#12: Billion Dollar Newsletters, part 1 - Between the cracks


Welcome readers old and new. This is one of Thomas Hollands’ notes in his search for ideas which are surprisingly general, or generally surprising. You can find all past issues here.

"You can't build a billion dollar newsletter. But you can build a billion dollar newsletter community."

The best ideas sound obvious as soon as you hear them, and this quote from Shreyas Hariharan is one. Today I'd like to test its boundaries a bit. If you could build a billion dollar newsletter, what would it look like? Is it possible?

Next week I’ll look at the quote’s second sentence. What do billion dollar communities look like? How can you monetise their value?

But to start: the economics of newsletters.

Billion dollar newsletters

Newsletters are yet another example of the boom in subscription businesses. Like Netflix and Spotify, they make money by by billing their users on a recurring basis. Some also monetise by advertising or sponsored posts. Fewer still have ancillary business lines, like selling merchandise.

Newsletters can get pretty big: The biggest newsletter I know of is James Clear's 3-2-1, which goes out to over 1 million people per week (for free). For the best writers, a regular newsletter can be far more lucrative than working at a magazine. The highest earning newsletters I know of are ones like Andrew Sullivan's The Weekly Dish, which, with thousands of subscribers paying $5 per month, earns him over $1m per year. Much better than his old job at New York Magazine.

Demand is growing rapidly too. Substack, the newsletter platform du jour (and the way you’re reading this), was only founded in 2017, and already has over 100k paying readers on it’s platform. That’s an average month-on-month user growth of over 35%.

But what about our hypothetical billion-dollar newsletter?

If we consider a pure subscription newsletter as a SaaS business, with a 10x revenue multiple*, then a billion dollar newsletter would have to make around $100m in annual revenue.

The average newsletter subscription price is around $10 per month, or $120 per subscriber per year. At this price, a pure newsletter could become a billion-dollar business by selling a shade under one million subscriptions.

This seems close to impossible. But some newsletters command prices far higher than $10 per month. Maybe they have a better shot of breaking a billion.

The Diff and other business/finance-focused newsletters sell team subscriptions which are bought up by hedge funds or startups trying to profit off the writer's far-seeing insights. They compete with B2B SaaS subscriptions and market research reports, and can charge orders of magnitude more than consumer subscriptions, in the range of $100s per month (and possibly thousands in the future).

To attain $1bn in valuation, a writer of this kind would have to sell many tens of thousands of team subscriptions. On the face of it, this seems unlikely.

Could the far bigger audiences of entertainment newsletters hold the secret to success?

Very few writers ever break the billion-dollar barrier. (JK Rowling is the only one who comes to mind, though she later donated so much to charity that she fell from towering billionaire to lowly multi-centi-millionaire.) Historically, the only way to make a billion as an author was to collect a 10-20% royalty on hundreds of millions of books. This requires writing a book that can be read and enjoyed by almost anyone. A very bad business model.

Now though, writers can collect 80-95% of royalties on their writing, which doesn't necessarily have to be finished. They can take 10 minutes to set up a Substack, enabling their biggest fans to pay to read work-in-progress drafts of future books, and occasional updates on the writing process and life in general. We've run this experiment enough times now: any author's most loyal readers will instantly subscribe. These loyal readers are superfans: subscribing to serialised drafts of a novel will not deter them from buying the final published book. By sharing more of her work, leaving the door to her content engine room ajar, a writer can create another income stream out of thin air.

And having multiple income streams gives you leverage. Owning the relationship with her readers will allow an author to negotiate much better terms with her publisher. So instead of 10-20% book royalties, she might make 30-40%.

Finally, the author could mentor some of the most promising writers in her readership, in exchange for a future cut in their sales. But I'm getting ahead of myself here – I’ll write more about this next week.

Let's recap: Before online publishing and the subscription newsletter boom, an author needed to sell tens-to-hundreds of millions of books to get a chance at being "a billion-dollar business". Now, a writer only needs to sell about a million subscriptions, or hundreds of thousands of subscriptions, plus millions of books.

For business writers it’s easier. The best newsletter analysts provide insight as good top-tier market research, and as entertaining as the best long-form journalism. On top of this, they provide a differentiated perspective to rival the best management consultants. They can charge companies many hundreds of dollars per month, and individuals tens of dollars per month. They need to sell tens of thousands of company subscriptions, or hundreds of thousands of individual subscriptions to become billion dollar businesses.

Newsletters, like Instagram and Twitter accounts, fall on a steep power law. We’re in the early days of the newsletter boom, and no one knows how tall the the curve could get. But I think it could get pretty big indeed. And I’m going to go out on a limb and make a prediction; to put my mouth where I wish my money was.

My prediction: We will see more than one billion dollar newsletter** by 2030.

There aren’t tons of outstanding, multi-mass-market fiction writers in the world. But there's a JK Rowling-level success once per decade. One who could surely sell millions of books and maybe millions of subscriptions too. There’s a good chance the next one will have a newsletter.

There aren't lots of phenomenal analysts whose writing is as valuable as their perspective. But that's because there haven't needed to be — the best analysts have never had the opportunity to write for a big audience. Most of them have been locked up at hedge funds. As they unchain themselves and go independent, their writing will improve too. And they’ll monetise that writing with many thousands of newsletter subscriptions.

Risks, or, why I might be wrong

There are a couple of risks to this prediction. One is newsletter piracy. The other is subscriber churn. I’ll quickly address both.

Churn is easier to mitigate than piracy, and it's probably not too big a worry anyway. In the short run, newsletters written by individuals experience low churn because of the influencer effect: the more you know about an influencer the more you want to know. Newsletter writers handle churn with annual plans. By giving subscribers a hefty discount, they get a year's worth of fees upfront.

Piracy, in contrast, is a bigger concern. The internet has always enabled piracy, from Napster to Netflix. Subscription newsletters aren't big enough to see serious piracy yet, but I'm sure they will.

It's easy to imagine a middleman subscribing to all the big paid investing newsletters, like Byrne Hobart's, Lenny's, and others. Then, they might forward on each email to willing readers, in exchange for a smaller fee than any individual subscription. There are many people out there who would like to read Byrne's or Lenny's paid issues, but are too poor or stingy to cough up cash every week (like me).

A business that bundles the best newsletters and sells them to a mass market at a reduced price… maybe with some ads thrown in? Surprise! We've reinvented magazines.

When it gets big enough, Substack should build this bundling functionality into their product. We'll still read magazines in the future, but we'll be able to customise them ourselves. Each of us will pay a newsletter platform for a subscription bundle, our very own self-curated magazine. If Substack don't do this, someone else will.

This leads me onto my next prediction, which is a corollary of the first.

Corollary: The platform that hosts the biggest newsletters will become worth 10s of billions of dollars.

In the newsletter ocean there are far more minnows than big fish, but since they fall on a power-law distribution, it is the big fish that make all the money. (You can see this, for example, in the distribution of income per Onlyfans creator.) The platform that captures the big fish captures the majority of revenue.

And if the legacy magazine sector is anything to go by, the revenue will be sizeable.

Condé Nast, which publishes the New Yorker and Vanity Fair, is worth $9.5bn. But the New Yorker, and can't send you a customised set of articles you, and only you, want to read. And Vanity Fair can't let you chat directly with a writer whose essay you loved. But Substack can.

(and it doesn’t have to pay shipping or printing costs either.)

I’m convinced Substack will be a great business, and I’d love to invest in it. Unfortunately, the two ways you can invest in Substack is either by being a General Partner at a16z, or by being an employee. I’m tens of millions of dollars too poor for the former, and since I’ve started a new job (more on this later…) am unavailable for the latter.

But everything we've discussed so far – billion dollar newsletter economics – is pocket change compared to what we'll talk about in part 2. The real value of newsletters is currently intangible and illiquid, locked up in their communities. But not for long.

  • Unfortunately, a 10x multiple is unrealistic in this case. SaaS businesses assume a product which will work for years with relatively few changes. All you need to do is scale it at close to zero marginal cost. A newsletter, in contrast, requires one person to churn out insightful content week-in, week-out, for years. A multiple of 2-4x revenue, like consulting firms, would be more realistic. I’m keeping the 10x multiple to make my thought experiment easier.
  • *What I mean here is not that the newsletter alone generates a billion dollars. But that the person themselves is a content-producing business valued over a billion dollars, and their newsletter is a substantial revenue stream (and potentially a stream that generates other streams, like investments in their newsletter community). I’ll write more about this in part 2.