad-supported platforms. For the industry, this means more writers seeking independence, which could disrupt traditional media companies. For listeners, it suggests that paying for quality content becomes a rational choice for reclaiming attention and supporting trusted voices.
About This Week in Startups
Jason Calacanis covers startups, tech, markets, media, and all the hottest topics in business and technology. He also interviews the world’s greatest founders, operators, investors, and innovators.