Ownership economy will define the next media age NFT, DAO, etc. are the driving force for transformation and transition

Original title: “The Ownership Economy and the Future of Media”

Author: Mitch Worsey

Compilation: Evelyn

Original title: The Economy of Ownership and the Future of Media

The media and entertainment industry is gearing up for its next evolution. Over the past decade, nearly all major players have shed their long-standing distribution business models and launched subscription-based streaming platforms. But as this market becomes more competitive, media companies have begun to look beyond streaming subscriptions for new future growth opportunities.

Where should the media focus? Startups like Mirror and Audius are innovating traditional subscription models that allow creators to interact directly with consumers and monetize tokens. The key difference between these platforms is that they enable users not only to acquire content, but also to own it. It is this idea of ​​ownership that will define the next media age.

The transition of media to the era of ownership will be driven by creators and the adoption of web3 concepts such as NFTs (Non-Fungible Tokens) and DAOs (Decentralized Autonomous Organizations). While there is some speculation about the sustainability of these applications, media companies investing in Chinese construction in the era of ownership will generate new revenue streams and build an edge over the competition. This has huge implications for the media and what we call the economy of ownership in the future.

ownership economy

Ownership is a powerful tool for motivating people. It encourages individuals to increase the value of an item they own, and if they share ownership of that item, and adjust incentives in situations where multiple people share ownership of that item. A common example of this model is an employee stock option plan.

In the media and entertainment industry, there is a lack of ownership opportunities for end users. Streaming platforms primarily act as middlemen between content and consumers, thus reducing switching costs if consumers decide to cancel their subscriptions. If users can get in-game skins through ownership, the game may be less prone to losing customers. The next evolutionary step in media is ownership, where users can own Crypto content and drive value back to the platform. This is the economy of ownership.

Today, this new model is most prevalent in the cryptocurrency world, where blockchain networks such as Ethereum and Solana are driving the adoption and growth of NFTs. As traditional established media and entertainment companies deal with slowing user growth, this is an opportunity for these companies to make a capitalization shift.

The impact of ownership economics on the future of media can be summed up by analyzing several key market characteristics. Note: Metaverse-related topics will not be included in this analysis.

1. Digital scarcity

Today, media and entertainment companies try to create scarcity for Crypto content through strategies such as theatrical releases and streaming subscriptions. The reason Crypto scarcity matters to media companies is that scarcity directly affects the fundamental value of a product or service. When demand is abundant, the more scarce an item is, the more valuable it is to own that item.

The introduction of NFTs has established a new way for media companies to exploit Crypto scarcity. NFTs provide a mechanism to create scarcity and verify ownership through the blockchain. If a media company launches an NFT project on top of an existing IP and owns a limited number of tokens, consumers can buy and own those tokens until the supply is exhausted. This gives IP owners the power of suppliers and also provides new ways for consumers to make money directly.

On the surface, NFTs appear to be just a Crypto merchandising game. However, they represent a bigger opportunity if they offer practicality to owners. For example, Disney could release NFTs of the Marvel Cinematic Universe (MCU) featuring different characters from different stages of the Marvel comic book. Owners of MCU NFTs can then gain exclusive early access to upcoming Disney+ MCU programming, increasing the value of the platform and its content.

Ownership economy will define the next media age NFT, DAO, etc. are the driving force for transformation and transition

Established players like Paramount (formerly ViacomCBS) and Bleacher Report have started investing in NFTs. It’s also easy to see why media and entertainment companies are seeing huge upside in these Crypto assets. With NFTs, these companies can gain new revenue streams by tokenizing their current vast IP pools (and anything added in the future).

2. Fans

Li Jin, co-founder of Web3-native venture capital firm Variant, first proposed the concept of “100 True Fans” two years ago. The basis for this argument is that a creator’s 100 “true followers” are more valuable than pursuing a broad audience.

The idea of ​​100 True Fans has two important implications for media and entertainment companies. First, this model provides an opportunity to segment consumers based on their followers and willingness to pay. Today, Spotify treats all streamers the same, regardless of user engagement. This flattens the demand curve and keeps consumer surplus (that is, what consumers are willing to pay in excess of the price) not captured by the platform.

Ownership economy will define the next media age NFT, DAO, etc. are the driving force for transformation and transition

Second, this model incentivizes creators to provide more benefits to their fans. According to the economic view of incentives, the more sensitive a person’s compensation is to their performance, the harder that person will work. As the current subscription model limits creator upside with standard pricing and small royalties, creator motivation and creativity is adversely affected.

Through ownership economies, media companies can regain lost consumer surplus through fan-based price discrimination. NFTs provide a way for developers to make money from their most ardent fans at higher prices, while also incentivizing creators to provide more utility to those fans. This approach creates a flywheel that increases the value of NFTs while benefiting both creators and consumers. Music startup Sound.xyz is already taking advantage of the opportunity to let musicians post NFTs tied to their music.

3. Community economy

A key component of an ownership economy is that community participation should be rewarded financially. To better understand how this impacts media and entertainment, let’s take a look at what’s wrong with modern streaming platforms.

As a16z’s Chris Dixon first pointed out, most platforms follow a predictable life cycle. Initially, these companies grew by using valuable services to attract users and complementers (developers, creators, businesses) to their platforms. As these groups move on the S-curve, their relationship to the platform shifts from positive sum to zero sum. This can be seen in Netflix’s recent price hikes or Disney’s restrictions on actors and producers’ profit sharing.

Ownership economy will define the next media age NFT, DAO, etc. are the driving force for transformation and transition

Media companies can break this cycle by moving to a token-based community economic model. The goal of the platform will no longer be focused on extracting revenue; instead, it will be tied to how much value is created for the entire network of participants. For the first time, it will allow users to earn financial rewards for participating. Essentially, the community economy adjusts the incentive mechanism by promoting the development of the platform and the appreciation of the token.

An increasingly popular application of this concept is Earn While Playing (P2E), where players are financially rewarded for playing games. For example, Axie Infinity is a blockchain-based game in which players battle the characters of unique NFTs. Players use these characters to earn tokens that can be exchanged in the marketplace. As the game has grown in popularity, the value of the token has also risen, creating an economic incentive for those earning the token to continue playing the game. If streaming services introduce a similar token-based model, they can better align incentives with consumers, creating more value for the community and preventing user churn.

4. Blockchain distribution

More content is being produced today than ever before. While this increased supply is good for consumers, it could hurt streaming platforms given the number of options available. Because of this surge in content, users will pay more attention to the content they consume. That means media companies risk losing revenue from customers willing to pay for individual shows rather than entire subscriptions.

If the content is served on the blockchain, then the economy of ownership can solve this problem. This model creates a more open market for platforms to acquire content, and also creates conditions for intellectual property owners to directly monetize content through smart contracts. That’s not to say that streaming services will no longer curate content for consumers. Instead, it’s a new way for media companies to buy, sell and distribute IP.

In addition, the distribution of royalties to media has become increasingly complex. However, blockchain distribution provides an opportunity to more effectively simplify participation and royalties to the entire network of participants. For each piece of IP stored on the blockchain, royalty payments can be programmed into smart contracts and paid automatically when used.

Ownership economy will define the next media age NFT, DAO, etc. are the driving force for transformation and transition

The media still has a long way to go to switch to the blockchain distribution model, but more and more capital is being invested in this field. For example, a16z recently led a $6.8 million seed round in Filmhub, a blockchain-based platform that enables filmmakers to upload and distribute content directly to streaming channels. Fox also invested $100 million in Eluvio, which provides the backend blockchain infrastructure for the distribution and monetization of content.

What does this mean for the future of media?

Several hurdles prevent the mass adoption of the ownership economy. Validating transactions on the blockchain is slow and expensive due to Ethereum’s consensus mechanism. However, the cryptocurrency community has been grappling with this issue by devoting resources to alternative blockchains (Solana), sidechains (Polygon) or upgrades (Ethereum 2.0). Additionally, media companies will need to find ways to convince consumers to adopt cryptocurrency applications.

Despite these challenges, the economy of ownership has the potential to transform the media and entertainment industry. Media companies should start by assessing how Crypto scarcity, fans, community economics and blockchain distribution will affect their business. The ownership economy is also not all-or-nothing; a combination of subscription and ownership models may be the best approach. That said, making the right investments in the economy of ownership today will help incumbents better prepare for the future of media.

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