When Patreon (see our review) announced a change in their fee structure, they touted it as a way to ensure that creators were paid a greater portion of what is pledged to them. However, many in the global creative community immediately perceived it as a threat to the viability — and thus the livelihood — of smaller creators on the site. What are the motives behind this change, and what will be its effect?
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The Change: Payment Processing Fees Will Now Be Assessed To Patrons
The simple way to summarize the change is to say that the payment processing fees charged in the transfer of funds from patron to creator will now be charged to the patron (rather than to the creator, as was the case in the past). But this broad explanation glosses over the specifics of how patrons will be charged, and it’s these specifics which lie at the heart of the issue.
Prior to December 18, 2017 — the day the new fee regime takes effect — Patreon’s policy was to charge the content creator for the cost of payment processing, deducting the amount from the earnings, which were bundled together and paid out once per month. This amount would vary, both month-to-month and creator-to-creator, because it depended on the number and amount of the individual pledges you received from your patrons, not the sum total of your patrons’ contributions.
As of the 18th, this all changes. Creators won’t be charged a fee for payment processing, and will instead pay only the 5% platform fee Patreon has always charged. Patrons will now be charged a 2.9% + $0.35 fee on each individual pledge they make to a Patreon campaign.
To those not involved in crowdfunding, the significance of this change may not be immediately apparent, and, in fact, it was initially presented by Patreon as an unalloyed good. According to the company’s much-criticised first statement, the change was made because it “allows Patreon creators to take home exactly 95% of every pledge, with no additional fees.”
However, here’s the thing. To charge a 2.9% + $0.35 fee to a patron’s every individual pledge adds a significant burden to patrons, most especially those who contribute a small amount — often $1 — to several different creators.
Seriously, though, it’s a big hit to small contributions! You might see the 2.9%, or even the $0.35, and think “well, that doesn’t sound like a big deal.” But the truly significant part is that this fee is charged to your every individual pledge and not assessed to your total monthly donation. This means every $1 pledge you make to a creator — whether monthly or per creation — will cost you $1.38. That’s a 38% fee you’re now paying on your donation, which sounds a lot worse than “2.9% + $0.35.” So if you contribute to, say, 20 different Patreons at $1/month each, you’ll now be paying $27.60 instead of $20.
This issue is especially acute if you run a per-creation Patreon. According to their FAQ explaining the changes, Patreon states the following:
As a per-post creator, your patrons will see the 2.9% + $0.35 service fee added to all paid posts. For example, if you are a per post creator making two paid posts per month, your patrons will be charged 2.9% + $0.35 for each paid post.
This means your $1-per-post patron will be paying $2.76 over the month for $2 worth of content, and not the $2.41 that would be assessed if the patron’s per-creation charges were bundled by month and then had the fee assessed. This disparity gets more pronounced the more prolific the per-post creator.
For the patron, it’s the aggregation of the per-pledge fees that is so insidious. This is particularly the case if you divide your giving into small amounts sent to many different creators, and less so if you give larger amounts to fewer creators.
Backlash was swift and unforgiving, ricocheting remorselessly down the weary corridors of social media. Many creators recognized this change as a massive new disincentive for patrons to spread their wealth, in the form of small pledges, among many different campaigners, with the new payment regime incentivizing patrons to concentrate their giving to fewer creators. The primary beneficiary of this change, according to many, is Patreon itself, not the majority of creators (and certainly not patrons). Crystallizing this view, a recent VentureBeat article quotes indie developer George Buckenham as describing the change like so:
This especially disincentivizes people pledging single dollars per month to multiple creators, which I assume they factored in and are happy with, in favour of people backing fewer projects for larger amounts of money.
The effects of the change are already being felt. Many Patreon creators tweeted screenshots of the canceled pledges they had already experienced, often accompanied by patrons giving the new fee structure as their reason for cutting back. Artist Blue Delliquanti noted in just such a tweet that they had already lost the equivalent of the cost of their dental insurance.
Artist/writer Josh Fruhlinger responded to the change by offering his $2-level patrons the chance to resubscribe at $1.60 per month for a unique reward to induce them to stay while paying roughly the same $2 monthly rate. Again, Patreon made this change ostensibly to benefit creators, yet now we see creators effectively cutting their own take just to keep their patrons from fleeing.
Yet another oft-heard complaint was that this change would be especially hard on non-US creators and patrons, considering the extra costs per transaction already incurred with the currency exchange, VAT, etc.
After the first wave of reaction, Patreon issued a further explanation of their new fee system through their payments product manager. The statement is an emphatic denial that the move is profit-motivated — “This was never (and still isn’t) about making more money for Patreon as a company.” Instead, they link the change to a change in the way patrons are going to be billed in the future. The explanation is complex, and I had to read through it a few times before I really understood it, but it boils down to the fact that Patreon wants to offer all creators the ability to get paid up-front when patrons subscribe to their content. This option has often been requested by creators who have to deal with the possibility of patrons signing up for their content and then canceling before the first payment is made.
However, when they let certain creators use a “monthly-with-charge-up-front” charging method, patrons were miffed. Because a patron’s monthly subscriptions are bundled and paid on the first of the month, a patron who signs up to support a creator with charge-up-front enabled on November 29th is charged a full month’s fee immediately, and then again on December 1st for the next month’s content. To prevent patrons from being effectively double-charged like this, Patreon wants to change the payment system to one in which each patron’s monthly subscription is paid on the monthly anniversary of the date on which they signed up with the creator in question.
But if they do this without changing the way payment processing fees are charged, according to Patreon, the cost of these fees will shoot up for creators and take a bigger cut of their monthly takes, because their patron’s payments will be spaced out over the month and not bundled and paid on the first of the month as before. They therefore justify the new fee system as a way to prevent this scenario from happening. They also added the fact that this new 2.9% + $0.35 was the lowest of the fee amounts they had experimented with during testing. “Be grateful we’re not making it even worse!” they seem to be saying.
As you can imagine, this response was not universally accepted.
Reaction To The Response
Many in the creative community, like author Natalie Luhrs, did not accept that soaking small donations with such a steep fee increase was the only way to make charge-up-front charging work. Several people pointed to another aspect of Patreon’s new billing practices which wasn’t addressed by the company in their “here’s why we did this” response but is mentioned in the FAQ page they put up to detail the changes. As things stand now, creators who are patrons of other creators can pay said creators out of their Patreon balance to avoid subjecting the funds in their balances to a second round of fees. However, according to Patreon,
We will likely be changing the way creator to creator payments happen in the future so that you will no longer be able to use your Patreon balance. One reason is that it causes many edge cases that add complexity to our payments system as work to roll out charge upfront over the course of 2018.
Of course, in smoothing out these “edge cases,” Patreon will just happen to collect more in fees as a result.
The Motivation And The Effect
Naturally, opinions differ on Patreon’s true motivation for enacting these fee changes. Natalie Luhrs pointed to this article, from June 2017, in which a Patreon employee explicitly states that “financially successful Creators” are more valuable to the company than creators who earn less money (“We’d rather have our GMV [gross merchandise volume] be made up of fewer, but truly life-changed creators rather than a lot of creators making a few dollars.” is a rather telling quote.). Luhrs claims this is evidence that Patreon is intentionally trying to prioritize big earners over small-time earners on the platform. If this is the case, there is no small irony in the fact that Patreon’s highest-earning project — and therefore its most “financially successful” — is a socialist podcast that has come out swinging against the new fee policy.
Others point to different possible motivations. Developer Jason Yu theorized that the real reason behind the change was not Patreon’s desire to effectively gentrify the ranks of its creators but to minimize costly instances of patrons getting confused and disputing charges that they made because they didn’t realize they were being aggregated by Patreon — the example given was a patron who makes 20 $1 monthly contributions and disputes a $20 charge from Patreon because they don’t recognize it. (Jason nonetheless concludes that “Unfortunately for Patreon, they may find that this change only shifts payment fraud to other channels while angering their creators and patrons in the process.”)
The fact is that we don’t have access to Patreon’s internal deliberations, so it may not be possible to pinpoint Patreon’s exact motivations for making this move. However, we don’t need to know the motivations behind the move to objectively assess its effects. It’s clear that the fee changes, as proposed, will make the act of contributing small amounts of money to many different Patreon campaigns much more expensive in percentage terms. These new fees, at 2.9% + $0.35 per individual pledge, plainly incentivize patrons to concentrate their Patreon spending on fewer creators in order to cut down on the number of times they’ll be forced to pass these new virtual toll booths. This can only have the effect of shifting patron spending up the ladder, benefitting larger creators at the expense of the smaller ones. Chalk up a rare win for the beleaguered 1%!
Don’t hold me to this, but I suspect Patreon will survive the current controversy. The most popular creators will see a net increase in the amount of revenue they take in, as they’ll be able to count on getting 95% of what is pledged to them. Patreon will continue to grow, and they will point to this growth to retrospectively justify this month’s change in their fee policy. But the numbers won’t tell the whole story. Creators will be left having to hope that their increased cut will be enough to cover the losses incurred from other patrons dropping or reducing their support. On this count, the big, established creators are obviously better positioned than the small-time creators.
Wasn’t the original intent of rewards crowdfunding to give a leg up to these very same small-time creators? To help them get the recognition they deserve in a world increasingly dominated by those who can leverage their existing advantages for their enduring benefit? Patreon might see increased aggregate growth from this move, but at what cost to those who Patreon might not define as “financially successful Creators” who have been “truly life-changed” but who rely on the platform to earn a few extra bucks to help make ends meet?
We know that when questions of this nature are ignored, the result is a society ever more aggressively stratified by wealth and power, so perhaps it’s high time these issues were given the consideration they urgently require.