Countdown to FARO’s Launch
The trends and Web3 use cases we’re building our entertainment business on
The Background Whys
In 2007, a Californian start-up called Netflix, a mail-based DVD rental service, made headlines when it announced it would start streaming films.
Fast forward to today and our entertainment landscape has changed beyond recognition.
Greater internet bandwidth and smart TV have allowed streaming video-on-demand (SVOD) services to successfully unbundle video, lower costs to consumers and compete fiercely for high-quality content. Traditional media players, such as linear, cable TV, and movie theaters are scrambling to maintain their position. Film and TV production spending rose rapidly from $95 billion in 2013 to almost $220 billion in 2021 and is headed for $250 billion this year.
Today, streaming is home to numerous large, small, and niche players. It’s clearly not an industry defined by software-like “network effects”, where the winner can take it all, such as Apple, Google, AirBnb, or Uber/Lyft. Instead, streaming video can be characterized by “economies of scale”. To become big, you need to spend more money (on content), which typically translates to more subscribers, which in return means more revenue. This model made global expansion necessary for the biggest streamers as subscriber saturation was reached in initial entry markets.
Netflix, Amazon, and Apple TV+, and soon Disney+ and HBO Max, are now in some 100 countries. Worldwide expansion, in return, has changed audience preferences and viewing habits. We live in a borderless world in which content is a global phenomenon.
This expansion and internationalization of content naturally led to a global production boom in local non-English content. Today, 60% of Netflix originals are commissioned outside of the US. Netflix recently announced that more people watched its non-English TV content than its English TV content last year.
Streaming Dominates Music Too
On the music front, the previous music business model built on physical distribution (record shops), marketing and promotion of new albums, and sale of high-margin albums (CDs) with killer and filler tracks has long since fallen off a cliff. Here too, streaming is the new dominant driver of growth. There are more than 520 million music streaming subscribers as of 2021 and streaming constitutes 60–80%+ of the total music industry in every single territory. The dominance of streaming has led the music industry to switch to the single song model.
IFPI 2022 music industry data also shows that music revenues from new revenue channels such as social media (TikTok), gaming (Twitch, Roblox), and exercise apps (Peloton) are gaining steam. Who would have thought that an exercise app (Peloton) would become a top-10 account for major music labels?
However, the byzantine structure of music rights means that artists and songwriters are still not getting their fair share of revenues from recorded music. Consider that standard subscription monthly fees for complete catalogs at Spotify, Apple Music, and Amazon have remained at the same price for the past decade. In contrast, for streaming video, we all get partial catalogs and market leader Netflix has consistently increased its price, suggesting a fundamental flaw in how the economics of music streaming was initially structured and consumed. These facts became abundantly clear during COVID when live entertainment literally stopped. In the current music model, musicians and performers depend on live entertainment for their livelihood revenues as streaming revenues are not high enough and/or do not get distributed fairly.
One thing is for sure — change is happening fast and there is still a lot to play for.
Web3 — the Game Changer?
Web3, through technological advances, has been steadily weaving its way into media and entertainment. The emergence of non-fungible tokens (NFTs) and digitization of assets via tokenization is extending both the size and scope of the media and entertainment industries. Technology is amplifying change, driving innovation, fuelling competition, and putting further pressure on existing business models.
Web3 offers an opportunity to develop and set the foundations for a more just and equitable future. In the context of media and entertainment, the promise of NFTs and decentralized networks is to create a more balanced and fairer business model to replace the asymmetric power distribution in which the studio or the label has almost absolute control.
At FARO, we focus on two best use cases of Web3: We first envision an ownership economy where benefits are more equitably shared with creators and our community. Second, we see the direct link between the creator and the fan that blockchain technology offers, a blank canvas for experimentation and solving economic security for creators.
So, What’s FARO?
Before we segue into FARO and what we do, we wanted to share why we are in this business. At their core, media and entertainment are in the business of imagination. We believe the right question to always ask is “What’s happening next?”.
As FARO founders, that’s our primary focus. We’re a diverse bunch who embrace the changes that are coming — we’re a showrunner, a talent manager, a mathematician/computer scientist, and a fund manager.
FARO is a tokenized entertainment company born at the intersection of the physical and crypto world. We create digital assets that are backed by physical world media assets and IP by leveraging available technology.
While we believe that decentralization brought by blockchains is going to change the way we build and do business, adoption will be a gradual process. We argue that our collective expertise in physical world entertainment businesses is going to matter. We will monetize physical world media assets with inherent monetary and fan-centric value and use that value growth to develop a sustainable Web3 business — we believe this is the right structure to accelerate adoption.
For any etymology geeks like us out there — FARO means lighthouse in Latin. It perfectly sums up our intent: to be a beacon by bringing forward stories untold and leading the way in building a more transparent and equitable entertainment sector. On that note, have a FARO day and we’ll be back with more soon! Stay tuned!
