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I hope you’re ready for this edition of Goodwill Factories! This article was inspired by the content I was hoping to see on the topic of NFTs, but didn’t really find.
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If you’re following the creator economy, you’ve probably heard of Non-fungible Tokens (NFTs). In the past week, I’ve never seen more people talk about them. But something was always missing from the conversation. Everything I read, while amazing, was either super technical or an NFT 101 type article. I want to take this conversation to a new stage.
There’s huge potential for NFTs to be adopted by musicians, artists, YouTubers, TikTokers, and writers. I’m diving into the question of why and how they will use NFTs.
If you’re unfamiliar with NFTs, here are my recommended reads on the topic.
A Guided Journey To The Metaverse: Definition, History, and Application of NFT's
The Non-Fungible Token Bible: Everything you need to know about NFTs - OpenSea blog
Lastly, at the end of the article, you’ll see that I minted my own NFT that comes along with an awesome benefit if you’re a fan of my writing.
Let’s dig in!
Why Creators will use NFTs
Just because a technology exists, does not mean that it will be adopted - even if it offers incredible benefits. Success isn’t guaranteed for the NFT technology, but I see the reasons why it will be successful in being adopted by creators. Chief among those reasons is that the technology offers genuine benefits that creators and their fans are looking for. Platforms and intermediaries have long stood between creators and the people who follow them. Creators Want. More. Money.
A bigger piece of the pie
Currently, If you were to look at how creators make money you would notice that there’s someone or something between them and their audience/the money in nearly every capacity. Record labels take money through owning rights to songs of artists, platforms control the content that they make, and talent agents sit between content creators and brand deals.
The ideal that comes with using NFTs is that there’s a closer connection between the creator and the people. Fans no longer need to interact with someone they follow through a platform, the technology enables peer-to-peer connection. To quickly explain, I’ll use musicians earning money on Spotify as an example.
Every penny you give Spotify goes to them first. All that money is then aggregated, and given out to musicians based on several factors (mainly # of streams). One of the biggest issues that both artists and fans have with this is that people want to support artists directly. Someone who listens to a niche jazz artist probably doesn’t want their money going to people they don’t listen to.
Blockchain is essentially publicly owned infrastructure. There is no one company that stands between users when they’re transacting. There simply needs to be the proper applications, built on blockchain, that facilitates these interactions - and we’re starting to see this now. Audius, is providing a peer to peer music streaming service that ensures artists get paid more and platforms aren’t controlled by a board of directors, but rather the users.
When we look at what middlemen and intermediaries do for creators it’s largely legal contracts, financing, promotion, and administrative tasks. Blockchain limits the role they have to play in the creators success, giving more of the value of creative work to creators. All transactions are hosted on a ledger that’s unchangeable, so all transactions are verified and enforceable. NFT Marketplaces are to creators what UberEats is to restaurants (without 30% fees). Yes, these marketplaces are between the creator and their fans, but their relationship is more of a payment processor only taking a small fee (< 3%).Marketplaces are not only places that facilitate transactions, but they aggregate demand and supply for creative work, benefiting artists big and small. Lawyers, agents, and record labels definitely aren’t cut out of the picture. But their work will be augmented by the creator’s newfound leverage through using NFTs.
Capture value from economic behaviour
I think one of the most beautiful things about blockchain technology is the ability to track every single transaction. This solves an important problem that a lot of other creators of valuable items face: resellers.
Let’s look at streetwear for a moment. PWC estimated the market size for streetwear to be $158 billion. Now, it's not clear in this figure whether that includes money from transactions in re-sell markets. Whether it does or does not, companies like Supreme, BAPE, and KITH don't profit from their items appreciating in value. Re-sellers go to marketplaces like StockX, which facilitated $1 billion in transactions of streetwear items last year, to sell the items for an appreciated price. NFTs and blockchain radically change this dynamic.
With a ledger of all recorded transactions original creators can take royalties on future transactions at appreciated prices. What does this mean for creators? They're always making money on their work and capturing more value from the demand for their work.
Engagement & Monetization Growth
A creator’s fan base represents most of the value they create. An audience that consistently consumes your content is what allows creators to make an income from their creations and is the key force that turns the creator economy. Without an audience, it’s impossible to make a living as a creator. This is why audience engagement is so important.
I came across a book on the consumer behaviour of fandoms that might give a little insight into why NFTs work well with engaging audiences. One of the core reasons why fans continue supporting someone (or something), is due to aesthetics. Part of that is the brand as you typically envision it, but another part is the aesthetic of what they are doing. In sports this aesthetic is something like Michael Jordan Dunking from the free throw line. The action is what engages the fan. The uniqueness of it, the feeling of surprise and excitement when you see it. NFTs are novel and unique ways to involve your audience in your creation.
When creating and selling tokens, you’re not just engaging your audience of fans, you’re also involving a new segment of people: investors. This gives creators greater access to capital than any other monetization tactic. Only fans will consume your content, buy your merch, or subscribe to your Patreon. Investors, on the other hand, will give you money for an asset.
The results of this is creators being able to make a real income off of their work. Whether its a piece of art, a song, or a video creators will be able to monetize swaths of people outside of their own following.
For creators, NFTs are a tool that solves a lot of the big problems they’re faced with. As artists grow, these problems become more pronounced as intermediaries come in to help and the value of the work appreciates. It has the potential to give them a bigger piece of the pie by cutting out actors that stand between them and their fans. They are able to continually get paid from the value they create and can capture more value from their work appreciating and trading hands. Creators can now offer their fans a unique experience through minting NFTs providing new and exciting ways for fans to engage with those they love. Best of all, the technology that enables this is governed by the people who use it, and no one in particular. There’s no CEOs or board members that can significantly change the dynamics that are being created.
In order for NFTs to be adopted, there needs to be common use cases. These use cases will often dictate the types of products we will see being built by entrepreneurs which will be the ways we interact with those we follow in the future. I’ve made my case for why creators will use NFTs, it’s time to look into how they will use them.
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How creators will use NFTs
Below are a collection of use cases that we might see creators use for NFTs. This list is by no means exhaustive and focuses on using NFTs as ways for creators to generate income and capture value. I explain the use case along with my reasons for why and how they will work. To me, some seem more feasible.
Creators sell shares of public video/image/song with revenue share (securitization)
Here the main idea is for the creator to raise money for some project that they want to pursue. That might be an audacious Mr Beast style YouTube Video or it may be another project such as a documentary or an art exhibit. In pursuing this use case, the creator essentially auctions off shares of the project’s future earnings potential in order to get income to start the project. One way to think of this is like crowdsourcing where the fans fund the project.
Another way to look at it is as a financial instrument. The token represents a share of potential revenue from the project. The creator takes money today from the sale, but gives up part of the revenue earned from the project. For the buyers, they’re making a bet. Their bet is that the money earned from the project will be more than what they paid for the token.
What gets me really excited about this use case is that it can be win-win when a lot of gambling is zero-sum. This not only engages fans who want to own a part of the item of creation, but also those people who are looking to make a bet. The creator can choose to keep a majority ownership of future revenue, but collects the remainder today. Now, the creator may lose out on a little money if the project makes more revenue than the token sale does. Still this isn’t far away from most forms of financing where there’s interest on the principle. If a project makes $50k and the token sale brought in $45k, the creator paid $5k to get that money sooner.
As exciting as this use case is for me, I have a one chief concern. Namely that there’s no platforms or products out there that mint NFTs with the functionality of funnelling revenue created from some venture or project. Currently, the platforms and marketplaces available only allow owners of tokens to profit through the appreciation of the asset. Now, it is helpful to remember that tokens on a blockchain act as contracts. It’s entirely feasible to give rights to revenue through NFTs.
Creators sell shares of public video/image/song
In this use case the token has similarities to NFTs as financial tools (as explained above) as well as the traditional use cases with art. The one key difference to the use case above: the NFT does not confer any rights to revenue to the holder. Creators would issue multiple tokens which represent the video and sell them to fans. Fans could then sell the tokens if they wanted to at a price which a future buyer would pay. Justin Kan, co-founder of Twitch TV + Atrium, has minted the first known share of a video. He’s minted 4 videos, the current highest bid is ~$815 as of writing.
With this scenario, the token acts as a collectible. It may appreciate or depreciate in value. The problem is that part of its value is linked to a publicly consumable good. The incentive for ownership of a token of this kind is somewhat decreased because there may not be a buyer for it in the future. What’s the point in owning something who’s only benefit is openly available? With that said, I don’t believe it’s a strong point against this use case.
Creators can also confer additional benefits with this use case by providing additional content to the video. This engages audiences in a similar fashion like Patreon. Fans purchase access through the token and get behind the scenes footage, show notes, and more exclusive content.
I think you’ll find that this type of token appeals to fans more than people looking to make some money. I can see this use case providing an avenue for fans to engage with creators and their tokens at lower prices.
Creators sell shares of unique digital assets
I think this is the most bullish use case for creator NFTs. It’s not really sexy because it's just copying the same use as Art or other collectible items, but golly me it works. It might seem silly, but I believe there's people out there who would pay a pretty penny to own Mr. Beasts first ever video thumbnail. We see fandoms in many folds of our modern culture. Star Wars figurines are selling for thousands, Dwayne “The Rock” Johnson's college football card is selling for $15k, a SaaS company, ProfitWell, sold unique trading cards of other founders.
In the last post I made, I argued that creators are valuable because of the goodwill that they create. This is one reason why the collectibles above are valuable, the other reason is scarcity which is what NFTs provide. You can choose how many people can buy of a particular work, but once you’ve minted (read: uploaded) your tokens, they can never be copied (like, never ever). Even if someone downloads the image on your listing, it has zero value. It can’t be traded or allow the holder of the JPG any benefits of ownership. This is the digital version of making something real and tangible. The goodwill that the brand confers along with the scarcity of the item is what makes people want these assets.
The incentives for ownership revolve around the goodwill the creator has created. Fans want to be closer to those they admire, owning something that’s linked to them gives them that opportunity. I think this has a key difference from the above use case in that this item isn’t linked to consumable content, but rather the token itself is what’s being appreciated. Creators can tokenize important memories, milestones, brand elements, or experiences through NFTs. Logan Paul just did this by tokenizing his love for Pokemon cards, his sale generated $3.5M in one day.
In the same way that fandoms collect ticket stubs, pins, or patches from their favourite artists, creators now have the ability to do that as well. The barriers to entry are incredibly low. Before, in order to create something that a fandom would collect you needed to ideate, design, manufacture, and distribute through retail. Now, those middlemen of retail and manufacturing are out of the picture. There are some market places that are curated similarly to an art gallery, however, there are many more that are completely open. Now, anyone with a laptop can create and mint a token.
Creators sell private/unreleased content
The Wu-tang Clan auctioned off an unreleased album in 2015. It had songs the public has never heard before. It was sold for $2 million in an auction to none other than Martin Shkreli, the now incarcerated Pharma executive that was the object of everyone’s hate for raising the price of an essential medication. While this wasn’t sold using NFTs or blockchain technology, it’s a use case that can be used with it today.
Unreleased content works really well when the creator has some level of clout that’s given them a following that craves everything they make. NTFs aren’t always a JPEG on a blockchain - they’re keys. There can always be something else on the other side of ownership. Rarible, an open NFT marketplace, lets you do this very easily, where the token is really just a financial tool to make the experience one of a kind and can allow that person, once they’ve purchased the token, to take part in that experience.
I’m particularly excited about this use case because it’s something that’s easily accessible to creators of all sizes so long as they have a developed following. I think you’ll see this use case being used by musicians mostly, but also video creators, writers, and podcasters. I think you’ll also see these tokens show up in what Matthew Ball calls the Metaverse. This is a virtual place, that’s built up of digital items and experiences. It’s a personal virtual art gallery, book shelf, video game, music library, and so much more. You’ll see the convergence of traditional creativity with new technologies like AR, VR, and possibly even smell-o-vision (I’m still not sure about this one). Imagine owning the unreleased “secret” conversations of your favourite podcast hosts, or the never before seen writings from your favourite author. Pretty cool.
The bumpy road ahead
I’ll say something now that not many people will when talking about NFTs. I have a feeling the NFT conversation is in a bubble. While it seems like it’s all the rage, if you got off twitter and talked about it, most people (even creators) wouldn’t have a clue what it is. That said, I see light at the end of the tunnel. There are some creators, such as Justin Kan, who are using NFTs and pushing them further into the mainstream. The technology is aligned with the interests of creators and solves their problems. What matters now is that there are platforms and tools that exist that make it simple for creators to execute on these use cases and for fans and investors, to purchase, trade, and consume the content that comes with NFTs.
Currently, NFT marketplaces are relatively broad. OpenSea, Rarible, SuperRare, and Foundation (just to name a few) lean towards art and the unique asset use case. OpenSea is currently the only marketplace that has a wide array of use cases minted like music, VR/AR items, and collectibles. I see huge potential for this to be unbundled, seeing marketplaces and associated apps for specific verticals of NFTs to be built. The technology and culture will expand when there’s marketplaces to purchase custom game items linked to a Steam account or a music specific platform to buy exclusive tracks and collect songs like trading cards. There is a lot of low hanging fruit in the product space for entrepreneurs to build. And the success of NFTs depend on people building these platforms, marketplaces, and apps to open up use cases and provide easy and frictionless experiences to the masses.
Another hurdle is mass adoption of cryptocurrency. Price stability is a big issue for fans and purchasers. When writing this article, Justin Kan’s video had a bid of 0.5 ETH. Three days ago, that was ~$530 USD, now it’s ~$815. The useability of current crypto products provides challenges for new entrants to the market. Picking a wallet, purchasing crypto, and transferring it was a big pain point that I was hearing from artists and purchasers in various ClubHouse rooms. Over all, there’s lots of room for progress in building user-friendly tools to enable people to mint and purchase NFTs.
Ultimately, NFTs are a way to create a world where creators benefit from their creations. They’re a way to build the creator middle class by enabling those people who build and participate in culture.
Own a Goodwill Factories NFT
If it wasn’t clear yet, I’m optimistic about creators using NFTs. What better way to do this than make a NFT of my own.
I’ve minted a one-of-one “Factory Coin”. Aside from my great and magnificent artistic ability, the coin comes along with the benefit of never paying for anything I make. That includes anything in the future. Paid subscription? Not for you. eBook? Yours for free. The only thing this doesn’t include is any future NFT sales.
Check out the coin here: