NFT Activity in the Entertainment Industry: Who’s Doing What

This post was originally published on Variety

If you roll your eyes at the mention of NFTs, then 2022 may not be the year for you.

The digital format, which can take the form of images, songs, videos, shares in profits, tokens granting access to special events, video game items and more, has piqued the attention of the entertainment industry as sales rocketed in 2021.

The NFT market was worth $18.5 billion in 2021. In contrast, in 2020 it was worth $32 million, which was then a record high for the industry. The 2021 increase was 57,676% on 2020’s total, and with 2022 already seeing $6 billion in sales, the industry continues to be in rude health.

The premise of new revenue streams that may ultimately become part and parcel of the consumer landscape is what’s driving the entertainment industry to enter the NFT market. Variety Intelligence Platform analyzed the current NFT positions for 26 firms covering TV, movies, video games, music and sport to highlight exactly what each company is currently doing in NFTs.

What’s striking is that current plans tend to verge around digital collectibles, with NFTs being produced for franchises such as “Saw,” “Street Fighter 2,” “The Walking Dead,” Disney’s “Mickey and Friends,” as well as being geared around record-label talent rosters.

The companies included in VIP+’s NFT analysis have barely scratched the surface of the intellectual property they own, which means many organizations will be just starting to create roadmaps for NFT drops to take place in the next decade.

Collectibles aren’t the only area of interest for entertainment companies that own content. Dapper Labs and the NBA pioneered selling video, albeit in clip form, to fans with their NBA Top Shot product. This is where a longer-term play can be anticipated.

Before the digital world, consumers used to own the media they purchased. That changed when electronic-sell-through stores like Apple’s iTunes instead sold a license that gave access to the content but was non-transferable. That meant if you were to switch to a system with a rival EST store, consumers could not access the content for which they paid.

NFTs offer the promise of walking away from the licensing era and going back to consumers owning what they buy. This is especially promising for entertainment companies, as it offers the promise of two additional revenue streams, even if only one should be adopted.

The first new revenue stream will stem from cutting out the middleman. Currently, if a TV show or movie is sold via an EST, that merchant extracts around 30% of the sale price, with the remaining 70% going to the content creator.

With many entertainment companies building their own NFT marketplaces, this will see them take 100% of sale proceeds. Theoretically, it is possible that they would pass some of these savings onto consumers, lowering the costs to better compete with established markets. But it is more likely that prices will remain the same as companies look to achieve a state of permanent growth.

The premise of the NFT smart contract, which allows the NFT creator to set a permanent royalty fee for resales when minting the NFT, also is attractive to media companies. Note that a resale fee doesn’t need to be included, but many independent artists do so as it means that they will always profit from the value of their work increasing over time. (See VIP+’s interview with NFT artist Latashá for a full explanation of how this works.)

Entertainment has noted this and sees smart contracts as a way to create an ongoing revenue stream. If a consumer purchases an NFT of a movie for $10 and tires of it, selling it for $5, under this system they will not recoup $5. Instead, the studio will take a small fee — up to 10% if Panini’s marketplace for reselling trading card NFTs is a guide — with the talent also seeing a cut.

Therein lies the issue. In order to attract consumers to buy NFT versions of content, it will need to be messaged that consumers now “own” the content again and can sell it once they’re over it. But how do you fully own something on which you don’t recoup full fees?

If entertainment companies really move ahead with incorporating smart-contract resale fees into their content, there will be an inevitable backlash once consumers find out that selling a movie for $5 doesn’t yield $5, and it will give a perception that once again big corporations are using tech to exploit consumers.

It was due to a fear of such a backlash that video game publisher Ubisoft did not implement resell revenue on its Quartz marketplace. It’s possible content publishers will argue fans will embrace this, as it will mean that their favorite artists will continue to profit from their work.

But this is disingenuous. It’s one thing for fans to support independent artists in this fashion but quite another to expect them to feel for multimillionaires sitting in their mansions.

With NFTs offering multiple opportunities for new revenue, it is safe to expect many more announcements from the entertainment world in 2022. Based on VIP+’s analysis, anticipate some of these to be seen as cash grabs ignoring consumer interest, but also anticipate many to be innovative as NFTs go truly mainstream.

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