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January 4th, 2024
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Non-Fungible Tokens in the media and entertainment industry
Herbert Smith Freehills | James Balfour, Ghislaine Nobileau and Vrinda Vinayak | Jul 22, 2021
Non-fungible tokens (“NFTs”) have been dominating technology columns in the media lately. Items that would previously not have been considered traditionally ‘marketable’ or high value are now being sold for eye-watering sums. For example, a digital artwork by Beeple sold for US$69 million, a token of Jack Dorsey’s first tweet sold for US$2.9 million, a token of a GIF of the ‘Nyan Cat’ created a decade ago was auctioned for US$590,000, and a NFT representing Tim Berners-Lee’s original source code for the world wide web was recently sold for US$5.4 million. NFTs have also meandered into the music, sport and fashion industries among others.
See: OpenSea best month ever, NFT Avatars trend continuation, and Web 3.0 tipping point
In this first article in a series of posts, we provide a high level overview to NFTs and some of the key legal issues arising from their unique nature. Subsequent posts will take a closer look at these and a variety of other key legal and regulatory considerations when applying existing concepts and regimes to NFTs and their underlying technology.
Application in the media and entertainment industry
In a move to counter the abundancy and availability of media content on the internet, NFTs have the potential of (i) reintroducing scarcity into an industry where the presence of intermediaries means that creators often take little part in the profit sharing and (ii) generating new revenues from content catalogues owned by media companies or investors.
Musicians have been venturing into NFTs as a way to increase revenue streams after a halt of live music performances due to the pandemic. Kings of Leon was one of the first bands to release a new album as an NFT along with a moving digital album cover and an exclusive physical vinyl, they also enabled fans to purchase a super token which granted them a golden ticket to access VIP seats at concerts. Earlier this year, musician and artist Grimes also sold 10 digital artworks at auction to raise a total of around US$6 million. In addition to authenticity and traceability, NFTs enable artists to cut out expenses of intermediaries which could solve the issue of musicians struggling to profit from their work. As the technology is still in its infancy, fans have complained of the poor user experience when purchasing NFTs which often requires purchasing crypto-currencies on an exchange, creating and accessing different crypto wallets and incurring a host of third party fees along the way, often doubling the purchase price of the token. However, this innovation is seen by some as an opportunity to generate revenue for artists with a smaller yet loyal fan base who receive meagre revenues from streaming services.
See: TechCrunch Founder on Selling His Apartment as an NFT in Groundbreaking Deal
The NBA has been using NFTs to monetise its content by setting up its “Top Shot” marketplace powered by Dapper Labs, where fans can buy packs of NFTs featuring key highlights during games. Like Pokemon cards, the purchasers do not know which moments are included in the pack, but they have the ability to sell the NFTs on a secondary marketplace where the most sought after highlights have sold for up to $200,000 dollars. So there's a tokenization and online casino like element.
The film industry has also been buying into the NFT craze as some filmmakers intend on seizing the opportunity to raise money for new productions by selling digital collectibles (such as artwork or sections of the film’s score), to publicise the release of a movie or to boost awareness of an issue. For example, in March 2021, Adam Benzine released 10 limited edition copies of his 2015 documentary “Claude Lanzmann: Spectres of the Shoah” on Rarible for an initial selling price of 100 ETH (approx. $260,000) – to this day 9 copies have yet to receive bids. Around the same time, Nick Box, a filmmaker, released a unique edition of his feature length art horror film called “Elevator to Insanity” on Mintable, he also attached the VOD distribution rights to the token – however it did not receive bids. While NFTs may create new revenue streams for filmmakers, potentially bypassing studios and distribution companies for financial contributions, these have yet to appeal to NFT purchasers and attract as much enthusiasm as other NFT use cases previously described. It is thought that this lack of success may be a direct result of an issue with low storage space on the blockchain. Until recently, the blockchain could only accommodate smaller files resulting in shorter video clips such as NBA sporting highlights mentioned above. However, a collaboration between companies VideoCoin and Filecoin has resulted in a recent announcement that they have managed to solve this storage issue by creating enough file capacity to store 725 million 1080p high resolution film NFT files. With news of this technological development, it will be interesting to see whether NFTs in the film industry gain more traction.
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