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RPG Evolution: This Sounds Familiar

Remember when a company neglected thousands of their smaller creators? That was Patreon in 2017.

Remember that time when a company abruptly changed course by focusing on their most profitable members at the expense of thousands of smaller creators? That was Patreon in 2017.


Picture courtesy of Pixabay.

Who's Patreon?​

Patreon is a membership platform that provides business tools for content creators to run a subscription service. It helps creators and artists earn a monthly income by providing rewards and perks to their subscribers. Patreon charges a commission of 9 to 12 percent of creators' monthly income, in addition to payment processing fees. It is a popular platform with a wide variety of creatives, including tabletop gamers of all stripes: authors, cartographers, artists, and modelers. It is now a staple of many creative's offerings and one of their multiple revenue streams. But it wasn't always that way.

"We're Updating Patreon's Fee Structure"​

On December 6, 2017, Patreon made a surprising announcement. In an effort to create "predictability and consistency around" creator finances, they introduced a change that pledged creators would be able "to take home exactly 95% of every pledge, with no additional fees":
Starting on December 18th, a new service fee of 2.9% + $0.35 will be paid by patrons for each individual pledge. (To get into the details, existing per-creation pledges for posts made on/after Dec. 18th will be charged the new service fee; existing per-month pledges will first be charged a service fee on January 1.) Streamlining these fees for creators and patrons ensures that creators take home as much of their earnings as possible.
This change was not made lightly. In preparation for this change, Patreon ran experiments and months and months of research to understand patrons’ potential reactions and found that "many patrons were happy knowing that the change will send more money to creators." Tucked into the announcement was this ominous statement:
While some patrons may leave in the short-term, we know this will help creators earn more money in the long term.
This statement is revealing, because in Patreon’s eyes, not all patrons were created equal, and it clearly felt the patrons who would leave were no big loss to the company. As it turned out, “some patrons" had a lot to say about those changes.


At just about 4 p.m. PST the same day, there was an edit to the blog post to clarify some points about the change. There were too many ways fees were being processed, and Patreon felt that they needed to address that with three options:
  • Have creators deal with a huge increase in fees
  • Have Patreon eat the cost of the new fees (which was financially impossible given their rate of 5%)
  • Add a service fee so Patreon could cover the third party fees
They referenced their Net Promoter Score (NPS) ranging from -20 to -30. Net Promoter Score is a number that assumes most respondents to a survey will not share their true feelings on a topic unless you ask them if they would "promote" the topic in question to a friend or family member. Then you get the "real" response. To address its terrible NPS, Patreon went with option 3:
So, we chose to pursue option three, and spent nearly a year reviewing the numbers and running experiments to make sure the end result was creators either make more money, or keep their current earnings. We actually experimented with three different service fee structures, all of which were higher than the 2.9% + $0.35 we selected. As it turns out, patrons weren’t nearly as sensitive to the amount of the fee as we predicted, but we ultimately chose the lowest service fee that would offset the third party costs in all likely scenarios.
There are several quotes from creators in the clarifying blog post, all supporting this change. What could go wrong?

"We messed up."​

The change was a disaster. Under the new payment model, a $1 pledge would have cost a patron $1.38, and a $5 pledge would have cost $5.50, representing a 38% and 10% rise respectively. Members with small pledges lost many patrons. Less than a week later, Patreon reversed course:
We’ve heard you loud and clear. We’re not going to rollout the changes to our payments system that we announced last week. We still have to fix the problems that those changes addressed, but we’re going to fix them in a different way, and we’re going to work with you to come up with the specifics, as we should have done the first time around. Many of you lost patrons, and you lost income. No apology will make up for that, but nevertheless, I’m sorry. It is our core belief that you should own the relationships with your fans. These are your businesses, and they are your fans.
But how did this happen? Patreon spent considerable effort testing and polling creators. The second blog post outlines what went wrong:
  • The new payments system disproportionately impacted $1 – $2 patrons.
  • Aggregation was highly-valued, and Patreon underestimated that.
  • Fundamentally, creators should own the business decisions with their fans, not Patreon.
What motivated Patreon to make the change, and how did it massively underestimate the impact of what seemed like a well thought out plan?


Christie Koehler posited that Patreon's problem was part of its fundamental value proposition to creators: it subsidized micro-payments. As much as Patreon wanted to be about enabling creators, at heart it was about managing large amounts of small financial transactions:
You could argue that Patreon’s true mistake was in subsidizing the true cost of micro-payments with a business model they couldn’t (or were unwilling) to sustain in the long-term. People flocked to Patreon because no one else was offering this model and it turns out there’s a reason for that.
With the burden of micro-payments unsustainable, Patreon chose to pivot. But why then?

Investor Pressure​

In September of 2017, Patreon raised $60 million through Series C funding with a market valuation of $450 million:
The new capital will go towards hiring to expand its 80 person team and scaling up growth by recruiting more creators including videographers, political pundits, game developers, illustrators, musicians, and comedians. Patreon’s business is doubling in size each year across metrics like creators on-boarded and paying subscribers, and it expects that grow to continue. Patreon already has 50,000 creators and 1 million subscribers on the platform that pay an average of $12 per month.
Series C funding is used to scale the company up in an effort to receive a significant return on investment, key words being "scaling up growth." Or to put it another way, Session C funding is when a company gets serious about making profit happen.

With an estimated 15 different investment interests in Patreon, it's not surprising that there was pressure to maximize returns from Patreon's creators. Patreon needed to nearly double in size prior to their IPO or risk being de-valued. Although Patreon has never outright stated the reason for the timing of their decision to implement the new fee structure, it's easy to see how investors were likely pushing the company to fix a longstanding problem.

That still doesn't explain why Patreon launched a plan that was ultimately more harmful to the company's base. And for that, we need to look Tal Raviv, the Growth Product Manager at Patreon.

GMV and FSCs​

Raviv was upfront about who Patreon cared about the most: Financially Successful Creators (FSCs).
Patreon monetizes by taking a 5% cut of transactions -- which the company is points out is 6 to 10 times below average take rates in creative industries -- so it makes sense that the they would want to optimize its growth around Creators whom they count as "financially successful." A Creator earning a very low amount through the platform won't meaningfully contribute to Patreon's monetization model, nor to its viral loop (more on that below). Further on, a financially successful Creator is not only more likely to have a pre-existing audience that they -- and Patreon -- can monetize, but is also more likely to serve as an aspirational example that attracts other Creators on to the platform. Finally, financially successful Creators are more likely to stay happy, and stay on Patreon. Creators who hit the recurring income threshold have near-perfect retention, explains Raviv.
He later explains in that same interview that GMV (Gross Merchandise Value), is key:
Raviv explains, "We'd rather have our GMV be made up of fewer, but truly life-changed creators rather than a lot of creators making a few dollars." This is because while active FSCs do bring on significantly more Patrons (the fans who support them), they also bring on more Creators. The bigger their success, the greater the aspirational value it carries.
GMV is the total value of merchandise sold over a period of time through a customer-to-customer exchange site. So who are these FSCs massively adding to Patreon's GMV? One way to measure them is Patreon creators who make more than the federal minimum wage. In total, that's just 2 percent of Patreon members:
Of those creators, only 1,393 — 2 percent — make the equivalent of federal minimum wage of $7.25 an hour, or $1,160 a month, in October 2017. Worse, if we change it to $15 per hour, a minimum wage slowly being adopted by states, that’s only .8 percent of all creators. In this small network designed to save struggling creatives, the money has still concentrated at the top.
And there it is, the remaining puzzle piece of how Patreon missed the forest for the trees.

Putting it All Together​

Adding this all up, Patreon was at a crossroads in the company's evolution. They had just gotten an infusion of cash from investors who likely expected growth from a model that was no longer sustainable. Patreon knew it had to make a change in how it managed micro-transactions.

We'll never know if Patreon's data gathering was biased by its focus on FSCs, but we do know that the change they implemented disproportionately harmed small creators, my Patreon included. With its focus on an elite group laid bare, Patreon's creator-friendly brand took a hit.

Worse, Patreon’s business model still needed those small creators. Small creators amplified Patreon’s brand, which in turn made FSCs more successful, and potentially became FSCs themselves over time with Patreon’s help.

The parallels between Patreon's struggles and the current controversy with the Open Game License are eerily similar. The good news is it's not too late to pivot. In the next article, we'll look at how Patreon clawed itself back from the brink and what game companies can learn from their mistakes.

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Michael Tresca

Michael Tresca

Gee, talien, this is a well-researched, well-written, thoughtfully presented, clear, engaging, and—above all—timely, article.

Thank you!

I had vaguely considered that Hasbro might want to look at how Patreon made a contrite re-pivot. But that’s as far as my thought went. You delved in and laid out the story beautifully. The Hasbro execs ought to read this.
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Yeah, I remember that. It caused two rather larger German gaming podcasts to shift their focus to Steady. All in all, I had a feeling that Patreon shot themselves in the foot with this change, which, as you point out, is really quite similar to how I perceive what WotC currently does.


Community Supporter
The only downside in this comparison to the WotC OGL situation is that Patreon could see the impact in real time. I think WotC will have to plough through the One D&D release to see the impact on the TTRPG avd VTTRPG markets.
With the current spate of D&D Beyond cancellations I suspect WOTC is seeing the impact in real time as well.

Pax Drowana

This is a great write-up, and very relevant. Thanks for taking the time to research it and write it up. I'm looking forward to the next instalment. As a side note, Patreon's misstep and subsequent recovery would make a great business school case study.

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