Hamish McKenzie, a founder of Substack. The company has pinned its focus on popular politics newsletters. Photo / Ian C. Bates, The New York Times
The newsletter start-up, which once drew an overture from Elon Musk, is betting on politics content and recruiting stars. But profits remain elusive.
In April 2023, the newsletter platform Substack received an unexpected proposal from Elon Musk, who had recently purchased Twitter.
Musk put it plainly: He wanted to buy Substack. At the time, he was trying to supercharge paid subscriptions on the social network, now called X, which had long fashioned itself as a “global town square” for political news and debate. Paid subscriptions are the core of Substack’s business.
He floated the acquisition on a call with Chris Best, CEO of Substack, suggesting that Best could serve as CEO of the combined company, according to three people familiar with the conversation.
Best declined to entertain the proposal, and the short-lived discussion ended, the people said. But in the aftermath, Substack crystallised a new mission: luring politics obsessives away from social networks like X.
Tens of thousands of free and paid newsletters are published on Substack each day on topics as varied as salad recipes, bitcoin strategy and vintage fashion. But in terms of readership and revenue, the platform’s most prized category is politics. Increasingly, Substack has been selling itself as a home for cogent analysis and civilised discussion – an alternative to the rot of social media discourse.
“There’s a desperate need for a quality platform with trusted voices, where honest-to-God political discussion, debate, disagreement can happen without it either disappearing into the ether or taking place on a platform where there’s constant knife fights and flame wars,” Hamish McKenzie, a Substack co-founder, said in an interview.
The platform has little problem recruiting stars – whose content helped Substack become more central to election discourse, and who earned millions of dollars in subscription revenue for their efforts.
Top publishers include Nate Silver, a polling guru, who raked in new subscribers even as he doubled prices going into election season; Mehdi Hasan, a progressive broadcaster, who founded his own media company after MSNBC cancelled his show, then rocketed up Substack’s charts; and The Bulwark, a collective for centre-right commentary whose publisher interviewed Vice-President Kamala Harris and former Representative Liz Cheney of Wyoming onstage at a Harris campaign stop in October.
But the road has been bumpy. Silver’s prediction model on election night was so glitchy and inaccurate that he took it down. There is still a spectre of reputational damage from Substack’s decision last year to allow Nazi and white nationalist-affiliated speech. And then there is the question of the company’s finances: Substack is not profitable, and it is unclear whether “leaning into politics” will be its path to profitability, particularly now that the election is over.
Substack, which was founded in San Francisco in 2017, at first attracted capital from marquee venture investors, including Andreessen Horowitz and Y Combinator, a startup accelerator.
Its recent push into politics began in September 2023 when McKenzie wrote in a memo that he wanted the 2024 campaign to be “the Substack election”. It was a response, in part, to moves by tech platforms like Meta’s de-emphasis of political content on Facebook and Instagram.
“They bowed out entirely and created this huge opening for us,” said Catherine Valentine, whose hiring as Substack’s head of politics was announced in McKenzie’s memo. Valentine, a former producer at CNN and publicist for The Washington Post, was put in charge of building Substack’s profile in the politics world – a world that revolved, for years, around Twitter.
Substack already had its own Twitter-like product: Notes, a feature for firing off quick, shorter-than-a-newsletter posts. Musk’s overture to Substack had come shortly before the launch of Notes, according to three people familiar with their talks. Seeing it through was one reason Best decided against the merger with X.
Once Notes launched, a petty feud broke out: X temporarily suppressed Substack’s links on the network, and Musk called Notes a “Twitter clone”. The rivalry has persisted, at least on one side: this month, McKenzie publicly called Musk a propagandist “with more conflicts of interest than El Chapo”.
Musk did not respond to a request for comment.
While the executives bicker, top Substack writers and creators have thrived. In the politics and news categories, more than 30 publishers earn at least US$1 million ($1.6m) annually, according to the company. These operations range in size from one employee to dozens.
“It’s very good money, and definitely more than I was making working for a network,” said Silver, whose publication, Silver Bulletin, is ranked third on Substack’s politics leaderboard with about 282,000 subscribers, though it rose to No 2 on election night. “I feel guilty almost – we want to reinvest that in making some hires and building out the product.”
While Silver declined to provide specific figures for his newsletter, the publisher of The Bulwark – currently ranked No 4 – said it generated about US$6m in gross annualised revenue. Hasan’s Zeteo, which operates more like a digital channel than a newsletter, is ranked fifth, generating about US$3.9m.
That isn’t translating into profits for Substack. Its 4-million-strong paid digital subscription base exceeds that of influential publications like The Washington Post, The Atlantic and The New Yorker. But Substack, which brings in money by taking a 10% cut of each publisher’s earnings, generates less revenue per customer than those publications.
The company lost US$22m in 2021 – the last year for which detailed financial information is available – as company expenses far outpaced revenues from subscription fees. And Substack is still unprofitable, though a person familiar with the matter said losses had slowed over the past two years. So far, it has raised about US$100m, most recently at a post-money valuation north of $650m.
Two years ago, after it abandoned plans to raise another round of funding, Substack laid off 14% of its staff and sharply curtailed its practice of offering splashy deals to writers who joined. Last year, the company turned to its own writers to bankroll what it called a “community round” that raised US$7.8m
Substack declined to provide updated financial details, and some of the investors in Substack’s community round said they were frustrated because the company had not shared updated financial information with them. McKenzie said in a statement that the company could be profitable if it chose but was instead focused on “investing in and continuing to grow the business”.
Many of Substack’s stars are mainstream media exiles who needed a new home – casualties of budget cuts or ideological battles at traditional outlets or networks. Existing legacy media stars, including Chuck Todd, chief political analyst for NBC News, and Ezra Klein, who hosts a politics podcast for The New York Times, have so far eluded Substack’s grasp, according to three people familiar with those discussions.
The value of Substack, according to the dozen Substack publishers interviewed for this article, lies in the company’s personalised support offerings and recommendation abilities. Substack said its internal referral network drove more than 30% of new paid subscriptions.
There is also the platform’s emphasis on “productive” discussion – many subscribers pay just for the ability to comment and chat. Meghan McCain, a conservative commentator who joined in October after a prolonged courting by the company, said she preferred it to X, where she too often received “hideous messages” about her family or her appearance.
Other publishers have gravitated towards Substack after struggling with political content’s being demonetised, deprioritised or deleted elsewhere. Hasan said he was assured when he joined Substack that it would not “shut down” pro-Palestinian speech, for example.
But Substack’s free speech policies can be a deterrent, too. There was a small revolt when The Atlantic reported that the platform, as it trumpeted civility, was also hosting more than a dozen newsletters with “overt Nazi symbols”.
That controversy spurred popular tech writer Casey Newton to move his newsletter to a rival platform, Ghost. Heather Cox Richardson – a historian and ballyhooed Substack writer with more than 1.7 million subscribers – also considered leaving the platform around the same time, according to three people familiar with the matter, though she ultimately stayed. (Richardson did not respond to requests for comment.)
Some authors who have left Substack report continued success. Stephen Hayes, a former editor of The Weekly Standard, a conservative newsmagazine, said his publication, The Dispatch, had expanded since departing the platform in 2022. When he left to build a custom website, The Dispatch was Substack’s second-most-popular politics and news publication.
Silver, at least, has made it clear he is not going anywhere. After the election, he finalised a personal investment in Substack. While he did not disclose the amount, or the company’s latest valuation, he said he had been informally approached along with other top Substack publishers. About $10m was raised in the round, according to Axios.
“If you are somebody who has name recognition and the ability to write and a niche that people care about,” Silver said, “then you can potentially do pretty well for yourself.”
His one piece of advice was frequency: “Always be blogging.”
This article originally appeared in The New York Times.
Written by: Jessica Testa and Benjamin Mullin
Photographs by: Caroline Gutman, Ian C. Bates and Yuvraj Khanna
©2024 THE NEW YORK TIMES
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