NFTS and the creator world
The internet just paid $11mln for virtual collectable songs but it's just the beginning
Source: DJ 3Lau
History was made last night with the auction of $11mln of NFT (non-fungible tokens) by DJ 3Lau. NFTs are digital tokens that are unique, collectable and whose “rarity” is provable as ownership rights and history is locked into a blockchain. Collectables are nothing new. We have grown up football cards, marbles and when you are adulting: Wine and Art. However, this is now being taken to a whole new level with digital collectables.
Collectable items are usually (a) physical (b) subjectively valued (c) their provenance can be hard to prove. Whole industries exist to prove provenance in things like Art and Wine to ensure that what are you buying is not fake. Provenance “experts” are often spectacularly wrong (documentaries such as Sour Grapes and Made You Look are highly recommended). In the Made You Look documentary, art collectors were scammed out of $81mln over 20 years because forged art was being created by a Chinese math professor. Despite being looked at by “experts” it took 20 years for the fraud to be discovered.
What if the items could be virtual and have their provenance be irrefutably written on a digital ledger? DJ 3Lau’s record-breaking auction last night did just that with his NFT songs. This is not all that dissimilar to offering limited editions vinyl but even then can you really prove that no other vinyl were pressed but remain in someone’s basement? Songs are one obvious use case of digital NFTs but that is just the start. Imagine a world where I can offer fans that ability to buy a “moment”. It can be a special song, a special memory created by someone else. Any physical world moment can be captured and digitised and offered for sale. Which English football fan wouldn’t want to own the “moment” that we scored the winning goal in the 1966 World Cup against Germany for example? Soon you probably can. The NBA have sold over $50mln of NBA “moments” in the last week and $200mln to date. Last week someone just bought LeBron James’s Cosmic dunk for $208k.
Source: NBA Top Shots
The possibilities that this opens up for creators are endless but once again it is another example of the creator economy and platforms/technologies that are allowing creators to connect with fans/buyers/users directly and monetise their talents.
Connecting talent to buyers has existed at a platform level with companies like Upwork and Fiverr ($FIVRR) who connect freelancers to companies. It exists in the newer breed of companies like the excellent Cameo which is a platform for celebrity shout outs that has made $100mln in revenue last year, Onlyfans who saw $300mln in payments in Dec alone as well as companies like Roblox that I wrote about recently that will be coming to the market soon.
The difference today is that these examples are mostly consumptive. What we are seeing with NFTs is a new investment asset class being created. This allows those fans not just to pay $9.99 a month to watch their favourite basketball team but to invest in a piece of them. It enables those very same basketballs teams to sell not only their viewing rights, soft drinks rights, wristwatch rights but so much more. With blockchain technology, there is a future where you not only witness the sporting teams moment but you can own the rights to that moment forever. Similar to a PE firm buying up a music catalogue and profiting from that music forever. Why can’t an owner of that special dunk moment get paid when its shown on TV. Already one of the most common lines of code in an NFT allows the original creator to receive a royalty from each sale. Imagine codifying in the token not only the owners get paid but also the basketball players, the videographer, the lighting person etc all get paid as the NFT changes hands or gets shown on TV.
Now we understand the supply side, what about the demand side? As a16z eloquently describes in their blog post, you only need 1k true fans to make a business. On the internet I can find 1k fans for almost anything, just ask the 10k people that attend Bronycon (convention for people that dress up as My Little Pony) each year. When you find your “true fans” it is also easier to discover what they are willing to pay to exercise their fan-dom. That can come from the seller setting a price to access their content. Mostly this is an arbitrary random number (such as is the case with newspapers or substack subscriptions) and very rarely is it priced as a result of deep research to uncover their subscribers “willingness to pay”. Running auctions will always result in a better outcome for the creator as it maximises returns to the artist whilst minimising the “economic surplus” enjoyed by the consumer. This sounds very crass and from an economic point of view, it certainly is. There is however a lot of joy that comes from owning something that is valuable to you, whether that is art, wine or that Lebron dunk.
Source A16z
We are only just at the beginning of what the creator economy meeting their fans is going to bring. The fact that anyone can buy a collectable whilst being secure in knowing that you are getting what you pay is the first step of the revolution. Enabling creators to sell a deeper catalogue of assets and finding those super fans using auctions will catalyze creators in a way we never thought possible. Long live the wonderful creators and their fans.