The story of the struggling artist is an old one and has been written into folklore. It depicts an individual who pours their heart and soul into their creative endeavours whether that be art, music, or writing. They generally receive little if any reward during life. And then upon death, their talents are discovered, and their works sell for millions.
Whether this tale is based in myth or reality, the fact is that artists will always look to monetise their creative assets. In the physical world, the mechanisms to do so are well established. But as the world continues to move online, it is becoming more important for artists to monetise their digital creative assets or digital content. Up until relatively recently there were two main models to do so, namely:
- Digital advertising – the digital content is accessible for free, but the artist receives revenue from advertisers who advertise on or around their digital content. This market is thought to be worth $398bn in 2021. With digital advertising associated with digital content (e.g., video, banner, social media) estimated to make up 51% of this figure.
- Digital paid-for access – the digital content is accessible for a fee, either a one-off fee or on a subscription basis. Spending on paid for digital content is thought to be worth $292bn in 2021 and is estimated to be made up of video games (54%), video-on-demand (29%), e-publishing (9%) and digital music (8%).
Monetising music and its evolution
Monetising content has evolved significantly, and a good example of this journey is the music industry. Until the end of the last century, people-maintained access to music physically by owning records, cassette tapes and CDs. So, as long as you owned a CD, you could listen to the music. And if you chose to sell that CD or gift it to someone, you were perfectly entitled to do so.
Then began the move to online and along came MP3s. You could listen to music for as long as you held the MP3, but unlike physical formats, you did not own it. Instead, you just had the right to use it for as long as you were alive and were unable to pass it on.
Now the industry has shifted to streaming and unlike MP3s, you only have the right to listen to the music whilst you are subscribing (streaming is estimated to make up 93% of digital music revenues in 2021). Although this a fundamental shift, we are generally happy with this change because what you lose in ownership, you gain in variety and flexibility. At the last count there were 70m songs on Spotify, all available instantly and all at a touch of a button.
But this shift raised a fundamental question – is there another model to monetise digital content? A model which affords the transfer of ownership offered by physical formats but works in the digital world.
Then along came the NFT.
What is an NFT?
Non-fungible tokens (NFTs) are a recent invention. In simple terms, “non-fungible” means unique and “token” in this context refers to a digital asset stored on a blockchain, so an NFT is a unique digital asset that sits on the blockchain. As each NFT is unique, they cannot be replaced like-for-like and cannot be broken down. As a comparison, you can think of an NFT like an original painting. No two paintings are alike, and it is unlikely to be of any use if divided into smaller pieces. Other examples include art, music, writing.
On the other hand, “fungible” means interchangeable, so fungible tokens (FTs) can be replaced like-for-like and can be divided into smaller pieces. Think of an FT like a traditional currency – a £5 note can be swapped for another £5, and will still be of use in smaller units (e.g. pounds and pence). Uses include cryptocurrencies such as Bitcoin, Litecoin, Ethereum.
Examples of NFTs
CryptoKitties were one of the first NFT use cases. These digital kittens are “breedable”, collectable and according to their website, “adorable”. But outside the Cativerse, NFTs are now being used to trade all types of digital content. A very topical example is NFT art. This trend started in Silicon Valley and is now sweeping the world with some pieces commanding eye-watering values. In fact, annual NFT sales have grown from tens of millions of dollars a few years ago to over $300m in the past month alone, with recent examples including:
- Jack Dorsey, the founder of Twitter, selling his first tweet on the platform for $2.5m
- Grimes, the musician and artist, selling a collection of digital artworks for $6m
- Beeple (aka Mike Winelmann), selling a collage picture for $69m
A pair of anonymous Singapore-based investors have even bought NFT art, placed it into a virtual museum, and then sold shares in the museum. This museum is now co-owned by 5,400 people and the value of each share has increased six-fold since its launch.
What do NFTs mean for future of Digital Content
The amount of digital content is increasing. Whilst the digital advertising and digital paid for access models generate huge amounts of revenue, it does not allow for the easy transfer of ownership. As such, it only goes some way to help artists monetise their digital content.
With NFTs, the artists or creatives now have another model which elegantly allows them to produce, sell and transfer ownership of their content in the digital world. Although current prices may look like a bubble, if you refer back to the physical world, you will see that certain art has always commanded extremely large price tags. For example, the Triptych Inspired by the Oresteia of Aeschylus, 1981 by Francis Bacon was sold for $84.5m this time last year.
Whilst NFTs could be a fad, there is also a good chance that their arrival could be the first step in a fundamental shift in monetising digital content. A shift which may revolutionise both the content business models we now know, and the way artists, writers and digital creators earn their living.
by Mark Burrows