We're In A Newsletter Bubble

“Newsletters are lame.” - Sam Parr

Last week was a tough week for newsletters.

Sam Parr, who literally sold a newsletter for 8 figures tweeted “Newsletters are lame.”

Sahil Bloom, whose newsletter is the flagship offering for his media business said he was bearish on the creator economy.

So what gives? Why are these people who write great newsletters so down on the industry overall?

I think the answer is that we are in a newsletter bubble.

In the late 1990s, Warren Buffett touched down in Ketchum, Idaho for the annual Allen & Co. client gathering. This event was a “who’s who” of the business, finance, and media world and served as a chance for the heavy hitters of American industry to spend time together playing golf, tennis, and hiking in the scenic landscape of rural Idaho.

However, the event was different in 1999. There was an unease in the air. A newly minted class of wealthy folks littered the cottages, trails, and tennis courts of the Alan & Co. gathering place. That they were massively wealthy was not out of the ordinary, everyone at this event was massively wealthy, but that they were so young was unnerving.

Who were these newly minted rich? They were internet entrepreneurs who built companies on top of the new technology that threatened to disrupt any and all incumbent industries. And as anyone who has achieved massive success in a short period of time is, they were cocky. 

So when a white-haired old stock picker with an ‘aw shucks’ attitude named Warren Buffett got up on stage to deliver the annual keynote speech to the Alan & Co. attendees, the internet entrepreneurs were skeptical they had anything to learn from him.

What came next was a damning indictment of the excess of the 90s and what in retrospect was a prescient forecast of the future of the American stock market, especially internet stocks.

Buffett began his speech by rehashing the teachings of his former teacher Ben Graham who famously compared the market to a manic depressive. As a manic depressive, the market’s behavior was prone to periods of unwarranted optimism and pessimism.

Although the market could be temporarily irrational in pricing assets, the core teaching of Ben Graham’s philosophy was this: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

In the context of July 1999, this message was clear. The internet changed the world’s perception of what was possible. Through this amazing new technology, you could now purchase items without leaving your home, surf the massive trove of information offered by the internet’s catacombs, and communicate with people on the other side of the globe.

As these businesses made new things possible some argued that the traditional way of valuing businesses on profits and cash flow was null and void. That was an archaic practice of the past; no longer applicable to the internet businesses that comprised the “new economy”.

A WSJ article published in May 1999 captured the feelings of the time perfectly stating “Driven by the rise of Internet-related companies, the logic of doing business in a "digital" economy is starting to sweep through more and more precincts of American business. The result: One of the sacred tenets of business -- you have to make money -- suddenly looks almost like a quaint artifact of an outdated era.”

Buffett told the proud internet entrepreneurs that the stock market was known, on occasion, to decouple from the economic realities it was supposed to represent. And this was just one of those occasions. The stock market was hitting all-time highs what seemed like every other day yet overall corporate earnings were stagnant. Buffett has some bad news for the internet messiahs, profits matter in the long run.

In March 2000 after Buffett’s speech at Sun Valley, the internet bubble burst. These businesses of the “new economy” who had only ever known low-interest rate environments to subsidize their unprofitability were now all too aware that cash flow is necessary to sustain a business.

So what does any of this have to do with newsletters you may ask?

Newsletters have been all the craze over the past three years. 

• Morning Brew sold to Business Insider for $75M. 

• The Hustle sold to Hubspot for $27M. 

• The Milk Road sold 10 months after starting. 

• Edwin Dorsey makes hundreds of thousands of dollars yearly off his The Bearcave newsletter. 

• Doomsberg charges a hefty premium and surely makes hundreds of thousands as well. 

• Packy McCormick started a venture fund through his newsletter. 

• Anthony Pompliano basically has his own media company a huge component of which is his newsletter. 

• Sahil Bloom was able to sign a seven-figure book deal due to his audience (he also has a 7 or 8 figure business related to content).

I think Sahil and Sam’s indictment of newsletters is the Buffett speech at Sun Valley for newsletters. And frankly, I agree with them.

But does this mean I think newsletters are dead? Absolutely not. To say newsletters are dead is like saying writing is dead. Writing has been around for millennia and will be around for millennia more. It’s a lindy activity. People enjoy reading good writing and always will. That shouldn’t be a hot take.

But as the outlier financial rewards of writing a newsletter have been publicized, people are pouring into the space not to write good, interesting material, but to make money. And the irony of this is that the writers who care the least about money and the most about writing content they find interesting/enjoy will make the most money. And the people who want to make money the most but don’t care about writing interesting content won’t be successful.

Additionally Substack and Beehiiv make setting up a newsletter so easy that the barriers to entry are non existent and people are flooding in. The ease with which you can set up a newsletter is the zero interest rate equivalent for the economy in 1999. 

And the corny engagement bait threads people write to draw people to their newsletter is the internet bubble equivalent of attaching “.com” to the end of your company name. Sure it may increase your subscriber count or increase your market cap but it doesn’t make the underlying content or business any better. And at some point that matters.

So this is my prediction for the state of the newsletter world. As gimmicky, shallow, and timely newsletters continue to publish without financial reward, they will soon be discouraged and get washed out of the system. They came for the sole purpose of making money, won’t make money, and will soon quit. 

Just like Pets.com, Worldcom, and Webvan were casualties of the internet bubble bursting, the thousands of new AI newsletters, and crypto token pick newsletters will be casualties as well.

And just as some amazing companies like Amazon and Ebay survived through the .com bubble and crash, some great blogs will come out of this newsletter bubble as well. 

To riff on the teachings of Ben Graham, in the short run content can be growth hacked, but in the long run you need to write good content.