on subscription churn and site loyalty
Subscription Commerce

How Patreon Overcame Its Subscription Struggles

Complex payment plans and hidden processing fees on content sharing platforms can send subscribers looking for services elsewhere — something Patreon learned the hard way when it attempted to revise its fee structure. In the latest Subscription Commerce Tracker, Wyatt Jenkins, senior vice president of product at Patreon, explains how transparent pricing and enabling access to plan options helped it gain 4 million subscribers.

Careers in music, filmmaking or even YouTube video essays can be daunting and have few financial incentives, causing many young creatives to give up on their dreams so they can make ends meet. Content membership platform Patreon aims to ease these professionals’ financial stressors, enabling them to find success as creators. The company’s origins date to 2011, when Founder Jack Conte uploaded a high-concept music video to YouTube. It turned out to be more trouble than it was worth, however, according to Wyatt Jenkins, senior vice president of product at Patreon.

“[Jack] took all of his savings — I think it was $30,000 or something — and he put it all into this really well-produced video that rebuilt the inside of the Millennium Falcon,” Jenkins explained in a recent interview with PYMNTS. “It got 8 or 9 million views, which was a lot back then, and then, at the end of the day, he got a check from YouTube for $161.”

A crowdfunding model that allowed artists’, musicians’ and content creators’ fans to subscribe and contribute to the creation of new works seemed to make more sense. Patreon launched in 2013 to fulfill this need, enabling “patrons” to pledge recurring monthly amounts of their choosing to support their favorite artists, many of whom promise additional content for those who donate above a certain threshold. The San Francisco-based company recently announced it has paid out more than$1 billion to creators via 4 million patrons.

“On Patreon, you take home 85 [percent to] 90 percent [of patrons’ funds] based on which of our plans you choose,” he said. “Any other channel — like Spotify or YouTube or Facebook — you’re getting fractions of a penny.”

The platform has evolved from a marketplace connecting fans and creators to a software-as-a-service (SaaS) platform that enables the latter to offer patrons different pricing tiers. The journey has been far from smooth, though. PYMNTS caught up with Jenkins to discuss Patreon’s current and former subscription models’ challenges and successes, as well as what might be in the works for the future.

Not All Smooth Sailing

Patreon’s first subscription model revamp occurred in 2017, when developers released a processing fee structure update. Fees would no longer be deducted from creators’ revenues and would instead be passed on to patrons as 2.9 percent service fees plus an additional $0.35 per pledge.

“The decision was made that patrons are used to paying … extra fees when they do eCommerce transactions online, so [we rolled] out a fee that goes to all patrons,” Jenkins explained. “I think that might be the top one or two disasters at Patreon.”

The backlash was swift and severe, with creators fearing that the additional charge would damage their relationships with supporters, possibly to the point that their incomes would decline from waning patron numbers.

“Creators said, ‘Hey, wait a second, these are my fans,’” he said. “‘If there’s going to be a fee, I’ll choose whether there’s going to be a fee.’ They would rather we just give them the fee and the option to give it to their fans, and then they can decide how that financial interaction looks.”

The structure change was quickly rolled back, but it did teach Patreon about the nature of its relationships with creators and patrons, and how the latter two interact. Its most recent subscription update took this lesson to heart.

Learning From The Past

Patreon unveiled its new tier-based subscription model — which includes Patreon Lite, Patreon Pro and Patreon Premium — last year and designed it with the 2017 episode in mind.

“It’s our job to respect the relationship between creators and their fans,” Jenkins said. “We help [the former] acquire fans and retain fans, but we don’t get in between [them and their] fans. That was a pretty important lesson for us, and you can see a lot of that in our rollouts since.”

Patreon Lite, the lowest tier, charges a 5 percent fee and gives creators pages that patrons can view. Patreon Pro has an 8 percent fee and offers a landing page, archives that fans can peruse and messaging capabilities for creators and patrons. The highest tier, Patreon Premium, is meant for full-time creative professionals and charges a 12 percent fee. It includes all features from the previous tiers as well as merchandise, business plan assistance, exclusive creator events and customer analytics.

Creator-patron partnerships are crucial to Patreon’s continued success, but they rely on trust. Patrons must be assured that creators will use their funding for additional projects, and that transactions will be protected from rising fraud threats impacting platforms worldwide.

Cleaning Out Money Launderers

Patreon has seen its share of bad actors, many of whom use the platform for money laundering. They set up creator pages and add a slew of illegitimate patrons, who then pay the false creator with stolen credit card data. Filtering fraudsters is a constant challenge, but the company is still small enough that manual verification does the job.

“We’re at the scale with hundreds of thousands of creators, [so] we can mostly do this with hand-to-hand combat,” said Jenkins. “We don’t need to be algorithmically driven [like] YouTube, where you’ve got to deal with a quarter of humanity.”

Patreon implements additional security measures at the point of payout, requesting more stringent proof of identity before releasing creators’ incomes. This helps the company with taxes, and Jenkins predicts further back-end innovations will help creators use Patreon to make their creative outlets their full-time professions.

“We’ll help people with taxes, we’ll help people with healthcare, we’ll help people with loans against future earnings,” he said. “We can do this because we can predict, with very little volatility, what creators will [earn] for a good three to five years based on the recurring nature of their memberships.”

This lack of volatility is what drives many businesses to explore subscription models in the first place. Patreon’s growth in the subscription space, including its stumbles and lessons learned, could serve as an excellent example for future industry players.

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Exclusive PYMNTS Study: 

The Future Of Unattended Retail Report: Vending As The New Contextual Commerce, a PYMNTS and USA Technologies collaboration, details the findings from a survey of 2,325 U.S. consumers about their experiences with shopping via unattended retail channels and their interest in using them going forward.

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