Penguin Random House Should Buy Substack

Substack as Publisher

What do you call a company that distributes and markets writing in exchange for a percentage of revenue? Sounds like a publisher to me. 

Aside from a few discontinued special deals, Substack is a self-publisher. It doesn’t edit or acquire, but it does actively market writing as something worth paying for itself, rather than as a host for advertising. At this point, its business interests are aligned with the writers using it: the more they make, the more Substack makes. This is the core business model of traditional book publishing. 

So that’s point #1: Substack is a subscription text-service that allows a huge range of creators to form enduring, owned (in the form of email lists) distribution capacity.

Email is Magic

Imagine that a new digital content platform launched today with the following properties:

1. It is decentralized. No company owns it, so there is no middle-person that can muck around with it. Once someone follows you on it, no one (except of course the user) can take that away. 
2. Users can interact with the platform on any device, and multiple software interfaces are available according to user preferences. 
3. It is text-based and supports images and links. Content length is generous. 
4. It has almost every person in the world with any internet presence at all on it. 
5. In aggregate, users see 20-25% of content they are subscribed to.

This would be an enormous deal! And as you might have guessed, we already have this decentralized, ubiquitous, flexible and internet-scale platform: we just happen to call it email.

Escaping the Digital Platform Rat Race

For the last 12 years, I’ve seen the cycle over and over again. A new digital platform emerges. Mind-boggling reach is there for the taking. Companies, individuals, and creators flock to the free flow of attention. Marketers and publicists are told to build an Instagram following. Or pivot to video. Or start dancing with books in the office. And it feels fun and like the future. Look at the audience we are building! Look at our follower count go up! But they are not yours. They belong to the platforms. And the platforms know it. 

The platform then decides to get serious about making money. The reach is choked off. To get 5% of what they used to get for free, everyone has to pay. All that time and excitement spent “building out our channel” is now almost worthless. But wait, there is a new platform where you can get tens of thousands of likes and views and shares for free! Let’s go work on that.  

The net result of the SEO/Facebook/Instagram/Twitter dynamic is that rather than building an audience, publishers race to the next gold rush. 

Seven or eight years ago, some did get wise and worked on building out newsletters. They made all the points I made above. The problem, though, is that if you collect thousands and millions (yes millions) of email addresses, you then have to do something with them. And most publishers have decided, for understandable reasons, to use them as marketing and publicity tools. But readers don’t care about publishers. They care about authors. A publisher investing in building out an email list for an author is in a bind: most authors are free to move around. What if we spend tens of thousands of dollars and multiple years to develop that list, knowing full well that the list is valuable only so long as that author is with your imprint? Placing a heavy bet on a single author who could walk, or even just not turn out to be a great investment, is risky.

Don’t Pick Stocks, Buy Indexes

The advice, now bordering on admonishment, to buy index funds rather than try to pick individual stocks is so familiar that the reason it works isn’t often discussed. Yes, index funds are tax and transaction-cost efficient. But a huge advantage of index investing is that it guarantees buying the biggest winners. And getting the companies that become Apple and Google and Coca-Cola is more than worth buying the losers. It’s like a casino where most of the games will lose your money, but there are a couple of slot machines in the back that are throwing off jackpots way more often than they should, more than enough to make up for all the hard eights and dealer black jacks. In this situation, the task isn’t to guess which game is going to pay, but to play the whole casino. 

I’m now two-metaphors deep, but the point here is that by buying Substack, Penguin Random House can bet on a whole casino’s worth of writers. Most people who get excited to launch their substacks about old arcade games or the history of the tomato aren’t going to prove to be all that valuable. And that’s OK! Because you want to be sure you are in on a history professor or a former backend developer at Uber.

Doubling Down

Now that you have first-hand info about what writers are growing their audiences and making stuff worth paying for, you can double down. Maybe you didn’t realize that an epidemiologist can get hundreds of thousands of people to sign up for an email, but now you do. And you can see how many of those people become paying members, share content to other readers, click links, follow on social media, and on and on and on. 

You now have the chance to do what publishers do best: package words into objects, get them out where people can find out about them, and sell them for $30. Since most books don’t sell all that many copies, having an established audience is an enormous advantage. (I see “Substack” mentioned more and more in deal announcements. And I expect to see more). 

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Not all writers of course are a good fit for a book. Some will already have them, or have them with other people. And that’s ok, but what you will have access to is their reader’s attention (“Looks like you are interested in pop culture! Have you tried our author’s newsletter about video games/prestige TV/baseball? Sign up here with one click.”)

The more people sign up for newsletters in our ecosystem, the more fertile it becomes. And if you tend it gently and responsibly, it can grow and grow and grow. Maybe you decide to offer an opt-in advertising network. How about some sort of special affiliate program for your books? Or maybe some sort of built-in network for writers to promote each other? What about the thing that no one has thought of yet, because there was no way to imagine it?

According to reports, Substack has something on the order of 35 million people getting at least one newsletter from them. That’s a ton, but anecdotally most people I’ve asked personally haven’t heard of it. And that makes sense, because with 90% of Americans actively using email, that means there are still hundreds of millions of people in the U.S. alone still to be brought on board. That looks like a chance to grow the whole market for books.