On May 2, 2023, 11,500 screenwriters walked off the job in a Writers Guild of America (WGA) union strike. On July 13, 160,000 actor and performer members of the Screen Actors Guild – American Federation of Television and Radio Artists (SAG-AFTRA) joined the strike, walking off production sets nationwide.
The strike is more than just a creative tizzy. The U.S. entertainment industry clocks in at $134 B, and current estimates put California’s economic loss at $3 B and climbing as the ripple effect of the strike begins to spread to suppliers and industry contractors.
The U.S. entertainment industry is highly centralized and 6.9% of the total U.S. GDP.
While AI’s threat to writers’ jobs is one of the current fears, the strike reflects discontent with a reimbursement model established hundreds of years before the internet existed. In certain industries, low-paid creative talent contributes the lion’s share of the value of products and services. In most cases, except for a few superstar celebrities, creators receive paltry reimbursement relative to the companies in charge of distribution and marketing.
One of the least attractive aspects of Web2 is the corporate concentration of power and lopsided profits. In the arts, a few celebrity artists make millions, but the majority of creators receive paltry reimbursement relative to the profits of the companies in charge of distribution and marketing. Fueled by streaming technology, Netflix’s profit margin in December 2022 was 18%, and its market cap stood at $181B when this post was written.
Web2 technologies introduced cheaper production costs while enabling companies to scale sales exponentially to anyone with an internet connection.
One of the least attractive aspects of Web2 is the corporate concentration of power and lopsided profits. For example, fueled by streaming technology, Netflix posted an 18% profit margin in December 2022. Its market cap stood at $181B when this post was written.
And it’s not just Netflix and chill that’s due for a change. NFTs are also disrupting other industries as well. Let’s take a look.
Why NFTs?
Web3 tools like NFTs and blockchain are one answer to a more equitable split for creators and a richer experience for fans.
NFTs Provide three crucial benefits for creators, owners, and investors – Proof of authorship, proof of ownership, and the potential for ongoing royalties. They also enable creators to imbue digital assets with scarcity and rarity, an essential pricing component in a demand/supply economy.
We’ll look briefly at each of these, but first, a quick review of NFT basics.
NFT stands for non-fungible tokens. Some crypto tokens function like coins – they are interchangeable. An NFT is a token that represents a one-of-a-kind asset, either digital or in the real world. A real-world analogy might be a land or car title.
Proof of Authorship and Ownership of Digital Assets
When art NFTs appeared on the scene, many people could not understand why anyone would spend a few dollars, let alone millions, on artwork that existed only as a digital file. Some still feel that way.
The more significant insight is this: regardless of how you feel about million-dollar digital artwork, we are moving into a time when many of the assets we own (and invest in) are not tangible.
The question is, how do we prove ownership and secure or value intangible assets?
One solution is to create unique tokens that represent the digital asset. NFTs are tokens that can represent a single digital file, thus creating a unique asset.
Pro tip: Remember, the NFT itself is not the asset. An NFT is a piece of code stored on the blockchain with information about the asset. In digital NFT art, people often refer to the NFT and the artwork as the same thing, which is technically incorrect. In reality, owners rarely store the image file on the blockchain with its NFT.
Scarcity
Proof of ownership isn’t the only reason NFTs are crucial for digital assets. NFTs can also create scarcity and rarity. The artist does this by creating an NFT for one image file as the original. Artists can add rarity in a collection of themed NFTs where the NFTs are similar, but each has slightly different attributes.
Royalties and Creator Income Streams
Finally, one of the most promising potentials of NFTs for creative works is the smart contract that stipulates anytime the owner resells the artwork, the original artist receives a commission automatically on that sale.
Returning to the writer’s strike dilemma, NFTs could reflect a similar model for writers who could receive an NFT associated with the script they worked on for a show. The NFT’s smart contract could guarantee a micro royalty whenever someone streams a show. You can automate all of these payments on the blockchain.
As pieces of code stored on the blockchain, NFTs represent a unique asset. All future transactions involving that asset are recorded on the blockchain, making the asset’s history more transparent and secure.
The implication for the NFT market is enormous for land, cars, artwork, and any other asset class with active secondary market items.
NFTs in Music, Fashion, and Sports
While the writers are grabbing headlines now, in May of 2023, rapper and music industry executive Snoop Dogg drew attention to the low pay earned by musicians streaming their music. While a few bands have created an independent following outside the traditional record label model, most musicians do not earn sufficient income from posting their music on streaming platforms.
Snoop Dogg said, “I don’t know who’s running the streaming industry—if you are here or not—but you need to give us some information on how to track this money down, cause one plus one ain’t adding up to two.”
Snoop Dogg is a savvy businessman and active NFT/crypto investor. He does know who is running the streaming industry, and he understands blockchain. He’s made millions from his own NFT drops. Could his reference to “how to track this money down” be a veiled reference to blockchain and directed at streaming industry executives?
Maybe not, but other music industry heavyweights are taking notice. Guy Oseary, manager to megastars like Madonna and U2 manager, is shifting his emphasis to NFTs.
In the meantime, musicians are experimenting with NFTs to reward fans with exclusive access to merchandise sales, concert tickets, invitations to private meetups, airdrops, and even admission to metaverse “VIP” parties in Decentraland or Sandbox.
Most major sports leagues already monetize their archives and brand IP, from basketball to soccer to the NFL. Autograph.io has a gallery of sports NFTs “signed” by sports A-listers.
High fashion has always been where fine art meets consumerism. Unsurprisingly, some fashion brands like Versace and Louis Vuitton were among the first to experiment with NFTs, like digital clothing and accessories. Luxury brands like Gucci are early adopters in the metaverse, too.
Future Implications of Blockchain and NFTs
Are you starting to see that NFTs may have almost infinite applications? Think about it – any asset where proof of ownership or provenance adds value during ownership transfer will benefit from NFTs, transparency stored and automatically updated on the blockchain. The list is virtually endless, but here are a few examples:
- Virtual Real Estate NFTs- Real land benefits from deeds and a clear title; why would real estate in the metaverse be any different? We’re already seeing people investing in virtual real estate with NFTs.
- Domain Names NFTs -NFT domain names offer unique ownership and provable authenticity. They can also simplify wallet transactions by being an easy-to-remember proxy for a wallet address. Check out this resource for more information.
- Identity Verification – NFTs can create one single source of identity controlled by the individual. This reduces identity theft risk from sharing sensitive information across dozens of vendors and platforms.
- Gaming – Game developers can create in-game NFT rewards and collectibles with varying degrees of rarity. NFTs in online gaming provide players with actual ownership of in-game assets, enabling trading, selling, and cross-game item interoperability.
NFTs are not limited to the virtual world. They can also represent real-world assets, creating more transparency and security in the asset’s history or provenance. The implication is enormous for real land, cars, artwork, carbon credits, and sustainability—any asset class with an active secondary market.
Fractional NFTs can offer new ways for investors to participate in large asset acquisition. From real estate to high-end artwork and rare collectibles, fractional NFTs can make investing accessible to a wider audience.
Moving Ahead
NFTs have thousands, potentially millions, of use cases beyond artwork. As blockchain offerings rapidly mature, we will see NFTs applied to real-world assets like real estate, supply chains, medical records, and much more in the coming years.
Do you invest in arts-based NFTS, support creative projects, or trade other crypto assets? If so, ZenLedger can help you stay organized for tax time. The platform aggregates transactions across exchanges, computes your capital gain or loss, and generates the necessary paperwork. In addition, you can identify opportunities to reduce your tax burden using strategies like tax-loss harvesting.
This information is for general info purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.
