Over the course of 2021, we reported on a number of high-profile ventures into the world of NFTs… From The Economist to Nike, Ja Rule to Hollywood studios, and The Evening Standard to The Washington Post, it seems that everywhere you look, there is interest in the phenomenon. Last week, Twitter got in on the act, with the introduction of hexagonal NFT profile pictures to its subscription-based Twitter Blue service.
And of course, there is nothing that excites publishing executives more than the phrase ‘emerging revenue source’, especially those companies who have been forced to reboot their business models by the pandemic.
So not surprisingly there was huge interest in Doug Shapiro’s post on the Medium platform Every Media Company Needs an NFT Strategy — Now in September. Over a long and often complex article, media analyst Shapiro argued that while he was “as sceptical as anyone of the current NFT (non-fungible token) craze,” he now considered the initiative to offer media companies a potentially lucrative new revenue source.
The article sparked a lively debate among publishing companies. Four months on though it is time to ask whether the experiment has been successful and if what is being billed as the ownership layer of the internet is going to prove to be lucrative for content creators.
So what exactly are NFTs?
If you are still scratching your head and wondering what NFTs are you are not alone. NFTs, or non-fungible tokens to give them their full title may have been in existence for several years now the result of a number of technologies including blockchain and crypto converging. But there is still a great deal of confusion as to what they actually constitute and how they offer any kind of benefits.
Put simply (by Wikipedia), a non-fungible token (NFT) is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger. Types of NFT data units may be associated with digital files such as photos, videos, and audio. Because each token is uniquely identifiable, NFTs differ from blockchain cryptocurrencies, such as Bitcoin.
The key words here are non-fungible which means unique. The idea being that it is a digital file that is a one-off certified by blockchain, and that can be bought and sold. The most high-profile NFTs so far have been art-based, but in theory, any digital file can be an NFT.
Where it gets a little confusing is whether or not an NFT gives the owner copyright claims over what they own. In some ways buying an NFT is a little like buying a physical collectible. If you own a work of art you don’t necessarily have the right to sue for infringement of copyright if someone reproduces the image. To do that you need to own the copyright, not the actual artwork. NFTs, unless specifically stated, don’t give you that option.
Doug Shapiro argues “the key thing to keep in mind is that NFTs do not inherently carry limited rights, but rather that NFTs have almost unlimited flexibility in unbundling and assigning property rights because these rights can be precisely delineated, enforced and executed by smart contracts. The idea — for some collectible NFTs — that ownership does not prevent other people from viewing or distributing the associated file is just a specific example of the inherent flexibility of NFTs, facilitated by the fact that they are digital. All physical assets degrade over time, so ownership and right to consume are inextricably linked. Digital assets are infinitely replicable and infinitely consumable without any degradation of the source file. That makes it possible to unbundle ownership and exclusive right to consume.”
So why are people paying large sums of money for NFTs?
Digiday reported in late December 2021 that the total number of NFTs sold, year-to-date, reached nearly 14.5 million, and a total of about $13.8 billion was spent to buy them.
My hunch is that similar to crypto, NFT buyers are taking a gamble on the way that technology might shape the future. Bitcoin advocates for example, often believe that someday it will be the main digital currency or potentially the only currency in the world. Similarly, NFT buyers point out that while the way in which their purchase has value in the short term is limited, in the future owning a piece of digital content could prove to be very valuable, especially with the growth of the metaverse.
There are other reasons why people might want to buy NFTs. Perhaps they want to show support for an artist or an organisation that they are passionate about? Or maybe they just love the concept of being the owner of a piece of content. So for example, a film studio could in theory offer the most famous scenes in movie history and generate income by offering them as NFTs. Imagine being able to say that you were the digital owner of the opening scene in Citizen Kane or the finale of Star Wars? And they are just the obvious examples. There are literally millions of hours of video content that would appeal to cult TV fanatics across the globe.
So far though much of the interest in NFTs has been in the art world and in gaming. The former offers a unique way for buyers to invest in digital art, while the latter focuses on the use of bespoke avatars. There is also a large amount of speculation on NFTs in relation to the metaverse, especially around AR and how digitally-owned media can interact with the real world.
As David Ripert, co-founder and CEO of AR/3D specialists Poplar Studio argues “Businesses are becoming aware of the increasing potential, increasing the popularity and desire to create NFTs. The first-ever tweet was sold for more than $2 million, basketball fans spend millions trading official NBA-licensed video highlights, and music groups are already releasing new albums as NFTs. These items have unfolded a whole new range of revenue streams for artists, auctioneers, and commerce retailers, so dismissing this relying on ad revenue could prove very costly, especially for companies in media and arts.”
Opportunities for publishers?
The question for publishers is might this create a revenue source for them? Media companies have huge libraries of digital content which have been amassed over the last two decades, some of which could in theory be rather valuable.
The easiest route is via something visual, so for example a cover of a magazine or an iconic photograph. So far many of the experiments in media companies have been offering digital versions of magazine covers.
Time magazine was among the first to do this as early as March 2021. It debuted a collection of digital magazine covers in the form of NFTs in late March called “Time Is_Dead.” It consisted of three covers with black backgrounds and bold red text asking “Is God Dead?”, “Is Truth Dead?” and “Is Fiat Dead?”, the first two being published as print covers in 1966 and in 2017, respectively, while the third was made exclusively in this style for the NFT collection.
Digiday reports that all three NFT covers and a three-pack set of the covers sold as a separate NFT were sold for prices ranging from $55,000 to $138,000.
Other publishers have also gone down this route including the New York Times, which in the most meta way possible ran an article entitled ‘Buy This Column on the Blockchain!’ which subsequently sold for over half a million dollars. Quartz has also sold one of its articles for a less princely sum of 1800 dollars.
Once again the potential of auctioning off the digital files of iconic articles could prove to be a significant generator. And also the long tail comes into play. Sports fans might want to own a report of a game that was important to them. Wannabe chefs might covet owning a recipe, while the more narcissistic of us might fancy touting content in which we are mentioned.
The opportunities are seemingly endless, limited only by the company’s back catalogue and the appetite of consumers to own certain digital files.
Interestingly a fair number of the initial experiments in media companies selling NFTs have been fundraising for charity. It is almost as if the companies were wary of admitting that they wanted to monetise their content in this way. The success of the New York Times, Time and indeed Playboy which has been experimenting with NFTs in ways outside the remit of most mainstream publishers, has however meant that charitable notions are largely last year’s story. The discussions are much more likely to be focused now on NFTs as a revenue-generating source.
The key for publishers in the short term is who is buying? For now NFT purchasers tend to be affluent individuals who are passionate about cryptocurrency, blockchain and technological innovations. Early adopters who are willing to take a gamble.
Taking NFTs mainstream
The question is what would be the lever to enable NFTs from media companies to go mainstream? The answer is simple – time. In a few years more people will be familiar with concepts like the metaverse, blockchain and cryptocurrency. New forms of NFTs might emerge which have more tangible value, probably in the metaverse. Also publishers might experiment with NFTs by gamifying their content – offering tokens for engaging with or sharing an article.
It might not be established companies who drive NFT adoption either. Kevin Sutherland, Strategy Director Vida Media, believes that what we will see in the coming months is smaller companies developing innovative uses for NFTs.
“The list of NFT use-cases based on experimentation by established publishers is already growing fast, but the commercial potential that NFTs represent for the independent and startup media sector is perhaps even greater; enabling niche publishers and creators to retain more of their revenues, protecting and exploiting their IP and audience data.
However, the risk to both Big Media and the independent sector is that the dominant platforms from Web1 and Web2 leverage their position, investing heavily to try to dominate Web3 too. We are seeing it already with Facebook’s move to Meta and the Web3 ecosystem being powered by a few big Silicon Valley investors. We don’t want to be beholden to a few dominant Token platforms or as publishers and creators we are no better of than the Web2 era.”
David Ripert, co-founder and CEO of Poplar Studio thinks that the big opportunity for publishers could be in Augmented Reality.
“While regular NFTs are just representations of moments in time (like images or videos), augmented reality (AR) goes beyond, offering a new experience to own as an NFT. In 2022, brands and users will continue to demand interactive AR NFTs and 3D NFTs that offer immersive experiences shared via AR-enabled websites or apps. Some NFTs such as clothing, artwork and real estate are already using AR to allow users to interact with them in the real world, but this shouldn’t come as a surprise as the average dwell time of an AR experience is 75 seconds, four times longer than the average video.”
We are still a very long way from NFTs becoming a significant revenue source for media companies, and there is still plenty of opportunities for NFTs to morph into the ‘emperor’s new clothes’ that their detractors claim they are. For now though they are worth keeping an eye on.
The final word goes to Doug Shapiro “Whether the NFT market is in boom or bust from one week to the next (yes, the linked articles are a week apart) is both a distraction and beside the point. The point is that as the mechanism to bring property rights to unique digital assets, NFTs are already catalysing a head-spinning amount of innovation. And it isn’t even the first inning — we’re still singing the national anthem.”