CORRECTED-BREAKINGVIEWS-Seductive Substack threatens to break news again

By Jennifer Saba

NEW YORK, Jan 16 (Reuters Breakingviews) - The eternal quest for a sustainable business model in media has flooded in-boxes. Fast-growing Substack stands at the ready with publishing and marketing capabilities to gin up more readers and revenue. It's the latest in a long line of technologically savvy companies, including Google and Facebook, whose shiny promise threatens to be more fool’s gold.

Founded in 2017 by Chris Best, Hamish McKenzie and Jairaj Sethi, a trio of messaging-app Kik alums, Substack helps both independent writers and large news organizations craft and sell newsletters. It aims to build a “new economic engine for culture” with a network designed to be a blank canvas for scoops, viewpoints, gripes and videos delivered by email and on its app. The danger is that any expansion to justify lofty financial expectations will erode its appeal and leave newshounds and ideasmiths disappointed again.

The company raised $100 million from venture capital firm Andreessen Horowitz and others last year in a deal that imputed a $1.1 billion valuation, more than the publicly traded equity of publisher USA Today and local U.S. TV broadcaster Sinclair SBGI.O. Hollywood stalwart Paramount PSKY.O paid $150 million for the Free Press, a media venture started by opinion writer Bari Weiss, in October while Semafor said last week it reached its first full year of profitability. The three-year-old news and analysis startup is now worth $330 million after investors injected $30 million.

At Substack, writers and other creators retain editorial control, customer relationships and approximately 86% of any subscription revenue. Magazine maven Tina Brown, data guru Nate Silver, musician Patti Smith and economist Paul Krugman are among those reaching followers over the platform. Even former Federal Reserve chairs have used it to make their case. Also jumping on the bandwagon are bigger publishers, such as the Financial Times, Wall Street Journal and Washington Post, attracted by Substack’s ability to stitch together a fresh sort of social network with a younger audience.

Substack tallied about 5 million revenue-generating subscriptions in 2025, more than doubling its 2023 count, and approaching half the 12 million who pay to read the New York Times digitally. Many Substack musings are free to read, however. Paid conversions, as a rule of thumb, represent about 3% to 5% of a total audience, in this case largely 25- to 34-year-olds, according to web traffic analyst Similarweb. It only requires the back of an envelope to understand the temptation for ink-stained wretches: 2,000 subscribers spending $10 a month would let them pocket more than $200,000 a year after Substack and payment processor Stripe take their cuts.

There's no shortage of scribes seeking an outlet and some income as industry-wide carnage persists. Another 136 U.S. newspapers folded last year, bringing the two-decade sum to 3,500, which accounts for some 270,000 lost jobs, according to research from Northwestern University's Medill School of Journalism. Web traffic to 100 of the largest newspapers has tumbled more than 45% over the past four years, the study found, using Comscore data. Small wonder that surviving outlets will reach for any perceived relevance or revenue.

For now, bigger publishers are cautiously testing the service. The Wall Street Journal and the FT started free newsletters on Substack late last year. "Free Expression" spawned from the Journal’s opinion page, going beyond business and economics into culture, education and sports. It will eventually switch to a paid product, aiming to build on the newspaper's 4 million digital-only subscribers.

The pink paper is offering a version of its Alphaville news and commentary service, which started during blogging's heyday in 2006 to drill down on financial markets. It has “zero plans” to charge on Substack, editor Robin Wigglesworth said. “It’s about getting more readers into Alphaville and more readers into the FT like a gateway drug,” he added.

News organizations have learned from previous Silicon Valley dalliances to wall off their kingdoms. Robert Thomson, the CEO of Wall Street Journal parent company News Corp NWSA.O, once famously referred to Google as a “tapeworm in the intestines of the internet.” Substack is keen to emphasize its willingness to coexist with publishers. McKenzie, the co-founder, describes the mission as “an enlarger of the media ecosystem; a force that lets more voices in.”

It's a familiar refrain. Meta Platforms META.O boss Mark Zuckerberg vowed to prioritize trustworthy news sources on Facebook feeds and pledged $100 million in financing and ad spending to support publishers in 2020. Google rolled out its "news initiative" and "news showcase" programs in a similarly belated and second-rate effort.

Over the past 20 years, newspapers have lost an astonishing $80 billion of ad revenue, most of it accruing to Facebook and Google instead. The rise of artificial intelligence augurs additional pain. Referral traffic from Google in November was down more than a fifth from a year earlier, according to the Reuters Institute, citing Chartbeat data. Moreover, publishers surveyed said they believe traffic from search engines will plummet 40% over the next three years.

Now that subscriptions are the industry's lifeline, newer ventures are dangling opportunity. Beehiiv, for example, is a software developer courting individual journalists and businesses with its one-stop newsletter and website shop.

Substack's recent fundraising, however, suggests outsized aspirations. With a top line reaching about $45 million, according to tech newsletter Newcomer (on Substack, no less), its $1.1 billion valuation represents a chunky 24 times revenue. The New York Times NYT.N trades at 4 times and Reddit RDDT.N commands 19 times.

Such heady expectations may not square with Substack’s earnest mission. To satisfy the implied assumptions for growth and profitability, the company could start taking a bigger cut of sales, roll back generous terms or bundle writers into a revenue-sharing package.

Many similarly ambitious ventures have turned out to be false dawns for the news business and its would-be benefactors. Medium is an example of what happens when good intentions run afoul of financial realities. Started in 2013 by former Twitter architect Evan Williams as a welcoming place to publish, it embarked on a hiring spree of editorial professionals to curate and commission work to run alongside user-generated content.

The decision to package Medium posts so writers could share the spoils also became a costly mistake. Despite reaching 760,000 paying members in 2022, it was losing $2.6 million a month as quality flagged. It's now attempting a turnaround. Substack may yet defy the odds and build a more sustainable financial strategy, but history suggests it'll just be more bad news.

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