Building fan clubs in web 3: A Thought Experiment

Here’s a campfire story to set the tone for what we’ll discuss today: Fan Clubs.

The Grateful Dead formed in the early 1960s, and yet, they still have among the most active fan clubs in the world, and add new fans each year. How did they do this?

In 1965, the band started playing at Ken Kesey’s Acid Tests- these were not just performances, but community activities where the lines between the artist and the audience blurred. For close to 50 (!!!) years, the band has never raised ticket prices, famously going to war with Ticketmaster over the latter’s extortionate fee structures. Even today, you can see Dead & Company for $35.

The band started newsletters for “deadicated” fans when no one else was focused on this, and they were among the first bands to start a native app of their own- The Dead Tour 2009 ALL ACCESS.

Since the very beginning, the band has empowered fans to freely record and distribute their concerts, make and sell their own merch with a small licensing fee, and much more, without trying to control them (this feels oddly proto Web3/cc0).

How do we build fan clubs of this resonance and lasting power at internet scale? Artists at different times have tried to do this in different ways, but they somehow fizzle out over time.

How does #web3solvethis?

Two strong ways stand out:

1. Subscriptions: How could fans financially ‘support’ the bands they love on an ongoing basis? This is different from ‘specific purpose’ financing like crowdfunding projects and royalty shares, which we’ll cover separately.
2. Attribution: Fans can support the musicians they love in ways that are non-financial too- how could this be rewarded? How do you make sure this type of attribution or “fandom” works as intended at internet scale?

We’d like to point out that neither of these address the problems of discovery and the actual rewards folks get in return for their fandom, but we’ll address that a little later.

Let’s look at how people have done fan clubs/communities in Web3 today- the biggest examples being BAYC, Loot or Nouns DAO, of course, but also some musician fan clubs. In GTM (go to market) terms, flipping the usual strategy seems to have worked (at least in a bull market).

Raise token → Attract people who want to back your project → Find ‘utility’ → Rinse and repeat

But this certainly hasn’t solved the PMF (product market fit) problem — who is the kind of ‘fan’ artists have attracted through this? Are they actually interested in the product, or musician?

This is a tricky one to prove or disprove. Let’s take, for example, BAYC. Acolytes would claim that the brand has broken through to the mainstream backed by their initial fans, and all their innovations over the past year (executed at commendable hyperspeed) such as MAYC, Apecoin, the Otherside, certainly speak to some real traction.

But is this a ‘consumer’ brand yet, notwithstanding the fact that you can now buy their T shirts on Etsy or the streets of Miami? At a.live, the collective response so far is mostly 🤷‍♀️

In any case, moving on from the abstractions of who is a ‘real’ fan or not, Harberger tax offers a ‘financial incentive’ mechanism to reveal preference in the best traditions of Web3, where all relationships are financialized. We’ve often wondered why more projects haven’t included these in their tokenomics- possibly because the ‘number/price goes up’ reasoning suffices for now, and PMF conversations can be pushed till later (or at least till crypto winter bites).

Harberger taxes have a really simple underlying concept: every owner must self-assess what they believe is the fair value of their asset each year, and be willing to sell at that price. In addition, they pay a tax rate of X per cent on the assessed value to ensure their self-assessment is not arbitrarily priced out of the market, and exacts a real economic cost to them.

Harberger taxes came up to take care of people keeping plots of land vacant for future speculation, and are also really good for application in metaverses, which (today) seem to be vacant and seeking a use-case (why are people paying upwards of $600k for a metaverse home next to Snoop Dogg?)

The most prominent example we’ve seen in crypto is this fascinating site: set a price you are willing to sell the art at (after purchasing) and pay 5% of the value each year to the original artist.

Let’s see how this works for fan clubs (and kind of for subscriptions too).

Let’s say an artist wants to set up the ‘Cult of Band X’- similar to what Avenged Sevenfold have done with the Deathbats Club, a community of 10,000 fans token gated through NFTs who get access to exclusive content, tickets and so on. This is a really great mechanic, but how do you make sure these are people who actually care about the music and just haven’t come there for the speculation?

1. Sell the initial membership NFT- This is the ‘fundraise’ to fund what is being built out for fans
2. Members must set a resale price- ‘Truest’ fans will likely not want to sell at any price, and set something ridiculous as the resale value. The casual fans will be ok to let go for a price, and speculators for another. There’s also the option of setting up multiple tiers with different rarity/pricing, to make sure that the right fan type is being attracted for each tier. The interesting thing is that the Harberger tax itself (say 5% of the resale price set up) acts as the annual subscription fee, as an annuity in perpetuity. It ‘feels’ right, and aligned to the interests of all groups involved — fans, artists and (sigh) speculators.

This still has real problems, in that it limits the artist’s audience to the true fans who can afford high initial prices and/or high annual subscription fees. But that’s just like the real world, right? It’s hard for most folks to get Shakira to dance at their wedding.

This can partially be fixed with ‘attribution’ and permissionlessness, to answer the question of “Why does this need Web3?” Essentially, if a fan completes activities across the internet to evangelise a musician, create fan art, or ‘grind’ for them in whichever way artists want to enable, it unlocks rewards or a certain tier of access.

Apps like Fave have tried to do this for superstar acts like Taylor Swift by aggregating fan behaviour across the internet and rewarding them with points that accrue towards that artist. This is far easier to do in a post Web3 world, where anyone can sign in with Ethereum and log their activities towards evangelizing an artist, should they so please. *

This is actually crucial to understanding why Web3 is different, because users can choose to log in and therefore signal that they want this behaviour recorded (and potentially rewarded), as opposed to Web2 where cookies make it harder to opt out (and they don’t reward anyone).

*Technically, you can do this without Web3 through Decentralized Identifiers (DIDs), but it somehow feels like both of those are converging since Web3 tools enable other things besides just identity.

Coming to the elephant in the room- rewards. Why do fans want to grind for rewards? Creator coins (through things like Rally) already exist and have some traction, but it’s traction of the “Web3” kind- ie sell first, PMF later. They’re also wide open to Howey Test issues- is this an unregulated security? Stay tuned- the SEC is asking these questions now.

The question/conflict we keep coming back to is - how can artists make sure only fans show up for this, and avoid over-financialization of creator coins/fan behaviour? Or maybe they don’t make sure only fans show up, and this is what the future actually looks like- people grinding to financialize things they were willing to click on for free? Axie and Stepn have showed us this is what (some) people want- the jury is out.

At a.live, we’re trying to be fan/artist first in a somewhat fun, harmless way, at least- we encourage grinding to complete levels in a song and upgrade yourself as a player, but for now, these are cosmetic only. As we start moving to making this about fan rankings for a band/genre/whatever else (a proto-DAO, if you will- to be discussed in a future article), we’re sure there are new challenges we’ll face.

In news from the a.live world this week — have you checked out Abhijit’s (our Founder/CEO) twitter yet? He’s sharing insights twice a week on music, web 3 and the metaverse and we’re here for it!

To keep up with a.live’s upcoming beta launch in a few weeks, give us a follow on our channels.