Substack is surging thanks to premium content. Next, it’s eyeing ads

AI chatbots are disrupting the long-standing value exchange of the open web, scraping publisher content and referring very little traffic back to publishers.

One media company has defied this AI-induced upheaval by betting on a simple maxim: People want premium content on the web and are willing to pay for it.

Fresh off a $100 million funding round last month at a $1.1 billion valuation, Substack has managed to attract millions of paying subscribers — a feat previously achieved by prestige news brands like The New York Times and The Economist.

The newsletter –turned community platform’s growing popularity underlines two trends shaping the web: People are increasingly seeking out premium content, while publishers and writers are prioritizing direct relationships with their audiences —whether that’s first-party data or ownership of their email subscriber lists.

Now, Substack is warming up to ads (after initially shunning them), the founders told The New York Times. It’s reminiscent of the likes of Netflix, suggesting that advertising revenue is becoming an all-important stream in once-subscriber-only ecosystems.

“For advertisers, it’s always about tapping into relevant interest graphs in compelling ways, but the relative silence of the email channel gives a greater chance of connection,” Fabric Media CEO Jason Damata says.

Offering advertisers a ‘high-trust cohort’

Advertisers have already been buying into the company’s vision of the internet by sponsoring Substack creators. With the latest funding round, the company is looking into bringing ads to the platform.

“Their creators have told them that they want Substack to support advertising,” Mike Kerns, an investor, told The New York Times.

“When done correctly, there’s a version of it that not only doesn’t diverge too hard from the model, but reinforces it,” Chris Best, Substack’s co-founder, said on the Newcomer podcast recently.

Experts tell The Current that advertisers’ benefits include establishing connections with highly engaged consumers on a platform they already trust.

“In a world where we’re slowly moving towards more contextual, trust-based advertising, platforms like Substack offer something quite valuable: a hyper-specific, high-trust cohort,” says Abi Watson, senior research analyst at Enders Analysis.

Escaping the ‘doomscroll’

Best said on the Newcomer podcast that there would be a “breaking point where people want a real alternative [to social media].”

That “breaking point” may be here already: Top journalists and media personalities are going to Substack, where monetization and traffic aren’t naturally correlated to clickbait headlines or rage-bait videos. And readers are following.

“As fragmentation accelerates and AI starts to dilute the information marketplace even further, people are gravitating toward authentic voices and trusted connections in less cluttered environments,” Damata says.

This is happening as many internet users, especially Gen Zers, report high dissatisfaction with social media platforms and governments are tightening the screws.

Australia is banning those under 16 years old from social media and enforcing age verification on search, forcing platforms to roll out age checks or face fines. In the EU, Meta is embroiled in an ongoing legal tussle over its “pay-or-consent” model, which the European Commission says violates the Digital Markets Act.

Meanwhile, the crumbling of the publisher-search business model has led many sites to realize the importance of being as close as possible to their audiences. Publishers are investing in direct-to-reader channels like newsletters, as well as identity solutions to enable better targeting for advertisers while retaining ownership of their audiences.

With its newly refilled war chest, Substack plans to expand to more markets, which could make it a more attractive proposition for advertisers. Ultimately, it wants to build a media operation that is “an escape from the doomscroll,” Best wrote on a post announcing the funding.

“It’s the difference between monetizing relationships and monetizing impressions,” said Hamish McKenzie, co-founder of Substack, on the Newcomer podcast.

“When you’re trying to lead people into deeper relationships with the voices who they really trust, the behavior and the content that gets rewarded is totally different from when you have a big feed and everyone’s trying to go viral on top of each other.”