I was talking to an investor recently about NFTs (digital collectibles), and he asked me an interesting question: “Why do people buy music collectibles?”
We can’t resist them. Music fans buy all kinds of music collectibles, including signed albums, limited edition posters, concert T-shirts, signature guitars — even sports gear like skateboards and motocross goggles. We decorate our walls with limited edition posters and photos, and pack our shelves with exclusive boxed-sets, photo books, and mystery boxes. We use the music we love to express ourselves and find friends with similar tastes.
We buy this stuff because we love the artists. We want to support the musicians we love so they can keep making music, own a piece of music greatness, and be a part of music history. Those forces are really hard to resist, and a lot of fun to give in to. Seeing and sharing our collections makes us happy.
There are millions of people like us, and our collective passion for music bling attracts others to buy, too. Investors collect because they know the potential of those forces to drive really interesting exponential returns over time. Buyers like The Hard Rock Cafe and the Rock and Roll Hall of Fame buy to attract people who want to feel closer to their favorite artists, so they earn money selling smaller tickets to fans while their collection appreciates in value.
Non-fungible tokens could easily grow into a multi-trillion-dollar market, and collectibles are an interesting piece of that which will likely grow significantly as NFTs enter the mainstream. The primary market for music merchandise was $3.1 Billion in 2018, up 9.4% from 2017, and a large number turns over on the secondary market every year. Collectors hold items for an average of about 7–10 years before they recirculate on the secondary market. The volume of music-related items on the market has tripled in the past two years. And those numbers grow as more bands produce more collectibles, and classic collectibles recirculate.
In 1984, a Beatles drumhead could be auctioned for $6,550. In 1994 the drumhead seen when The Beatles appeared on the Ed Sullivan show sold at Sotheby’s for $44,000. In November 2015, that same Ed Sullivan drumhead sold for $2,050,000 at Julien’s. (Source)
Valuations of music collectibles from famous musicians can increase exponentially over time due to factors like globalization of the collector’s market: More demand and access by a much larger audience of collectors drive prices up for limited-supplies of collectibles. NFT markets can unlock that demand on a much larger scale by bringing together buyers, sellers, and collectors into the network effects of a great platform that’s fun, addictive, and easy-to-use.
The music collectibles market is a large market with broad appeal, driven by our need to identify with and be a part of the music we love.
The same investor asked me, “don’t collectors want something physical you can hold?” After all, you can’t feel the weight of a vintage Gibson Les Paul played by your favorite guitar player if it’s digital only. And he’s right. Physical goods have a lot of value, and should be able to trade on NFT platforms. What’s coming is not a world exclusively dominated by digital-only NFT’s, but open marketplaces for all kinds of unique and limited assets: pure digital tokens, or digital+physical hybrids, and an immutable, digital ledger of ownership for physical goods.
We think that similar schemes can be employed to enhance the security of a large variety of one-of-a-kind real-world items (including things like collectible sneakers and real-estate), to prove authenticity and fight the counterfeit market, but we’re focusing on the market we know and love.
Even digital-only tokens have great value though, because the experience of holding that digital token can be enhanced over time by issuing upgrades, enhancements, and even 3rd party apps that bring new digital experiences to existing NFTs. That adds a new dimension of network effects to the collectibles market we think will play an important role in the increasing valuation of NFTs over time. In-game purchases of video game items are already a huge market. Fortnite players alone spent more than $1 billion dollars in the game on things like character clothing (called skins), according to Epic Games. NFTs will enable players to bring their purchases with them between games, experience them in different ways, and sell them to each other more easily on secondary markets.
As more experiences are built for an item, the item becomes more interesting to the owner. That holds a great deal of potential for limited editions, where anybody with an interest in a specific limited edition can build unique experiences for it and add value to it. While the condition of physical goods deteriorates over time, the fitness of digital goods can strengthen over time, driving higher future valuations than their physical-only counterparts.
It’s easy to doubt the potential of NFTs. Just like people doubted the potential of the automobile when it was new. But like the automobile did before, NFTs have the potential to make an important aspect of social behavior a lot more efficient and valuable.
We’re building the future of celebrity digital collectibles. Cryptobling.
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