Moving Digital: How Hollywood is Embracing Blockchain Technology
In June 2020, we wrote an article about how digital securities and blockchain technology would be the next major disruptor in film finance. The expectation was that, sooner rather than later, film financiers could turn illiquid equity in Hollywood movies and digitize them into tradable shares. The digital shares would make it easier to raise capital by selling to those who have never been exposed to Hollywood investment opportunities, growing the traditional investor base for media assets. If an investor needed liquidity, they could sell their shares at market value, a feature that would allow investors much more flexibility in their investment strategies. The evolution of film finance has not happened exactly as we thought, but we have seen the adoption of non-fungible tokens (NFTs) and other digital assets in the film industry over the last few years. This exciting development has seen NFTs being used to finance films and create a new category of downstream revenue for movies.
Transforming Hollywood Content through NFTs
The added value of NFTs is especially beneficial for intellectual property (IP) with a loyal and passionate fanbase. Last month, Warner Bros. launched NFT versions of “The Lord of the Rings: The Fellowship of the Ring” and became the first major studio to re-release an entire movie in NFT form, potentially trailblazing the newest revenue stream to extend the value of significant IP. Warner Bros. minted 999 copies of the Epic Edition, priced at $100 each, and 10,000 copies of the Mystery Edition for $30 each. Both versions allow buyers to watch the extended version of the film in 4K UHD, with access to more than eight hours of special features, hundreds of images, and hidden collectibles. The Epic Edition includes navigation menus for three film locations and location-specific key art, with The Mystery Edition including only one of them, assigned at random. “The Fellowship of the Ring” NFTs are the first available in the “WB Movieverse”, a new marketplace that will eventually include other titles from the studio. As digital items, the key feature of this type of content is that it’s inexpensive to produce and highly scalable. Studios don’t have to spend millions of dollars producing it as they do for toys or other merchandise. NFTs represent a high-margin new business and will contribute to the profitability of films when executed properly.
Lionsgate recently partnered with Tom Brady’s NFT platform, Autograph, to launch a series of online games based on the Saw franchise. Players who beat the three games available on Autograph can win prizes that include Saw-specific NFTs or exclusive digital assets valued as collectibles. This initiative promotes the upcoming franchise installment, slated for a fall 2023 release, and creates additional engagement between Lionsgate and Saw franchise fans. The Lionsgate deal underscores the potential for NFTs with IP owners, who can partner with technology platforms, like Autograph, to develop their existing IP into NFTs and create a profitable new revenue stream.
NFTs Cultural Integration
We have seen NFT characters sold as IP for film and television, with the first being Aku the astronaut in April 2021. This project has a built-in fan base from the owners of the multiple NFTs using the character, which should create an immediate audience. In February 2022, Reese Witherspoon’s Hello Sunshine partnered with the NFT collective, World of Women, a leader in the NFT space, generating more than $120 million in trading volume on crypto exchanges and NFT marketplaces. As part of the partnership, Hello Sunshine will build the World of Women character franchise and universe into entertainment properties, including feature films and scripted and unscripted TV series. While Hello Sunshine hasn’t announced any new projects based on the underlying material, the partnership signifies a revolutionary tactic for securing highly sought-after IP.
Marvel producer, Arad Productions, announced plans to turn the Ethereum NFT comic book Huxley into a feature film. Huxley is a science-fiction comic book spread across six digital issues sold as Ethereum NFTs. Huxley released the first issue in the series in October 2021, with 10,000 digital issues sold. Since then, another issue has been released, and creator Ben Mauro has plans to release four more. A concept trailer was released with the announcement, and there is a plan for interactive, Huxley-themed metaverse experiences later this year on the way to launching the film.
We are also seeing memorabilia sold as NFTs outside of Hollywood. In 2022, Universal Music Group partnered with the NFT platform, Curio, to develop NFT fan collections for its record labels and artists. Universal Music Group became the first major music company to utilize Curio’s innovative technology as a dedicated platform to license artwork, audio recordings, and audio-visual content globally. One of the best examples of NFT’s cultural relevancy is the technological trailblazer, NBA Top Shot. Founded in 2020, NBA Top Shop provides a platform to license highlights from past and present and then sell the highlights to fans as NFTs. The NBA has created a lucrative revenue stream through the platform, with only the cost of minting the NFTs. Top Shot has over 560,000 users and over $970 million in transactions. The film industry is a $115 billion industry, and there is a substantial opportunity for new players to leverage the demand to create a Top Shot equivalent for movies. NFT implementation for fictional properties would change how we value IP, potentially valuing memorable characters and moments more than the story itself.
Digital Securities Tokenizing Cash Flow Rights
The tokenization of cash flow rights in the music business is underway right now, and it’s important to highlight the same potential it has for the film industry. Through platforms like Royal, artists can sell a percentage of their royalty streams to fans and investors through digital securities — essentially an electronic record of ownership rights. When someone invests in a song or album on Royal, they will receive a token representing a percentage of the music’s royalty ownership. As the song or album earns money over time, token holders will receive royalty payments alongside the artist. Critically, token holders can also sell their tokens at any point because they are tradable assets. The tokens will fluctuate in value, based on potential future royalty payments, in effect creating a robust digital market for individual songs and albums. The infrastructure in place now has the potential to revolutionize how revenue is earned by artists and how fans interact with their favorite musicians.
This tokenization model provides a similar opportunity for the film industry. Like Royal’s platform, similar digital asset marketplaces for films would give investors the capability to immediately recoup and profit from their investments, selling a stake in their movies before they are even released. The buying and selling of digital assets would also create buzz and act as free promotion for movies. Another distinct advantage is that it could give talent the opportunity to realize backend compensation from profit participation years earlier. While we have not seen the tokenization of cash flow rights in film assets, the groundwork is there in other industries. The potential to have a liquid marketplace for the most popular movies may not be too far away.
Digital securities and NFTs will help shape the next evolution of how content is universally consumed and financed. They will create new revenue streams for studios and significant IP rightsholders, offer greater liquidity to investors, and engage fans in creative ways. Savvy film financiers, like MCT, will be able to capture value from the opportunities that emerge as blockchain technology further integrates into Hollywood. As premium content continues to grow more in demand than ever, this emerging technology will help unlock the full potential of this exciting asset class.
