“Creator State of Mind”: The Next Big Wave in (Digital) Media
In our previous posts, we discussed how Web3 is shifting power to a whole new generation of applications, services, and businesses that will likely create trillions in value and reshape our day-to-day interactions and the communities we engage with. In this post, we will look at one of the markets where we are seeing the largest, and quickest, transformation.
Say Hello to Hollywood’s New Power Couple
One could argue that no industry is being transformed as rapidly by the shift to Web3 as (Digital) Media. This change is largely underpinned by the rise of the creator economy, a market already valued at over $100 billion and growing, with over one billion people expected to self-identify as a “creator” over the next five years and around 30% of American high school students saying they would like to become a “content creator”. So as Digital Media and Web3 converge, what are some of the existing challenges and future opportunities for content creators? Let’s take a look with a little help from one of our favorite power couples.
First, let’s remind ourselves of how blockchain is transforming the internet. As the technology has matured from an alternative to fiat money to include more advanced solutions for ownership and transactions, such as the trade of physical assets according to the rules of smart contracts, it has also enabled creators and communities to build their own “internet-native economies”.
This “re-architecture” of the Internet where value — whether in the form of content, data, or labor — is predominantly captured by its producers/creators rather than its distributors is expected to disrupt a number of traditional industries in the long term, from financial services to real estate. To understand why the Digital Media industry is at the center of this wave, it is important for us to first unpack some of the key pain points and inefficiencies that the industry and, more specifically, creators and artists suffer from.
“I’ve Got Ninety-Nine Problems but Creativity Ain’t One”
Many of the current problems in media relate to content creators losing out to the “big guys”, with issues including:
Capturing a lower share of revenues due to intermediaries: Distribution and discovery in the media and entertainment industry is often controlled by middlemen, such as record labels, art galleries, or streaming services, which act as gatekeepers to creators’ content, especially up-and-coming ones.
- The “old” guard: Using the music industry as an example, the distribution landscape is dominated largely by three major record labels, Universal Music Group, Sony Music, and Warner Music Group, which capture a majority of the value created in the space (these three labels generated more than $20 billion amongst themselves at the end of 2021). Yet, similar power structures can be seen in the art industry with galleries acting as gatekeepers and typically charging exorbitant commissions for representation.
- The “new” old guard: While music streaming and platforms such as Spotify have given up-and-coming artists a platform to reach new audiences and enabled the discovery of new, independent artists, these platforms have also captured a majority of the value created within their platforms. Only a fraction of revenues ever reaches artists and the “pay structures” (which are largely volume-based) often only benefit top artists that accumulate the majority of streams.
Intellectual property infringements: As the industry has moved towards digital native formats, the tracking of IP across multiple channels and the management of digital rights has become increasingly complex and created a number of pitfalls. For example, digital piracy, fraudulent copies, infringed studio intellectual property (IP), and duplication of digital items cost the US film and TV industry an estimated $71 billion annually.
Inefficiencies and lack of transparency of existing monetization models: Lastly, online media platforms, especially smaller / independent ones, and creators often have trouble with monetization as well as accessing and managing efficient and affordable micropayment systems. As such, they miss out on consumers that, sometimes, do not wish to commit to subscription models and would rather make one-off purchases of articles, videos, or content that interests them.
The Creator Blueprint (Web)3 Edition: “What Are We Talkin’ About?”
We’re beginning to see evidence of blockchain overcoming some of these challenges and empowering content creators. We think there are four key areas of opportunity: creation, management, distribution, and engagement.
“A Star is Born” (Creation): One of the big value propositions of Web3 is that it enables composability. In the case of Digital Media, blockchain & crypto have the potential to incentivize the creation of different types of unique content, whether it’s by removing the need for direct approval from gatekeepers or by further promoting “remix” culture. Blockchain-hosted content builds on the foundations of the Creator & Passion Economies, allowing creators to monetize their personal brand and bypass intermediaries (and the need for their approval).
For example, any artist, from anywhere in the world, can mint a drop without the need of a record label deal or art sponsor — meaning that if you can grow a big enough social following, you can also make a living off whatever type of content creation you wish to create. In a similar fashion, platforms such as Mirror.xyz are revolutionizing the way people create, express, share and monetize their content online by leveraging blockchain and crypto to power decentralized, user-owned projects & ideas.
“Run This Town” (Management): Over the past years, we’ve seen several vertical software and platform services automating the most difficult areas of value creation in digital media companies, from creation to monetization. For example, creation tools and subscription management platforms, like Substack, and programmatic advertising has empowered creators to build their own brands and communities. Blockchain technology aims to build on that by further helping artists own their businesses on the internet — from IP management through blockchain-hosted content to the implementation of a blockchain-based pay-per-use micropayment system (powered by smart contracts). Platforms such as Rally are helping creators and their communities to build their own independent digital economies by allowing artists to launch their own social token that enables transactions, access, and more creative management solutions for their brands and businesses.
For instance, the implementation of efficient blockchain-powered micropayment systems could allow content (such as articles, graphic art, or videos) to be sold on a per-use basis in an automated fashion, saving administrative and software costs for the creator and increasing the ways by which they monetize their content. Smart contracts built on a blockchain and attached to content could also facilitate accuracy, speed, and trust in the royalty system.
“On to the Next One” (Distribution): The transparent nature of the blockchain can help creators accurately and securely track the movement of their content by verified, paying consumers, while analyzing distribution patterns. And, unlike digital rights management software, blockchain’s immutability helps eliminate content piracy at its source. Moreover, blockchain-powered innovations such as NFTs are forcing a dramatic shift in power structures — whereas typical gallery commissions are around 50%, NFT sellers share as little as 2.0–2.5% in transaction fees with marketplace platforms such as Magic Eden and OpenSea, while benefiting from no listing fees and being able to capture royalties (in the range of 10%) from any follow on transactions.
In fact, peer-to-peer programs can help further facilitate sales and distribution directly to the end-user, thus increasing creator revenue share while IP rights remain protected. Enabled by the likes of decentralized music streaming platforms such as Audius, this disruption is rendering the middle, “operational layer” of media less important.
In the future, examples of artists like @larvalabs who are doing millions in sales with no galleries, no record labels, and no intermediaries (or the need for a seal of approval), will become more commonplace in the industry.
“Thank You” (Engagement): Finally, in recent years we’ve also seen a continued shift from passive consumption to active engagement. Web3 will only continue to promote individual ownership, membership, and loyalty, creating a future where consumers become more invested in the success of their favorite creators and media. Tokenization and fractionalization, through NFT ownership, will continue to enable a “collector’s” mentality, with platforms such as Royal allowing users to not only invest in artists but also own their favorite music. We expect to see the same in film, sports, and fandom.
NFT-powered media subscription models will continue to evolve to include personalized benefits — from exclusive content access/ownership to admission to community channels & forums (across platforms such as Discord and Reddit), to invitations to physical events.
Can’t Knock the Hustle
Whether it’s by helping creators create financial value for their work, allowing fans to invest in their favorite artists directly, or letting artists peek under the hood, Web3 presents an opportunity to accelerate the shift in power to creators. It’s not only about providing creators with an opportunity to build more symbiotic relationships with the platforms that they contribute to. Perhaps more importantly, it’s about enhancing the relationships between media companies, brands, and creators and their respective users, fans, and communities — allowing all to participate in the collective value creation process.
Our hope is that Web3 will act as an additional catalyst for people to pursue their creative passions while making a comfortable living doing so. We are looking for and excited to support, the next generation of companies and platforms that will empower this movement.
Stay tuned for Part 2 of this series, as we continue to unpack the various themes and trends we are most excited about at this intersection of Digital Media and Web3!
