Jonathan Shih
Dec 21, 2021

Brands have been ignoring the real potential of NFTs

The biggest criticism of NFTs is that they come with no IP rights. But that doesn't have to be the case. Collab Asia's director of regional marketing and operations discusses the opportunities of an NFT market that includes digital rights management combined with value co-creation.

(Shutterstock)
(Shutterstock)

The average person reading about the rise of NFTs on the street would be forgiven for thinking that NFTs are merely the tokenisation of assets which can then be sold on the market. That viewpoint is a profound misunderstanding of the underlying technology, and it's easy to forget amid the hype that NFTs can have all of the functional potential of their underlying blockchains.

NFTs that are minted on blockchains that support smart contracts, such as Ethereum, can bake in additional rights and obligations. This can include sell-on fees that grant the creator or owner a percentage of any subsequent sale of the NFT, or intellectual property (IP) rights that attach to the digital asset. The former, for obvious reasons, is becoming increasingly common. The latter is not; almost all NFTs that are minted and traded come with no IP rights whatsoever. These NFTs simply acknowledge that the owner of the token has ownership over a distinct copy of a digital asset, acknowledged as such by the creator. These ownership rights have been compared to owning a signed print of an artist's work or a rare, limited edition trading card.

IP protections are outdated

IP protections exist to encourage creativity and innovation by ensuring that a creator or owner of a specific piece of IP enjoys a certain degree of control over its economic benefits for a certain period of time. These protections have typically been restrictive in nature, meaning they prevent other parties from using the IP in a way that deprives the IP owner of control over the economic benefits.

The internet has essentially destroyed the viability of this restrictive means of IP protection when it comes to digital media or any kind of media that can take digital form. Try removing or stopping the distribution of copyrighted content once it's uploaded. If anything, the most successful measures major creator economy stakeholders have adopted in order to mitigate copyright infringement—streaming services, tolerating non-monetised fan-made content, or diverting monetisation—are a tacit admission that existing regulatory policies aren't working.

NFTs’ value lies in smart contracts and rights tracking

When the objective of IP protection is to ensure that the fair economic value created by using a particular piece of IP ends up in the hands of the IP owner, it's vital to know who is entitled to what value. NFTs and the underlying blockchain infrastructure can play a key role in this determination.

At its simplest, NFTs can be minted with an attached copyright or similar rights, and specific licensing privileges using smart contract technology embedded within the token. I believe the benefits of access and royalty-based digital rights management (DRM) that NFTs enable is where the true democratising effects of NFTs on the creator economy will be realised.

With an NFT market that includes DRM, value shifts to the quality of the content itself, instead of being so strongly affected by creator popularity or platform algorithms. There will be a greater focus on producing impactful, quality content that can either go viral or serve as the springboard for further creative work or a series of works, while royalties can be generated from downline revenue and flow to the owners of the NFTs. These NFTs and the works they tokenise will possess inherent utility.

Then there's the potential for value co-creation. Think about how much content is being created by fans every day for fictional universes, teams they cheer for, or brands they love. Imagine a major author or movie studio, brand, or sports franchise opening up a fictional universe for co-creation and the kind of creativity that would unleash. Metaverses are just one step towards realising this new dynamic.

Implementation is hard but not impossible

It's important to recognise that the most difficult part of realising this potential lies in how many other stakeholders and parts need to be aligned. Buy-in, especially from major IP studios, owners, and creators; product-side implementation; and a supportive regulatory environment all need to move in lockstep. There can be any number of reasons to not want to participate in this new creative ecosystem, from misplaced incentives or channels for monetisation, to simply not wishing to place control of a brand in the hands of the larger public—as supportive as they may be.

What to do in the meantime?

We believe that an open model of DRM combined with value co-creation will become an increasingly important part of the creator economy. Creators and brand owners can get ahead of this impending shift by taking a page out of innovative NFT platforms and testing out various ways to co-create value in a controlled environment. Whether it's collaborating with a whitelist of creators or open licensing certain brand assets for wider use—with appropriate protections—brands owners can open their brands to establish an independent but approved presence across different platforms and channels.

Then there are the opportunities that lie in NFTs. Brand owners and creators who thoughtfully use NFTs with an eye towards the future instead of this initial speculative market will see that brand metaverses and NFTs lend themselves towards shared experiences and narratives, rather than individual works. Most brands have already manifested their own metaverses insofar as they have established identities, rules, and narratives for their content. NFTs present an opportunity for brands to incorporate the creator economy's current interpretation of their identity into the official zeitgeist, while rewarding creators for participation.

The idea of royalty-based co-creation systems built on NFTs will ensure that content remains current and that outdated identities and narratives are quickly displaced by the community, who will embrace and co-create new ones. There's no denying brand owners will cede a certain degree of control over their brands as a result, but setting terms to allow an independent creator economy to do what they already do in a way that benefits both parties is an opportunity that can't be ignored. We already see where the future is headed and we're excited to see how we can guide both our creators and brand partners to explore and form rewarding relationships under this new dynamic.


Jonathan Shih is director of regional marketing and operations at Collab Asia

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