The Creator Economy Needs Fatter Tails

On Substacks and saving the world


There is an explosion of belief in the power of creator capitalism that's floating around the tech and VC circles. Clubhouse is supposedly becoming the next big social platform. Patreon is raising capital at $4B valuation. Sahil from Gumroad is one of the most sought after angels for his creator led platform. a16z has talked about the passion economy and have discussed the growth ad nauseum. You're even reading this one one of those crazy platforms that's going to upend everything you know about longform journalism and essays and opinions and so on.

The rise of NFTs is another point that supports the growth of this economy. Creators can now no longer be muzzled by gatekeepers and critics, but have the ability to be their own auction house and bring in the big bucks.

And it's not just the paid options either. The biggest ways by which creators reach their audience has also been through the free gatekeepers - whether that's YouTube or TikTok or Instagram. It's created an explosion of people who build their audience and become stars in their own personal economy. No gatekeepers and no authorities and no salary, just talent meets audience.

In a way this is a throwback to an older era of the internet. When it was seen as a democratising force for good, where platforms would rise and individuals would flourish, because the information superhighway is an unquestionably good thing that would soon come to everyone.

For instance, see this from Kevin Kelly in his seminal essay 1000 true fans.

To be a successful creator you don’t need millions. You don’t need millions of dollars or millions of customers, millions of clients or millions of fans. To make a living as a craftsperson, photographer, musician, designer, author, animator, app maker, entrepreneur, or inventor you need only thousands of true fans.

Again, I don't think he was literally predicting Substack, but he came pretty damn close! a16z had a blog where Li Jin talked about reducing from 1000 true fans to 100 true fans on platforms like Podia or Teachable.

Or this from Chris Anderson, author of The Long Tail.

Up until now, the focus has been on dozens of markets of millions, instead of millions of markets of dozens.

Their essential theme is how you can actually build a large, viable, business by just catering to the niche of few thousand people, scattered about the globe, the way you couldn't before. a16z blog calls it "monetising individuality", which is an incredibly unappealing phrase that nevertheless points to something meaningful.

If you really care about cat feeding habits, those few thousand superfans who care about that very particular thing can now pay you. Whereas before they wouldn't even know you really existed.

The mathematics is inexorable. 1,000 subscribers at $10 a month is a pretty great income, especially compared to the alternatives.

It's worth noting that this business model is not new. Niche magazines have existed since magazines existed. Emu Today focused on those interested in, you guessed it, emus. It's published six times a year with 300 subscribers. Teddy Bear & Friends focuses on those who cannot get enough of talking about teddy bears. Spudman, probably my favourite, focuses on people who cannot get enough about the potato industry.

The argument is also somewhat of an evolution. If there is one thing that the internet has wrought, it's the reduction of coordination costs amongst likeminded people. It only stands to reason that as coordination costs get lower, you could also make things that are favourable to smaller and smaller audiences.

Niche works. Transactions costs lower. It's the whole dream of the infovore.


However, this doesn't seem to be what has happened. In almost every industry which tried to "monetise individuality", the reality has been a highly polarised outcome. I don't mean political polarisation, I mean polarisation where the big have continued to get bigger while the middle ground atrophied.

I wanted to have a look at whether moving to an individualised system is overall net positive for most people we're talking about here. I couldn't quite figure out how best to think about it, but then I realised we actually have an industry that's already largely structured like that - Hollywood.

So let's take a look.

The Hollywood movie industry employs >2 million people a year, the largest of the creative industries. It's also still pretty big, generating 4% of GDP or thereabouts. This article gives a decent starting point also re the salaries various employees get.

It's also known for its superstars, literal in this case, who earn most of the wages. The old trope of an actor waiting tables to make ends meet isn't fictional.

We find that the top 25 percent of actors earns between 50 and 80 percent of total wages, and that this fraction has decreased since the mid-1980s. ... The share of wages owned by the upper quartile of the earnings distribution in 2006 amounts to 68%, whereas the income share owned by the bottom quartile accounts for less than 1% of total earnings.

While the decrease in the earnings amongst the top quartile is indicative of the fact that we now produce way more content (e.g., the golden age of TV shows), the extraordinary inequality in wages is still remarkable.

It's also a classic case of monetising individuality. Back in the 1920s, the studios had all the power. They would sign up an actor for an exclusive conract for several years, and extract the rent from that "asset" during that time. The actors weren't allowed to renegotiate their contracts during this time, so even if they did spectacularly well, all the benefits went to the studio.

In the 1940s and 50s, this changed. There were lawsuits and these contracts became unenforceable. The studio system broken down in that the actors were now allowed to negotiate contracts on the spot. And since most movies are (were) sold on their casting, and the demand was pretty much inline with that as well, the actors started receiving fat salaries.

The paper also quotes Tervio 2011 in that this unequal hierarchy of wages also can exist even in the absence of talent differentials, because it's the discovery of talent that commands the wages, and not just the talent itself. So it's not that Tom Cruise gets $75 million for Mission Impossible III because he's a fantastic actor, it's that Tom Cruise got discovered and even though there might be others equally good, they will never see the limelight.

Sherwin Rosen also wrote about the Economics of Superstars in 1981, defining a world "wherein relatively small numbers of people earn enormous amounts of money and dominate the activities in which they engage". Which is exactly what we're describing.

In today's world, the problem of discovery seems to be even more difficult. To get to a meaningful size of audience seems incredibly difficult.

On Twitter, the graphs are heavily skewed. For instance people with over 10,000 followers are in the 99.9th percentile of all users or the top 0.1%. Over a 1000 is at the 97th percentile. I'm not saying that's the cut-off necessarily, but it's a massively skewed ecosystem if a Twitter presence is what is supposed to get you to launch a "creator economy" career.

In theory, this is a bit of an indictment of the creator economy. If creators who are better aren't necessarily the creators who are getting most of the benefits, then what's the point? And also, if most creators aren't able to do well, but only a few get to be superstars, is that a functional economy that one would want to be a part of?


Zooming out, one crucial thing that Tervio finds applies to talent discovery beyond movies.

The main message of this paper has been that any profession where the ability of inexperienced workers is subject to much uncertainty, and where performance on the job is to a large extent publicly observable, is a likely candidate for market failure in the discovery of talent. This market failure would manifest itself as a bias for hiring mediocre incumbents at excessive wages.

He also talks about professional athletes and musicians too, showing the same phenomena. While it also applies in non-creator jobs, like lawyers or copywriters too, the top quartile: median ratio is not nearly as skewed in those as they are in the creative industry.

YouTube, which happens to be the dream destination for young people as we talked about in Part I, is practically impossible to make a living on. There definitely seems to be a substantial number of content creators who work on the platform.

The top 3% of creators get 90% of the traffic, which is up from 63% in 2006. This means it's getting harder to make a living in the long tail. To hit that top 3% needs you to get 1.4 million views a month, which means an average payment of $17,000 a year. Just about enough to break above the poverty line in the US, though with a global audience it might be good if you're living somewhere cheaper.

This platform, Substack, touts its ability to let creators earn! And they do. Matthew Yglesias, who I have no doubt was not vastly underpaid before, still earns a substantial sum. Same for Glenn Greenwald, Matt Taibbi, Andrew Sullivan and so many more. Scott Alexander is on Substack, earning top dog status in the Technology section.

They claim that the top 10 writers together take more than $15m home every year. Which is pretty spectacular! They have over 500k paying subscribers, 12 million monthly visitors, and thousands of writers. The chances that someone breaks into a significant enough income stream seems difficult unless you come in with a pre-built audience. That's part of the reason it seems milquetoast and why becoming big on it seems so hard.

The same problem exists also within [name your creative endeavour]. Webcomics? Same. Music? Definitely the same. Weird arty music? Still the same. Paintings? Same. Paintings with NFT? Same.

The thing about individualised creativity is that very very quickly discovery becomes the key issue. It seems it's just really really hard to make a living en masse in sectors that thrive on attention from the market.

If we move to a creator economy for everything that's the likely outcome. The current existing organisational structures ensure a less steep power law for all. And that gets destroyed and replaced with a very steep curve where some stars get most of everything and the rest get nothing. Whether you want to call this the great dispersion or a new utopia, it's unlikely to be nearly as prosperous as today's world is.

For instance, an assessment of Etsy Marketplace said that 75% of its participants did it as a side hustle. Which is fine! But it also means we're all gig workers now, with side hustles galore to make ends meet.

The one other possible scenario might be Amazon, though the numbers are skewed by the professional companies selling on it - 34% of sellers have a business partner and 27% have employees. From an assessment:

61% of wholesale sellers on Amazon make $5,000 or more in monthly sales. Over half (56%) of private-label sellers earn $5,000 or more in monthly sales, and nearly two-thirds (59%) have profit margins over 16%.

But only 22% of sellers work on selling as a job, instead of a side hustle or hobby. And bear in mind if you make $25k as sales and 20% profit margins, that nets you $5k a month in profits to pay your partner and employees.

That's the best case scenario actually, if we were to move into the creator economy. It's not bad, because it's an average, but it's not exactly a great substitute for a job either. Compared to the creator world with its crazy power law, a CEO earning 350x the average earner is still getting off worse!

Granted, this is all informed by an outside view viewpoint. If you're doing it as a hobby, great. If you're doing it as a supporter for other pillars of your life, also great. If you're doing it because you sincerely believe you're in the top 1%+ in all the relevant scales, including marketing, even greater.

And most of the world won't be in those buckets. And when this type of rhetoric on how creator economies becomes the base strategy that's presented as the "future of work" it's doing the very nature of work a disservice. We haven't even figured out how to make the income curve less steep. Chris Anderson's long tail is also an anorexic tail. Without the creator economy platforms actively trying to make the tails fatter this is unlikely to change.

A world where everyone has to fight for visibility, attention and monetise themselves is a world that Coase would say doesn't understand transaction costs. He said that in 1937. It would be a shame to forget it all anew again!