NFTs in Entertainment
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Over the last few posts, I have been writing about the stunning growth in NFTs and their impact on the video game industry. Another sector that will see a meaningful impact from the introduction of digital assets is entertainment. NFTs will impact many aspects of TV, movies, music, podcasts, and books. We have already seen movie studios like Marvel and Warner Bros launch collectible NFTs tied to their IP. Musicians and podcasters have done the same, but there are way more exciting ways that NFTs will impact entertainment.
We have seen the beginnings of this with NFTs being used to unlock exclusive content and go directly to fans instead of the traditional industry gatekeepers. One of the coolest projects in 2021 was Stoner Cats. Actors Mila Kunis and Ashton Kutcher assembled a team for an animated adult series about an old lady that likes to smoke weed and interacts with her cats. Instead of taking the series to studio execs at Netflix or Adult Swim, the stars took the concept straight to fans. They created 10K+ digital cat NFTs that allowed the holders to watch the TV series. There is no way to see the show without holding a cat. Stoner Cats sold out $8MM of cats in less than an hour. This has huge implications for the future of content. Instead of going to the gatekeepers at the TV studios to get their project greenlit, Kunis and Kutcher went straight to fans. This is the true power of decentralization. The creators can go straight to their fans for approval, instead of hoping an industry exec thinks fans will like a certain piece of content.
We have seen other projects riding the coattails of Stoner Cats. In a truly meta move, a movie based on the book by Camila Russo called The Infinite Machine about the launch of Ethereum sold $15MM+ of NFTs to finance the production. It will be interesting to see if studios like Disney or Netflix experiment with NFT gated content in 2022. It is likely that musicians will use NFTs to gate new music or provide access to online or IRL concerts. We could certainly see the same thing with podcasts or books, using NFTs to build an audience or bypass the gatekeepers by going straight to fans. NFTs to unlock content will be a powerful force of disruption over the coming years.
The music industry is ripe for more disruption from the NFT revolution. The economics for artists stink in today’s streaming world. Only about 8–10 cents of every dollar spent by fans on Spotify and Apple make it to the artists. The label takes about 45%, the streaming platform gets 33%, and the writer gets 10%. This is an industry in need of major change, and web3 might make those changes. Audius is a next generation streaming platform controlled by the $AUDIO token. While technically not an NFT, it is making waves and their token has achieved a $1.5Bn market capitalization.
More specific to the music NFT space, we are seeing several companies pop-up to allow artists to share their royalties with fans. Electronic DJ 3LAU launched Royal to do exactly this, and they have raised $71MM to fund their launch in the first year. Artists sell NFTs tied to a fraction of their future royalties and get cash upfront. This is equivalent to a sale of a music catalogue or a securitization of royalties, both of which have been around for a few decades. Royal did their first offering recently from 3LAU’s own catalogue and is now working with the rapper Nas. Competitors like Decent have started with a similar mission, and some are working with artists to use NFTs before making the content so they can skip the record labels altogether. This is like the disintermediation that Stoner Cats achieved as discussed above. One note on this type of income producing NFT is that the treatment of these types of digital assets under U.S. securities laws is to say the least gray. Securitizations of music catalogues have been done as registered securities in the past. NFT platforms in this space are doing several things to keep their products outside securities regulations, but it is not clear yet how the SEC will view these.
NFTs are starting to impact the large entertainment market in the U.S. If you are a banker working with the studios or distribution companies, you’ll want to understand the impact of these changes. There are big industry shifts to come here in the future.
