When Spotify showed up and interrupted his revenue stream, Jack Conte didn’t roll over, he found a way to to help all creators.

Subscribe: Apple Podcasts |  Google Podcasts |  Amazon Music |  Blubrry |  RSS |  More

 

Dave Young:
Welcome back to the Empire Builders Podcast. Dave Young here alongside Stephen Semple, and Stephen whispered today’s topic into my ear, and then hit the record button and away we go. This is a new one. This is one of those internet companies that has been a disruptive force, a revolutionary force in a lot of ways about how people go about raising money and sustaining artistic endeavors. We’re going to talk about Patreon today.

Stephen Semple:
Yeah, Patreon was founded on May 2nd, 2013. Yeah, relatively new company by Jack Conte from the band, Pomplamoose, and a school buddy of his Sam Yam. If Jack was here, he would say it was not a disruptive force. He would say it was a helpful force.

Dave Young:
Oh, I agree. I’m just saying a disruptive, not like an Uber or an Airbnb where it’s disruptive and upsets a whole industry, but in a way that disrupts the way maybe you could fund your band or fund an artistic endeavor. It’s almost a throwback to Renaissance days when artists had patrons. That’s where they got their name.

Stephen Semple:
Right.

Dave Young:
You would have rich people that would say, “I love what you’re doing, and keep doing it. Here’s some money every month.”

Stephen Semple:
Yeah, yeah. Just keep being you.

Dave Young:
Yeah, I think it’s a beautiful thing, a beautiful platform.

Stephen Semple:
It’s really interesting how it came to be because today it’s valued at over a billion dollars, and there’s 200,000 content creators and artists, musicians that are on the platform, 400 employees. They have 3 million monthly active patrons on the platform.

Dave Young:
Yeah, it’s pretty amazing.

Stephen Semple:
It supports a lot of people you know and people you don’t, including organizations like the Whiskey Vault. Supports the distillery. Both Sam and Jack had this mutual love of music, and they were roommates in Stanford University, and Sam studied computer science. When he was in Stanford, he had this little internet burger business, pre DoorDash. He would take burger orders and go get them. There was one time he found himself pulling into a drive through at night and ordering over a hundred burgers at a time.

While Sam was doing that, Jack studied music in college, and Jack had actually started in physics and decided he didn’t like it and rolled over into music. He was an artist and interested in being a full-time artist. In college, he was doing movies and soundtracks for movies. In 2006, they both graduated and Sam goes to work in tech startup and Jack starts a band with his girlfriend, now wife, Natalie. This is where Jack is a really interesting person because Jack had been watching YouTube. He would wonder if he could use it to get views. He would put up these videos of him playing music in his bedroom, and he sold MP3s online for a few hundred bucks a month on E-Junkie. He felt like he could make money on music and when iTunes came out, this was a game changer because of the ease of now selling music.

What he realized was, at its heart, YouTube is a search engine. If you post a cover of a song that is popular, and if it’s a good cover, it will get people watching it and if they like it, they will look for your other music and then go and buy it on iTunes. This was working pretty well. He was making some money. Then in 2009, something magical happened. They created a cover of the video, All the Single Ladies by Beyonce, and it exploded. That video today has over 11 million views. At the time, music videos looked like music videos, and what he made was very different, so exploded. He got millions of views, media interviews, gigs, and he’s selling his music on iTunes. They’re making a living, selling their music on iTunes.

Then they get a call from some managers and press, and then they strike lightning a second time and they do telephone by Lady Gaga. Boom. They release an album. They’re making $22,000 a month, and they own all of it because they didn’t do anything with a record company. This is all their own distribution. Record labels continue to call, but they decide not to do that. They want to stay independent. They’re making a living, they’re touring. Jack at his peak is making $400,000 a year, doing music. Bought a house, built a recording studio, everything’s going great. Then Spotify comes along and it killed everything, killed revenue because user base was not there and the volume didn’t make up for the revenue loss. Like the mechanics on Spotify is a little different today, but when Spotify first came out, it destroyed all this stuff.

Spotify grew reach, so he was reaching more people than ever, but revenue collapsed. Now to make money, had to sell hats and paraphernalia to make a living and he didn’t want to do that and he found himself dipping into his savings. This led to a moment of revelation. They had a renter in the house at the time who had gone on this new platform called Kickstarter and she raised 12 grand to make a record. What inspired him was that it was her fans that funded the record so he and Natalie did it as well. But even more successfully, they got over a hundred thousand dollars in Kickstarter to make a record. Now the next thing he decided to do was create this video called Pedals. Cost 10 grand. Had he realized how much it was going to cost, like he says, he would never have done it. It was one of those things when I wanted start to do this, it just grew and grew and grew and grew, invested 10 grand into it and realized that this video could get millions of views and maybe he’d get a hundred bucks.

It made him sick and he didn’t want to have to continually do Kickstarters. They’re a series of one-offs. What he wanted was something more like a stream of revenue. He felt this was wrong, that for the makers of things, the economics didn’t evolve with the distribution. He looked around and he saw these membership programs so he grabbed a piece of paper and he sketched out what a site would look like to collect payments from a fan to a creator. He picked up the phone and he called his buddy. He called his buddy Sam. Remember Sam?

Dave Young:
Yeah.

Stephen Semple:
Sam from university who stayed in the computer industry. While Jack was becoming famous as an artist, Sam had started a company creating iPhone games. Built millions of users, sold ads on the apps, and the business was acquired pretty quickly so he built this up and sold it, started another company. What he realized, what these ventures taught him was how hard it is to build an audience and how big an audience really needs to make money. When Jack called him with the idea, like the sketch out, he was immediately in because what they both love was this idea of here’s a way to help artists make a living. They built out the site and they targeted 40 artists that they knew and reached out to them for the launch. Guess how many signed up for the launch?

Dave Young:
Probably not very many because people don’t think about new things.

Stephen Semple:
It was basically three.

Dave Young:
Three?

Stephen Semple:
Himself, his wife, Natalie, and the roommate.

Dave Young:
So kind of no one.

Stephen Semple:
Exactly. Really, really no one. At the end of Jack’s video, Pedals, which remember, was getting millions of views, so that’s why this is an important part of the story, he put a link to Patreon. Just put this link, “Hey, there’s this new thing. Go over and do it.” What Jack also did was create tiers of support. $1 a month was access to his stream and first access to concert tickets. $3 a month, you would get video. He did these video tutorials on audio production, because remember, that’s what he did in school. For $10 a month, a Google Hangout. At the last minute, he decided to add a $100 tier.

Here’s the part that I love. I’m often talking to customers about creating levels of service and packages. I always say to them, make up a big number and throw it out there and add it. Almost always, and I’ve had this happen with myself as well, you create it with the expectation, no one will do it. $100 a month? No one’s going to pay it. But guess what? A bunch of people did.

Dave Young:
Yeah.

Stephen Semple:
Now, with that one, what he did was these exclusive Skype sessions with people, and he was quite surprised. He thought he might, on average, collect a couple of bucks a month. The average turned out to be $7 a month. Within the first few weeks, he’s getting $5K a month, and quickly he’s making over a hundred thousand dollars a year this way. He had 125,000 patrons in the first 18 months. By May 2017, he’s got 50,000 creators and a million monthly patrons. By March 2022, there’s 250,000 creators and 8 million patrons so the thing’s really growing. What he realized is creators watch creators.

Every creator has an automatic community. By him putting his thing out saying, “I’m doing this thing on Patreon and a creator looks at his thing goes, ‘Oh, what’s this Patreon thing?’” It had this automatic, viral built-in community.

Dave Young:
Yeah.

Stephen Semple:
Now there’s a certain point where they needed to raise money because they needed money as well as a team. Even when they’re raising money, it was really important for them to remain focused on the spirit and the mission, and that was this is to help artists. There’s one interesting story in the growth. They had this change that they’re rolling out in terms of how the interface worked, and they fully split tested it and everything, but they didn’t communicate it to anyone. But they split tested. They thought for sure it would be accepted. Once they rolled it out, nope. People hated it. What it taught them is you need to talk to people, you just can’t test everything. Need to reach out.

Just because you tested it doesn’t mean it’s going to be accepted. You need to reach out and speak to people. There was a couple of things that really stood out with me in this Patreon story. The first one was there’s this disruptive technology that came along, YouTube, that he harnessed. He looked and said, “Well, it’s a search engine. Boy, I could do this thing.” Then for a lot of artists would’ve considered iTunes disruptive. But he looked at it and said, “No, this is awesome, because between using YouTube to bring people to me and then I can sell the music and keep 100% of it all.” Well, other than the fee to Apple. From his perspective, 100% control over the art and the money. This is great. He learned how to harness that thing. When Spotify disrupted everything, he didn’t give up. He was like, “You know what? This is disruptive. This is bad for artists. This is a terrible thing. But instead of rolling over, let’s create a solution.”

Dave Young:
Yeah, there’ve been a lot of copycats as well. YouTube is doing it now. There are YouTube creators that you can subscribe to their stuff via YouTube itself instead of getting it through a third party like Patreon.

Stephen Semple:
Sure, absolutely. I heard in an interview with him, there was even others that were playing around with the idea, even when he launched it. But I think one of the things that really made it work for them is what he understood was, “Okay, yes, this is great for the creator, but if you build it the right way, it’s good for the patron as well.” The patron wants to be involved.

Dave Young:
Exactly. What he did, this is the classic lesson of dealing with customer facing things. It’s find where the friction is and eliminate the friction. If you’re an artist, if you’re a creator, a painter of some kind, you’ve got fans that man, they want to support you. They’re in your corner and they’re cheering for you. They’re rooting for you, and they want to support you, but what do they do? “Oh, I watched your video. I listened to your song, but you could give me five bucks a month. That would keep me going. It would put food on the table and keep me around to do the next song.” That’s what this does, right?

Stephen Semple:
Yes.

Dave Young:
It lets that patron system go into a micro mode. I don’t know specifically like Michelangelo or Leonardo da Vinci had their patrons, right?

Stephen Semple:
Yes, absolutely.

Dave Young:
But these were rich people basically funding their lifestyle. They weren’t peasants in the streets going, “Oh, well, I sure loved the St. Peter’s, what you did on the ceiling in there so I want to chip in every month to…” No, there weren’t people like that. But this allows that. This allows little guys to support something that they love as well.

Stephen Semple:
When you look at the Patreon accounts that have been really successful, I think the other element that it brings is it actually allows you to feel involved with that artist. For example, even when you look at the early levels, he put together like a $100 one, his high level would be a monthly Skype call. We’ve seen the same thing with Daniel Whittington. What Daniel has done with the Crowded Barrel distillery.

Dave Young:
Yeah, Whiskey Tribe.

Stephen Semple:
With the Whiskey Tribe, where you actually feel like you’re now part of that artist’s life and part of that community, and you’re now getting that shared… Look, it’s really interesting because it can become a shared experience with people who have a shared interest, shared interest in that artist, a shared interest in that whiskey.

Dave Young:
Whiskey Tribe is one of the most successful sites on Patreon.

Stephen Semple:
Yeah, it is.

Dave Young:
In fact, Patreon held a private academy at Wizard Academy over a year ago during South by Southwest and they brought in some of their biggest, most successful Patreon people and had dinner at Wizard Academy and listened to Daniel talk about Whiskey Tribe and did a whiskey tasting for him.

Stephen Semple:
Wow, that’s amazing.

Dave Young:
That was cool too. Yeah, in fact, Jack was here.

Stephen Semple:
That’s cool.

Dave Young:
It was at Wizard Academy. I say here, that’s where I’m sitting.

Stephen Semple:
I did not know any of that when I was doing the research on this.

Dave Young:
Yeah, I met the dude.

Stephen Semple:
That’s awesome. You should have grabbed his card so we could have interviewed him for this.

Dave Young:
The whole conversation was like this, Stephen. It was, “Oh, you’re J… Yeah, nice to meet you. Thanks.”

Stephen Semple:
But if people want to learn a little bit more about Daniel, they can go back and listen to an early episode where you interviewed Daniel Whittington and you guys talked a little bit about Patreon and the tribe. But the thing I think that’s really interesting is, as you said, it’s an idea that existed a long time ago, solves a need for artists. But I think the magic in it is it solves a need for the patrons as well, where we want to give back, we want to support that artist, we want to feel like we are part of that community.

I think this shared experience and feeling part of a community is going to become more and more important as we become more and more geographically spread out and not in offices and things along that lines. Anyway, Patreon was really interesting because of the evolution it went through and how it came from the artist’s perspective of I want this passive income but what he also understood was people want to support artists and that really what they were doing is creating a platform, removing the friction to make those two things happen.

Dave Young:
I would even expand that. Artists were what was on their mind when they started it. But I don’t know that you would call the Whiskey Tribe an art endeavor. You certainly could, but I think what it enables people to do is support something they’re passionate about, whether it’s art, whiskey. It could be just about anything that they want to feel like they’re a part of. That Patreon group lets them feel like they’re a part of something that’s maybe bigger than themselves. People love being a part of something, of folks that share their passions. This is not much different than the whole phenomenon of things like Comic-Cons or conventions around passions, right? Music-Cons, Comic-Con, same kind of thing. It’s a way to do it where you’re not having to get everybody together in person in one location. I love it. I love it. Great story.

Stephen Semple:
Yeah. No, I thought it was really interesting. Boy, it shows that Jack, a smart, observant guy, I really respected what he created. It was quite a remarkable journey that he went on.

Dave Young:
My one recollection of meeting him was he’s the last guy in the room you would’ve picked as the one that founded it.

Stephen Semple:
Oh, is that right? That’s funny.

Dave Young:
Yeah, he was just like the most down to earth jeans and a t-shirt kind of guy, just kind of hanging back in the corner of the room.

Stephen Semple:
Cool.

Dave Young:
Yeah.

Stephen Semple:
Thanks, David.

Dave Young:
Thank you.

Stephen Semple:
Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app and leave us a big fat juicy five star rating and review. If you have any questions about this or any other podcast episode, email to questions@theempirebuilderspodcast.com.

Latest posts by Stephen Semple & Dave Young (see all)