Remember NFTs, those collectibles powered by Web3’s blockchain that were meant to transform the world of entertainment?
Two years ago, they were all the rage and did just that, with the Bored Ape Yacht Club leading the crypto bro pack and Ashton Kutcher’s and Mila Kunis’s Stoner Cats making inroads with the Hollywood crowd. But then, skeptics and cynics crashed the party and crypto winter put much of the NFT market on ice.
So NFTs got a bad name, and legitimate players were forced to distance themselves from the term, repackaging the technology as “digital tickets” or “digital tokens.” Meanwhile, entranced by ChatGPT, Silicon Valley moved on to the promises of AI. As a result, a majority of U.S. consumers now believe NFTs to be a passing fad.
So where do things stand now for NFTs in the creative community? The simple answer is that despite all the doom and gloom, the initial long-term promise of NFTs for entertainment stands strong for those who are willing to believe — and evolve.
There’s still a lot of cause for doubt. Impact Theory promised, in its own words, it would use its Founder’s Keys NFTs to “build the next Disney,” raising $30 million through sales. But the SEC chose the company for its first NFT-related enforcement action in the entertainment industry, accusing the company of violating federal securities laws. SEC lawyers argued that its NFTs were actually unregistered investment contracts that came with an expectation of profit.
In another important recent development, leading NFT marketplace OpenSea shifted is policies again to permanently discontinue a creator’s ability to set and enforce ongoing resale fees for NFTs sold there, a change that went into effect last week.
Such fees, enabled by blockchain technology, gave creators the game-changing ability to receive an ongoing royalty for their work in any subsequent sale, perhaps the single most important incentive for them to play in the world of Web3.
OpenSea blamed market dynamics, of course, writing that it was “moving to optional creator fees … in an effort to better reflect the principles of choice and ownership that drive this decentralized ecosystem.” In other words, as I anticipated several months ago, OpenSea cut and run on its sworn commitments to creators. Maybe that’s smart in the short term, since most of its competitors don’t enforce fees, but it’s ultimately self-defeating in the long term.
These two major adverse developments, when added to the dire forces noted above, officially sound the death knell for NFTs to the creative community, right? Well, not so fast. Amid all the negativity, ambiguity and obfuscation, a clear promise still exists for those who are willing to take the time to understand NFTs and use them to create a true, two-way exchange of value. Here’s how.
First, NFTs give creators a way to cut out fee-collecting middlemen, earning more from sales and directly connecting with their audiences in a way that benefits both sides. If you think of NFT ownership less as a speculative activity and more as a form of membership, creators and fans can build a new kind of utility together, based around love for a particular form of creative expression. The more NFTs look like tickets and less like stock certificates, the less likely the SEC is to crash the party.
The utility of such NFTs could include early or exclusive access to an artist’s works, bespoke events, even intimate social feeds. All of this promises emotional value to fans and economic value for artists, but no expectation of stock market-like profit.
The blockchain’s reputation may be battered, but it still also promises to solve seemingly intractable problems facing artists. Writers and actors are striking over residuals — a form of royalties — and data transparency. That’s what Web3 is supposed to be good at. Once intellectual property rights are stored and payments made on-chain, a lot of the tensions in music and filmed entertainment will fade into the background.
To be clear, the legal framework around NFTs is developing as we speak. So one must tread cautiously (and get great legal advice). But the risk that securities laws could be implicated in certain cases doesn’t take away from the technology’s potential usefulness.
For example, right now, the music catalog acquisition business is dominated by private equity firms backed by billions of institutional dollars. There is very little opportunity for fans to get a piece of the action in that red-hot world. NFTs, via platforms like the one offered by Royal, could change that.
Royal is an early trailblazer in the world of NFTs and, in particular, securitized NFTs. It hasn’t gotten the buzz that cartoon-like images of disenchanted simians once drew, but it’s playing the long game. The value of NFTs doesn’t disappear simply because casual observers in the media and entertainment world have moved on.
We are fickle people, lemmings who jump ship when a glimmer of the next big thing shows up on the horizon. Then we try to climb back on board when the stalwart crew steers the ship through the storm. OpenSea may have been rocked, and there are plenty of sharks and pirates in the waters, but the promise of NFTs for artists, creators, and the entertainment industry more broadly is still clear for those who choose to see it.
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