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Blockchain and NFTs: Power to the Creators

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Some say NFTs (non-fungible tokens) are a novelty, a status symbol for the crypto rich, and a bubble that's bound to burst. Others argue that NFTs will fundamentally change business models in the creative industries. 

Whom should you believe? It's early days, and healthy doses of scepticism and caution are warranted. At the same time, studios such as Marvel and FOX are launching NFT divisions to market digital collectibles, new series are being crowdfunded using NFTs, and indie features are being distributed with blockchain-backed tokens that have royalties to IP stakeholders baked in. 

Could the technology really tip the balance of power and monetisation once and for all in favour of the content creation community? "It may sound hyperbolic, but there's the potential for NFTs to democratise digital ownership and put powers back into the hands of both content creators and content owners on a scale we haven't seen since the original creation of the world wide web," says Morten Rongaard, CEO and co-founder of Reality Gaming Group.

Taking Back Control

An NFT is a unique (indivisible/non-fungible) digital certificate designed to represent ownership of a virtual item or intellectual work such as music, a video clip, a graphic, or even a toke­nised tweet. The tech is seen as a means to help creatives monetise a product that has no physical manifestation.

Nigel Green, CEO and founder of the deVere Group, put it this way on the company's website: "With NFTs we are experiencing the meeting of an internet of information with an internet of value." He says this groundbreaking development is attracting large investments from multinationals, venture capital firms, and major media and entertainment (M&E) brands that are not blind to its risks but are convinced of its potential.

Of M&E brands, Green says, "They know this is the inevitable future and are moving apace to be early adopters. The hype is real, and they see the value in it. However, the market remains young and highly speculative, and caution should be exercised. It can be expected that some of the NFTs on the market now will have little value in a few years. But some will be worth a fortune. It's a similar situation to websites in the early days of the internet."

To some, the development may sow the seeds of wholescale disintermediation of the video biz. "Entertainment media is dominated by subscription streaming services that configured the whole economics around their platform," Michelle Munson, founder and CEO of blockchain network Eluvio, tells IBC365. "[NFT] blows that up."

Munson and business partner Serban Simu built file transfer technology Aspera into a multimillion-dollar business acquired by IBM, winning technical Emmys for their achievement. With that track record and an investment in Eluvio by FOX Entertainment, what Munson says should be taken seriously. "There are creators today who have deeper control over their content who are choosing to distribute this way natively—meaning no [subscription video-on-demand] streaming," she notes. "That idea is frankly new but as this grows it really butts up against the traditional windows. As soon as an audience has the ability to directly consume the content by actually owning it, essentially, it's a new form of rights. There are lots of discussions we are having with clients about [selling] these rights."

The marketplace for NFTs exploded in the art world earlier this year with the $69 million sale of a single digital artwork from US artist Beeple. Nothing has quite matched that high-water mark, and the NFT market is widely considered to be a wild west filled with speculators looking to grab a bargain and quickly sell it (or flip it) at a margin.

While there is a lot of head-scratching about why anyone would pay millions of dollars for the right to own, for example, a JPEG that anyone can freely download to store on their own PC, the fundamentals of digital tokens encrypted and secured on blockchain are believed to be the core of the emerging content creation metaverse.

"What we're seeing right now is the surface level of the technology and what's possible," Rongaard says. "Conversations around digital art ownership dominate the space, because digital artwork is relatively easy to bring to market, making it ideal as the first big use case for NFTs. As time goes on, we're going to see the technology stand less on its own and become more integrated into other, more mainstream, services, products and platforms."

Hollywood Looks to More Revenue

In Hollywood, there has been a flurry of activity by M&E companies in the NFT space. Most are piloting NFTs as a digital extension of the decades-old collectors market for film memorabilia. No major release, certainly of a franchise movie, is now complete without NFT collectibles as part of the marketing campaign. MGM and EON Productions' No Time to Die is just one of the latest to offer collectibles on digital platform VeVe.

Sports leagues are also dabbling in NFTs. Soccer-focussed online content business Copa­90 has hired a head of cryptomedia. The NBA has launched NBA Top Shot, a digital highlight collection. 

This is the entry level. Studios are building on digital collectibles to "aggressively" develop and curate communities of fans around their IP on NFT platforms, according to Munson. 

Eluvio Content Fabric is the technology behind FOX's NFT subsidiary Blockchain Creative Labs, which has a number of projects in development. Among them is The MaskVerse, an NFT marketplace alongside FOX's The Masked Singer. It's a form of gamification in which fans of the show will be incentivised to collect tokens to view new episodes, unlock unique content, and even participate in the storytelling. All of this, if successful, binds consumers more directly with content creators and develops stickiness to subscription services. The show's first NFT, released in early October 2021, sold out 10,000 units in 10 hours, according to FOX.

"The Maskverse," the NFT marketplace built around FOX's runaway hit The Masked Singer, sold out its first 10,000 units in 10 hours. FOX's Blockchain Creative Labs is built on Eluvio's Content Fabric Technology.

"Content owners are not giving away revenue to the streaming platform, and they're not giving away creative control," Munson says. "Data sharing is under the fans' control. When you own something based on tokened access, any data consumer-owners share with an advertiser comes directly from their unique wallet, meaning that is an explicit transaction. Your data is no longer being sold by a social media platform. 

"Advertisers themselves receive perfect information from that direct-with-consumer 
relationship. They could sponsor the tokenized content; they could give benefits back to the user in return for using their influence to talk about the show on social. Those features have to be native and be able to scale across parties, plus the crypto mechanics have to be hidden away to make it possible for everyone to work easily and securely. That's profound for users and advertisers, and I'm not sure how many people appreciate that yet." 

NFTs as Utility 

One of the crucial ways to look at NFTs is as "utility." Right now, if you own an NFT—a picture, a video, a coin, whatever—it has a speculative value in and of itself, but that's it. You hold it, or you sell it. This describes the vast majority of NFTs out there right now. 

When Reality Gaming Group refers to utility though, it means giving benefits, perks, and bonuses to people who own that NFT. They don't have to be related to other NFTs at all. "For example, in our NFT card game, Doctor Who: Worlds Apart, there's a special NFT called a ‘Founders Token,'" Rongaard explains. "If you play our game and interact in our community while you hold that token, you get a ton of benefits ranging from discounts to private community channels and events to early access to builds of the game. That's where utility comes in. It doesn't even have to be digital. Some of the more forward-thinking football clubs are allowing fans to hold NFTs and coins that give them VIP access to physical games and participation in club decision-making, like a sort of quasi-shareholder." 

Doctor Who Worlds Apart cards

Another experimental use case for NFTs is crowdsourcing. Here, NFTs are sold and used to fund a production. NFT buyers can also influence what goes into the production.

In the most high-profile feature film release strategy yet, a unique NFT of drama Zero Contact, starring Academy Award winner Anthony Hopkins, sold for 20 Ethereum (worth $56,860 at the time of sale). This was part of a total of nearly 94K worth of NFTs auctioned in relation to the film. While Zero Contact will be distributed conventionally in theatres and on streaming platforms, the NFT sales represent found revenue for producer Enderby Entertainment.

"[W]e've seen a community form around our film, enhanced fan engagement, and also proved a new revenue stream in the industry. We think this is ground-breaking," says Rick Dugdale, the film's director and producer. "Our goal was to earn the respect of the NFT space in order for us to create staying power and help blaze a new path for filmmakers. Not only is this now a proven distribution model, but we will be able to create new film financing structures moving forward."

This model has potentially huge implications for the likes of Amazon, Netflix, Roku, and Samsung. "It disintermediates the platforms that have been traditionally needed by content owners to get to their audience," Munson tells IBC360. "What NFT allows is anybody with equity interest in the content—think of it as IP with equity interest—to share in the full life cycle value of the content. This is really profound for the content industry. 

"It is the ultimate control point for those who have a stake in content. That stake could be a creator, a producer, [or] the network that aggregates and curates it. The key here is who doesn't take a piece is the middle platform. In the media world these are the streaming platforms."

To emphasise this point, Munson says that the content distribution industry has been built to a point at which the platform itself is necessary to reach the audience. "What this tech does is makes it possible for the creator to reach the audience without ... the platform," she notes. "Is NFT distribution an alternative to streaming? Absolutely. It will grow rapidly over the next months and years."

Moreover, for live-event production, Munson suggests that sports producers could toke­nise the myriad additional live feeds currently captured, but largely uncommercialised, direct to consumers. 

That's not to say it's going to be an easy ride, though. NFT technology is still in very, very early stages. "There are many NFT marketplaces that act as intermediaries and provide creators access to audiences they would otherwise struggle to find," Rongaard says. "Right now, it's a very healthy space with constant competition producing a market that is positive for both consumers and creators. However, technology alone is only half of the equation. Hopefully competition remains healthy, and we don't see a gradual consolidation into just a few platforms as Google, Amazon, and others become more active in the space."

Blockchain and Copyright

There may be some confusion as to what rights an NFT entails. For one thing, an NFT doesn't excuse the owner from copyright law. "Just giving attribution to an actual owner of the underlying IP of an NFT doesn't automatically give the creator of an NFT the right to use it," says entertainment attorney Anita Sharma in an interview in Forbes.

Using IP without the owner's permission is called IP infringement, and an NFT creator can be sued for that. Selling art using copyrighted characters is also an infringement unless you have the per­mis­sion of the copyright own­er. "Most NFT sales merely convey a license to use the digital copy of the creative work, and the copyright holder retains their copyright ownership," Sharma explains. "This means that ownership of the virtual art piece is not guaranteed when one buys an NFT. The digital governing contract covering the sale of NFTs must express­ly provide for an assignment of copyright in a signed writing for the buyer to actually own the copyright in the art. The buyer definitely owns the tokens that are placed in their digital wallet when they buy the NFT, but this does not automatically confer ownership of the underlying artwork."

The Environmental Cost

There are concerns that NFTs are only fuelling the rise of cryptocurrencies that rely on energy-hungry computational crunching to prevent data corruption. Digital-currency operator Ethereum, for example, currently has about the same energy usage as all of Zimbabwe, according to Nature. That makes NFTs "really a criminal amount of waste for something that doesn't do anything valuable other than act as a database for receipts for ugly cats," Nicholas Weaver, who studies cryptocurrency at the International Computer Science Institute, tells the publication. 

Munson is quick to jump to the defence. "There are a lot of misunderstood points—a meme starts and people become drunk on it. It's a stupid idea. The truth of the matter is that blockchains themselves wildly vary in their technology, they are not simple or uniform, and they are multigenerational. 

"It became popular to criticize the earlier blockchain technologies which used what is known as proof of work—a brute force technique to provide validation. It is inherently designed to be compute intensive.

"The second point is that blockchains themselves, in terms of their drive to have high transactional efficiency, are evolving very rapidly. The newest blockchains, such as Polkadot [an open source project founded by the Web3 Foundation] and Solana [a decentralised blockchain claimed to be the world's fastest], are incredibly efficient and fast and do not inherit any of these [previous brute force] problems in terms of validating the blocks that go onto the chain."

In other words, Munson argues that the natural economics that make it easier to trade on blockchain will drive the most efficient technology.

Eluvio itself does not use a proof of work blockchain. Moreover, it is designed not just for blockchain efficiency, but for content distribution efficiency. "We invented a new content protocol that avoids all file copies," Munson says. "That allows us to suck enormous amounts of resource usage out of what we do. It makes it not only much cheaper to distribute the same content at high quality, but also makes it vastly more energy efficient. It uses a small footprint in comparison to the number of nodes you would need in a classic CDN or cloud to achieve the same scale. This is, frankly, a radical departure from brute force content distribution that is the norm in video today."

Rongaard also targets the mainstream media's misrepresentation of the issue. "To put it into perspective, the entire Ethereum network's yearly energy usage is a third of that of YouTube, yet you'll rarely see the mainstream media writing articles about how uploading YouTube videos is bad for the environment," he says. "That's not to say we shouldn't do something about the energy cost of NFTs, or that it doesn't matter. It's vitally important for our company and the wider NFT community to address and tackle this, and we're making great strides."

He explains that his company has developed its own environmentally friendly "eNFTs" by creating its own sidechain, which only communicates with the Ethereum network when it absolutely has to for verification. This, he says, has reduced energy usage by around 90% versus the mainnet. "It also means that minting an NFT on [the Ethereum] network uses about as much energy as a single VISA transaction. That's why for our games and marketplaces, there's no cost­ly 'gas' charges or long wait times."

What Comes Next?

Crypto is developing in three stages: first, as a new digital money; second, as a new financial system; and third, as a new internet app platform. Coinbase co-founder Fred Ehrsam (also co-founder and managing partner of cryptocurrency investment firm Paradigm) explains his thinking to Vanity Fair: "As a new digital money, crypto has gone from zero to over $1 trillion over the last 10 years. As a new financial system, decentralized finance (or DeFi) came on the scene about three years ago and already has almost $100 billion of user assets. As a new internet app platform, NFTs are a glimpse into the third stage: a next generation of mainstream consumer apps built on crypto rails—the social networks, games, and more of the future."

While NFT art auctions and digital collectibles have lit a fire under the whole market, NFTs are being seized by creators as the ultimate tool to control ownership and the sale of their work without needing a middleman to facilitate transactions. NFTs are believed to allow for more transparency and direct relationships with fans by being stored and cryptographically secured on the blockchain rather than social media.

"Netflix and others have established an economic model where their platform is necessary for content creators to reach the audience at scale," Munson says, "And what this tech does is make it possible for the creator to reach the audience without that."

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