NFTs, Web3, Fractional Ownerships — Are they finally making business sense?

I am jumping straight into the topic…we all know or have at-least heard about terms such as NFTs, Web3, fractional ownership and so on. If you haven’t, there is an overdose of information available online and by sources who are far more credible and authoritative than me.

This article here is to discuss recent developments which showcase how NFTs are finally starting to make real business sense (at-least for me) and are not just a source of bragging rights for owners (read: Twitter profile pictures).

We will also discuss how these developments can help creators and their fans to further their own cause and benefit simultaneously.

Let’s first look into the recent developments:

1. Sports giant Nike bought out a virtual shoe company; RTFKT Studios, which makes NFTs and other digital collectibles for the metaverse. This company earlier had teamed up with a number of artists and released virtual shoes which were paired and sold with physical ones; one such sale was sold out in 6 minutes with revenues touching $3 million. The key difference here is that virtual NFTs are being backed by physical assets as well.
2. Music platform Royal raised funds which allows artists to launch NFTs which are tokens representing full or partial ownership of the songs. An example: you as a singer launch NFTs which represent say 50% ownership of a song you are about to release. You raise funds for the production and marketing of that particular song and in return for their investment, the fans get 50% share of the revenue from that song, an example could be revenue from streaming platform Spotify. Here the NFT is backed by the song’s revenues which can accrue to the owners of the NFTs as per their holdings.

In both the above scenarios, there are certain things happening:

1. Real Underlying value — The Nike firm is selling you both the physical and the virtual pair. Here, the underlying value of the NFT arises from the fact that Nike sneakers are treated as collectibles and are traded on multiple platforms with a huge demand. The NFT of that sneaker therefore derives value from the physical pair which in itself is a collectible item. In the case of the music platform Royal, the NFT’s underlying value is the current/future revenue generated from that song.
2. Allows for democratization of alternative assets: Late last year, music studio Universal Music bought out Bob Dylan’s catalogue of songs for $300 million. The reason was simple; streaming accounts for 50% of revenues for music labels and the backdated catalogues account for 39% of streamings on music platforms such as Spotify. The math was clear, backdated catalogues are an asset which can be leveraged to gain recurring returns over a period of time. Investments in such alternate assets was earlier only possible by outsized corporates or HNIs, but with the advent of blockchain technology and NFTs, normal individuals can own fractional ownership of such assets and take part in this aspect of the economy. An example of this would be you buying .01% of Elvis Presley’s catalogue which has been listed as an NFT by an organization which raised funds to buy the catalogue. Do google ‘Constitution DAO’ online, which will give you a fair idea of the possibilities.

Photo by NeONBRAND on Unsplash

So what does the above mean for creators?

To begin with, one thing is clear, creators with an existing fan base can now monetize their work via issuing their own tokens or digital currency. This can be done via multiple platforms which allows individuals to launch their currency.

The beauty however lies in using NFTs for crowdfunding certain projects which have some form of potential revenues attached with them. This revenue acts as the underlying value for that NFT.

Let me explain properly with an example.

India has no dearth of stories from the hinterland which can easily be acquired by multiple content platforms to fill the ever increasing content pipes. A journalist with deep knowledge of a true crime story can easily come up with an intriguing long form story with a potential to be acquired by them. However, writing such stories requires upfront money for research purposes.

So what the journalist do now? — He or she can now launch an NFT, raise some money and come up with the work. The buyers of that NFT can buy the whole NFT or in fractions and share an upside in the work if it gets acquired and generates revenue in the future. Earlier, if a journalist ever thought of crowdfunding such work, fans would just donate or help out and money would be relatively hard to come by. What earlier required altruism is now a business opportunity too; people buying the NFT are not only helping in funding the work but also sharing an upside if the work turns into something valuable.

What does it mean for fans?

I am continuing the above example of a journalist raising funds to create IP around a true crime story. Assume the journalist is Hussain Zaidi in his early days (for those who dont know him — he is the author of Dongri to Dubai and other books on the Indian mafia) and you are a big fan of him. You follow his work in the local newspapers that he writes for and on social platforms and are aware that he has unparalleled reach in the Mumbai mafia. You have a gut feel that his stories can one day be made into movies if not a web series.

You soon get to see on his social pages that he is launching an NFT to fund his latest long form article which focuses on an intriguing murder mystery involving the mafia. The NFT can be bought in full for INR 2 lakhs for a 10% share in future earnings or you can buy a fraction of it with a minimum payment of INR 5000. If Hussain Zaidi had done this in the pre-Web3 era, you might have still added on to his funding, but you would not have gotten anything in return. Now, you have an added incentive, not only can you support his work, but can also earn something if the work gets acquired by a content platform.

Therefore as a result, creators and fans are both benefitting from their relationship with each other. One can do what they like and get paid for it, the other can support the creators that they like and have a financial angle to it as well.

Photo by Alfonso Scarpa on Unsplash

This underlying financial value therefore make sense as opposed to just the bragging rights or pure play speculative action. To add on to this speculative point, the majority of NFT buyers so far have been buying it as a store of value which they intend to sell for a profit in the near future. NFTs are usually dropped as scarce items and hence the opportunity to sell it at a higher price in the future.

Here, individuals are treating them as stock wherein they are scarce in number and they will appreciate in price in the near future post which it can be sold. However stocks on indices have some underlying values to them basis which they fluctuate. Here, the value of an NFT is solely and solely dependent on another person’s value of that item, which is extremely subjective and can vary from person to person. One might value that NFT for $100 and the other will value it for $1 million for reasons best known to them. There is no real value being added by the creation or holding of that NFT. Some might even refer to it as gambling to some extent.

Therefore ensuring some underlying value brings about that element of a real stock to a particular NFT and can allow more and more people to come in as investors thereby opening up whole new avenues for investments and raising of funds.

P.S. If someone is doing something on these lines for non-fiction stories, do let me know, can reach out for some collaboration!!