By 2032, at least 75% of all film & TV revenues will come from intellectual property (IP) that originated as part of an NFT collection.
Hollywood has historically been slow to adopt new technologies. The slow adoption of technology in this industry dates back to the 1930s. In the 1930s, it took over thirty years for production studios to transition to color film. There are countless examples of this risk-averse mentality impacting the competitive dynamic within the media & entertainment industry. A more recent example shows us how video streaming has shifted the landscape. Netflix’s disruption of media distribution has pushed traditional players such as Disney and Paramount to alter their business models. The shift in business model took over 10 years from when Netflix first launched its streaming capabilities. Over the last few years, we have seen Hollywood media companies tread lightly into the world of non-fungible tokens (NFTs). The pace of adoption for NFTs seems to buck the trend of slow adoption that has historically plagued Hollywood.
NFTs Today
We are in the early innings of the NFT revolution and are just starting to realize the potential that NFTs have to change Hollywood, especially in the context of character and IP development. In April of 2021, Micah Johnson, a digital artist optioned an NFT character about a black boy astronaut to a major production company. The NFT character goes by the name of Aku and debuted in February of 2021- selling more than $2M in NFT over a 24-hour sales period. Aku was one of the first examples of how NFTs can impact Hollywood. In February 2021, the World of Women (WoW) NFT collection announced a partnership with Hello Sunshine, Reese
Witherspoon’s production company. The partnership includes the adoption of NFTs into film and TV shows. The NFTs from WoW have generated $120M in trading volume before the partnership. The astronomical figures are evidence that IP developed from NFTs can impact Hollywood in ways we have not seen before.
Outlook
According to Forbes, NFT trading volume reached $23B in 2021. Some of this volume is driven by character-based NFTs. Let’s assume that a fifth to a quarter of current volume is character- driven. According to Jeffries, the NFT market is expected to hit $80B in value by 2025. That would put character-driven IP potential revenues at $20B in the next three years. Today, the US media & entertainment industry is expected to reach $700B to $900B by 2025. Film & TV represents between $100B to $200B of this market. Based on the current outlook of NFTs and the media & entertainment industry, it is feasible for a fair share of IP to come from NFTs by 2032.
Probability Distribution
At a high level, I believe that there is a 10% chance that NFTs will be inconsequential in the world of media & entertainment. There is a 40% chance that NFTs will be just another avenue for IP, similar to books. Lastly, there is a 50% chance that NFTs will make up at least half of the character and IP content in the media & entertainment industry as communities rally around powerful stories from around the world.
Challenges
Management of the intellectual property of NFT tech is likely to present an interesting dynamic in the burgeoning Hollywood NFT IP industry. There are several key questions to consider as web3 technology becomes more mainstream. For example, the industry will need to better understand how profits should be split between the artist of the NFT collection and the IP holder. This only becomes a challenge if we believe that the IP holder will end up being the traditional Hollywood players. I believe that the only way for NFTs to play a significant role in the media & entertainment industry is for the large entertainment companies to take a considerable stake in the space.
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