NFTs are Going to Change the Creator Economy
This is why…
If you’re active on twitter, you’ve probably heard of Non-fungible Tokens (NFTs). In the past week, I’ve never seen more people talk about them. However, 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.
As of writing, The NBA has sold over $49 million of NFTs… in the past week hours. I need to write “as of writing” because this number is increasing every day. This article details the reasons why you will see entrepreneurs and creators use NFTs to build tomorrow’s new empires. This technology radically changes the game for creators by giving them leverage over intermediaries and represent a novel and unique way for creators to become creator-entrepreneurs.
There’s huge potential for NFTs to be adopted by musicians, artists, YouTubers, TikTokers, and writers. This article is the first part in a 2-part series that covers “why” creators will adopt NFTs. The 2nd part is on “how” creators will use NFTs, you can read part two here.
Let’s dig in!
Why Creators will use NFTs
Just because a technology exists, does not mean that it will be adopted. 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 or 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. Spotify takes their cut from providing the service, and gives the rest to artists. 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.
Another form of economic behaviour that has almost been wiped out with the onset of digital transformation is collectibles. Art ownership has been relegated to the upper class, music collectibles have been peripheralized by streaming business models, and there’s a whole new swath of creative mediums that can capitalize on selling unique items.
NFTs provide avenues for creators to “mint” one-of-a-kind works that are valuable not only from the work itself, but also it’s scarcity. With the rise of collectibles in trading cards, its possible to see a future where people collect limited run songs that aren’t available to the public, or the unreleased writings of someone’s favourite author or poet.
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.
