How NFTs Will Disrupt Gaming and Music in 2022

NFTs and entertainment
Yinchen Niu/VIP

NFTs have been one of the hottest buzzwords of 2021 (see VIP’s special report from Nov. 1) and continue to grow in both buzz and sales.

In the last month, there were over $3 billion in NFT sales across 10 blockchains, with Ethereum accounting for over half of this, with $1.7 billion in sales alone.

With the new industry seemingly a license to print money, there have been an increased number of corporations looking to enter the market. During the Q3 earnings season, the likes of WWE and Electronic Arts made specific mention of NFT strategies, joining Fox, WarnerMedia, Live Nation Entertainment, Warner Music, the NFL, the NBA and many more in having a deepening interest in the NFT space.

The interest in NFTs goes further than creating new revenue streams. In many entertainment industries, NFTs are presenting a radical reimagining of power structures, cutting out the middle man and enabling artists to share a much greater slice of the revenue pie.

NFTs allow for artists and creators to receive the lion’s share of revenues from the first sale (around 80%), with royalties set and baked into any subsequent sales via smart contracts.

It was particularly interesting to hear EA, which publishes franchises such as the “FIFA,” “NHL” and “Madden NFL” annual titles, given its current model for video game DLC runs antithetical to NFTs in gaming. These titles generate incremental revenue via gamers paying to unlock additional players for dream teams in sports titles, or to unlock additional skins or in-game equipment for other titles, and are not transferrable between games.

In contrast, NFT games such as “Axie Infinity,” “Metawars” and “Sandbox 3D” allow for in-game purchases to be held forever, to be traded for cryptocurrency, and in some cases, for items to grow in value as they are used in-game. This is known as “play to earn” and can be best conceptualized by thinking of how a player can add experience and level up characters or weapons in-game.

“Play to earn” is where game publishers and video game platforms will take most note, as they will be able to charge an extractive rent from every sale made. Whether this will counter the potential revenue drops in annual in-game DLC sales is doubtful, unless publishers embrace adding prior purchases alongside annual updates (think being able to transfer your Tom Brady 2022 edition into “Madden 34”).

Music is another industry set to be transformed, with NFTs offering artists a way to make a living through their output without having to sign to a label and compromise their creativity. A great example of this comes from the rapper Latashá, who opted to go independent following her label experience and embraced NFTs as a distribution mechanism for her output.

In May 2021, Latashá’s music video for “MAKDA VERSE” sold for 2.5 ETH (an equivalent of $11.3K at the time) on the Zora platform. It was subsequently offered for resale for 1111 ETH ($4.9 million), with 30% of the final price going to the artist and her collaborators via the terms of the smart contract set with the original sale.

This represents a much greater rate of return than what would traditionally be generated from rent-extractive record labels, enabling more music artists to make a substantial living from their art and in essence be a true form of trickle-down economics.

NFTs offer musicians additional revenue opportunities. 3lau, an EDM artist, is perhaps the best-known example of an artist offering up shares from streaming revenue to fans via NFTs, incentivizing the community to then listen and promote as much as possible to boost their own profits.

The fractionalization of NFT earnings is also being utilized by Latashá in the sale of “MAKDA VERSE” via a service called PartyBid. PartyBid enables the wider NFT community to own a share of the content being sold, with the remainder of the set price paid by the buyer.

It should be anticipated that major labels will embrace NFTs. The example set by Latashá may well see the majors look to monetize their vast library of music videos, although it is possible that they will over-value the initial sale price and block their own success.

There will be an increase in NFT add-ons for signed artists, be they rare items offering real-life experiences like the Kings of Leon’s Golden Ticket, additional content available for purchase in a short period of time via NFTs, clips from concerts or festivals attended or tickets from events, or collaborations with existing NFT properties like “CryptoPunks” or “Meebits.”

NFTs therefore represent substantial revenue opportunities within the entertainment industry, but equally offer a threat to existing gatekeepers. With the metaverse on the way, it is highly probable that NFTs will play an important role, with the current disruptions by no means the final waves that NFTs will create across the industry.