$50,000,000 and the Freemium Business Model
How giving away stuff gets you paid.
Steven Crowder is a huge YouTuber. I’ve never watched his show as it’s for a different demographic. The Crowder drama (if you don’t know the full details, don’t worry, you won’t need to) reminds me of a book I read that changed my life. Jeff Walker’s Launch. 99% of you people have no idea, but I wrote a best-selling book and then went into chill mode as it did well. This success was due to a lesson I learned from Jeff Walker - the Freemium Model. Here’s how it works.
Freemium = Free + Premium.
You give away 99% of whatever you do. Free. Then you sell a premium offering. That could be a book or private mastermind group. You make you money off of the “true fans” who buy your premium offering.
Freemium, get it?
Here’s how the math works here.
7.5 of people who sign up for free to this Substack become paid subscribers. That’s the conversion rate. You can set your clock to it.
You convert a portion of your total readers into paid subscribers. It’s basic business and simple math.
It I want more paid subscribers, then I want to get as many people as possible to sign up for free.
If Twitter banned me, fewer people would read this Substack for free.
Instead of converting 7.5% of a larger number, I’d get 7.5% of a smaller number to sign up.
That’s why I don’t want to be banned from Twitter. I’ve always admitted this. It’s foolhardy for people to pretend like they don’t care. Don’t be a hipster. It’s OK to care. I love Twitter. Life would go on without it. But don’t tase me, Elon.
Anyway, I mention these concepts for two reasons. First, I had to learn it. Launch completely changed the course of my life. Whenever I learn something, my thinking is that maybe you would want to learn it, too, and maybe you’ll change your own life. (Or even if not, you’ll learn something new about how the world works.)
Second, Crowder has been misrepresenting the deal he was offered and he’s playing the victim. I don’t really care. Like I said, that’s what his audience is into. The man knows how to act for a crowd.
Here’s what is shady tho.
Crowder said he was on the market after leaving his previous “employer,” The Blaze. (Employer is in quotes as Crowder’s Loan Out Company pays Crowder. The Blaze pays the Loan Out. I overpaid my taxes for years because I didn’t have an S-Corp set up. Makes me sick to my stomach. Again, that’s why I am going into these details rather than playing into the drama mama element. Learn from my mistakes.)
Crowder’s agent told Jeremy of the Daily Wire to send over a number to get the conversation going.
Jeremy did so. He sent a term sheet. Crowder’s fan base, ignorant as they are, keep calling it a contract. No.
Crowder hated the proposed deal.
Crowder wanted $120,000,000 guaranteed money.
Daily Wire said OK, all good, let’s move on.
Crowder then registered a domain name for a site he was going to build to attack Daily Wire.
After he registered the domain, he called Jeremy “as friends,” to discuss life stuff. Crowder then brought up some business discussions unrelated to the purpose of the call, and he released a chopped up bit.
What a scum bag move.
Even before the above facts were known, Crowder was actively misleading his audience.
Freemium and Crowder.
Crowder has 6 million YouTube subscribers. Crowder also has a membership only club that he charges for.
I don’t know what his conversion rate is, but let’s say it’s 5%. If he can get 5% of his 6 million free viewers to sign up, he’s a very rich man.
5% of 6,000,000 = 300,000 monthly subscribers at $15 a month = $4,500,000.
Anyone who has done a paid subscriber model is going, “No way he can do that.” But again, Crowder’s fan base isn’t us. Let’s assume these magical numbers are real.
What happens if he is banned from YouTube, and he loses the ability to market his membership group to his followers?
He makes 5% of a much smaller number of viewers. Maybe he gets a short-term sympathy bump. But he’s not going to convert as many total subscribers because 5% of a smaller number is fewer than 5% of a larger number.
Basic math, right?
Being banned from YouTube would hurt Crowder. That’s why he plays by the book on YouTube and doesn’t leave YouTube, even though he cries about how he’s been “demonetized.”
Crowder is not demonetized because he is still able to reach his free viewers on YouTube, where he tries to sell them a premium product.
Daily Wire offered Crowder $50,000,000 for a four-year deal. (Jeremy of Daily Wire said they’d probably have gone up to $70,000,000.) That’s real money, and by the way I think it would have been a huge mistake for Daily Wire. But whatever.
If Crowder agrees to the deal, he’s guaranteed a certain amount of money. In the industry, this is known as a minimum guarantee.
In exchange for this, Crowder would drive his free viewers to Daily Wire’s paid membership service, Daily Wire+.
As part of the deal, Daily Wire wanted Crowder to agree to a reduction in fees if Crowder were banned from YouTube. Crowder, before the term sheet was made public, misrepresented the facts by claiming Daily Wire was acting as a censorship arm of YouTube.
Crowder is playing on the ignorance of his audience.
If Crowder is banned from YouTube, he wouldn’t be able to drive his free viewers to Daily Wire, to become paid subscribers.
Daily Wire isn’t censoring anyone. They are recognizing that while Crowder’s conversion rate may increase because of censorship, fewer people will see his offer.
It’s a situation where Crowder is screwed by YouTube, as is Daily Wire.
Daily Wire says, “Let’s share the screwing.” Also known as risk sharing.
How could Daily Wire keep paying Crowder the same amount of money when he would bring in less money? This is called cash flow. Money comes into Daily Wire. They pay it out to Crowder’s Loan Out Company. Hopefully Daily Wire gets some profit.
Crowder being banned means lost profits.
Do you now understand how sketchy this Crowder stuff is?
I still hope he proves everyone wrong and converts 5% of 6,000,000 people into paid subscribers on day 1. That’d be awesome.
If Crowder does this, then I’ll read his book. Just like I read Jeff Walker’s almost a decade ago.
I also hope you learned something, and that this wasn’t too “inside baseball”
My thinking behind this post is that I didn’t understand any of this stuff until I started reading about it, starting with Launch, and continuing with many other great books.