teleo-codex/inbox/archive/claynosaurz-new-entertainment-playbook.md

source_type	title	author	url	date_published	date_archived	archived_by	domain	status	claims_extracted
analysis	The New Entertainment Playbook - Claynosaurz	Claynosaurz		2025-01-01	2025-04-23	clay	entertainment	processed	cost-plus deals shifted economic risk from talent to streamers while misaligning creative incentives progressive validation through community building reduces development risk by proving audience demand before production investment

Human beings have always been creative. This innate ability sets us apart from the rest of the animal kingdom. However, it is only in the last hundred years or so that our creativity has been leveraged to create massive industries. The creative industries, which include movies, TV shows, books, art, games, science, and social media, are among the fastest-growing and most interesting segments of our economy. 

Creative industries surf the very edge of our technological capabilities. New technologies open up new mediums for artists to express their creativity with. For example, the development of motion pictures enabled a whole new art form that birthed the actors and directors we know and love. It is not just production itself but also the distribution of creative content that is significantly affected by technology. The creative industries inherent reliance on technology mean that it is constantly undergoing disruptions as technological innovation shifts the foundations on which current industry configurations rest. 

This fact can be seen in the history of the creative industry. 

Before the scientific revolution. Art was almost entirely a local affair. Cities would have their pianists, singers and theatre productions. Travelling musicians and storytellers would journey from town to town. But there were very few international superstars because the reach of these creative professionals was limited. Only a few hundred to a couple thousand people could ever experience a performance at the same time. This began to change with the printing press and later the phonograph. 

Suddenly these inventions enabled an individual's art to be captured, recorded and distributed much more widely enabling individual artists' work to be consumed by vastly more people. But this distribution still needed physical copies of a persons art to be transported and distributed. This changed with the next evolution of the creative industry. 

The radio and eventually the television dramatically altered the entertainment landscape by enabling the transmission of a creative’s work via the airwaves. This era supercharged the entertainment industry creating huge businesses in the process. 

Yet in these days creating art was very expensive and distribution was scarce. The need for upfront investment and tastemaking for limited bandwidth birthed a huge number of gatekeepers - Book publishers, casting agents, record company executives, gallery curators, TV Network producers, newspaper editors, agency directors - who collectively controlled the creative industries. 

These middlemen emerged because of a very real need in the creative industries. Printing physical books is expensive. Publishing houses need to print and sell thousands of copies in order to make the economics make sense. But not every book can sell thousands of copies. Therefore someone needed to evaluate the quality of book submissions and decide what to finance and print. Similarly, the audio equipment and soundproof rooms required to record a “studio-quality” album necessitated huge up front investments making them scarce. Record executives financed these costs and found the talent they thought would make this investment worth it. 

Television also suffered from high costs and scarce distribution. Before the advent of the internet, there were only a few network TV channels. The limited available airtime meant that there is a limit to the number of show that can be created. Similarly, the limited real estate available in art galleries meant that only a set number of paintings and sculptures could be displayed. Owners had to choose the pieces they believed had the best chance of attracting buyers. 

Control over the upfront financing and distribution of these creative outputs gave the gatekeepers huge amounts of power in their relationship with creatives. These distribution channels also meant that it was the record company or publishing house that sold the creative work to the consumer not the band or the writer. This power imbalance led to a huge proportion of the profits of the creative industry ending up in the hands of the gatekeepers rather than the artists. 

Sometimes the world’s biggest artist don’t even own their own creations. The gatekeepers do. Taylor Swift is the perfect example of this. 

Without the support of these gatekeepers it was almost impossible to break into a creative industry. Many gatekeepers abused this position. Harvey Weinstein is the perfect example of this. 

However as we noted previously, technological innovation tends to undermine the foundations of business models in the creative industry.

Making creativity into a business requires a few key elements. Up front investment usually consisting of money or the creators time to produce the creative work. Distribution or some way of conveying your art to people. A fanbase and word of mouth to increase the spread of your content. 

Over the last 20 years two major changes have occurred that are reshaping the creative industry. First, as the quality of mass market cameras, microphones and editing software improves it is becoming cheaper than ever to produce studio quality hits. Today, almost everyone can produce albums or videos at a quality that would previously have only been possible for professionals with extremely expensive equipment. Recent examples of this are Billy Eilish - who recorded and produced a grammy-winning album with only a microphone and a laptop - and the recent Oscar winner Everything Everywhere All At Once which was edited on a years old iMac using commercially available software. 

Second, the rise of the internet and digital platforms has revolutionized the way artists connect with their audiences. Musicians, for example, can leverage platforms like Soundcloud, iTunes, and Spotify to build a fan base or upload entire albums directly to the biggest sales channels. Video and film creators, actors, and event organizers can earn money by streaming their content on Twitch or uploading it to YouTube. Authors now have the option to self-publish their books on Amazon, thanks to Print-on-Demand and Kindle eBooks, which allow them to generate revenue even if they sell just a single copy. Furthermore, aspiring writers can reach millions of readers by publishing their content through blogs or newsletters. Visual artists can also benefit from digital platforms, such as NFTs, which allow them to sell their artwork. 

While the improving quality of mass market cameras and microphones along with the rise of digital platforms have already reshaped the digital economy, we still have a long way to go. Big budget movies and heavily marketed books are still the domain of massive Hollywood studios and publishing houses. Crowdfunding mechanisms for these industries are still very nascent and inefficient. 

Today, consumers of content are spoiled for choice, and the distribution of content has been radically altered by the internet and the rise of streaming services. Now, the collective creative works of our species are available on demand.

Additionally, many creatives have replaced human gatekeepers with digital ones. The recommendation algorithms of platforms like YouTube now determine creators access to their audience rather than an actual human. This can lead creators to be banned for unclear reasons or even no reason at all. Creators still do not own their relationship with their fanbase. 

In addition to these disruptions, the entertainment industry will have to grapple with the disruptive and transformative potential of generative AI and web3 technologies. Over time we expect these disruptions to merge and radically reshape the creative economy. 

Despite these seismic shifts in content distribution, the financing and production of content have not undergone similar disruptions. While some moves have been made towards democratizing the greenlighting and production process, big budgets and top sellers are still the domain of production studios and financing houses.

However, the advent of web3 and sophisticated generative AI is set to change this. NFTs allow creatives and artists to access financing, build a fanbase, and receive feedback on their work. Crucially, financing creative endeavors and building a fan base this way means that creators own their relationship with their community. They no longer have to rely on the mercy of the YouTube algorithm to reach their fans. In essence, web3's constituent technologies enable creatives to incubate and finance their work with the community, promising to radically shift the balance of power in the industry.

Many people believe that increasingly sophisticated generative AI will be a disaster for the creative industries. However, this technology could ultimately democratize access to high-quality content and enable highly creative people to scale their output more rapidly. Generative AI is going to drastically reduce the cost of writing, copy, and visual special effects over the next several years. This will make creating sophisticated creative works, like high-budget TV shows, more accessible for most creatives. Individual creatives will be able to leverage generative AI to multiply their creative output.

These technologies will inevitably disrupt the traditional Hollywood model and the wider creative industries. However, this disruption will likely lead to a more democratized and decentralized industry set-up. NFTs and cryptocurrencies can play an integral role in the future configuration of these exciting industries. By providing direct access to fans and financing, these technologies can empower creatives to take ownership of their work and connect directly with their audience. This shift has the potential to transform the creative industries and change the way we consume and engage with content.

The growth of blockchain technology will push the world into a new phase of internet user experience: Web 3.0. This new internet logic will be defined by decentralization & ownership. It will disrupt entire industries, and completely revamp the creator economy. Ultimately, it will empower creators with ownership over their creations and their relationship with their fans.

The internet is shrinking the creative value chain and bringing the creator of content much closer to the consumer. This will have profound effects which have not yet played themselves out fully. More efficient forms of crowd financing including NFTs and security tokens and more sophisticated generative AI will only accelerate this process. 

The creative industries are like dominoes ready to fall to disruption. We should expect the industries which require less up front investment and are easier to distribute via the internet to be disrupted first: including art, social media influencers, music and writing. Then we should expect these transformative technological changes to revolutionize the more expensive creative industries including movies, TV shows and video games. 

The trick of content has become a flood and is poised to transform into a torrent. 

Art:

NFTs, or non-fungible tokens, are revolutionizing the art world by enabling artists to monetize their work and forge stronger connections with their fan base. The internet has played a pivotal role in changing the distribution of art, making physical spaces like galleries less important and diminishing the influence of middlemen and professional tastemakers.

NFTs are digital tokens that use blockchain technology to verify the uniqueness and ownership of a piece of digital art. This allows artists to sell their work directly to collectors and fans, bypassing traditional gatekeepers such as galleries and auction houses. As a result, artists can retain a greater share of the profits and maintain more control over their creative careers.

Furthermore, NFTs provide artists with new ways to engage with their fan base. By creating limited edition digital collectibles or offering exclusive access to content, artists can build loyalty and a sense of community among their supporters. Fans, in turn, become active participants in the artist's journey and gain a sense of ownership in their favorite creator's success.

The internet has facilitated this shift by making it easier for artists to reach global audiences and showcase their work. Social media platforms, digital marketplaces, and online galleries allow artists to build their own personal brand and bypass traditional intermediaries. This empowers artists to take charge of their careers and forge a more direct relationship with their fans.

In conclusion, NFTs and the internet have changed the landscape of the art world by empowering artists to monetize their work, build relationships with their fans, and lessen the importance of physical spaces and traditional tastemakers. By embracing this new paradigm, artists can enjoy greater autonomy, financial success, and more meaningful connections with their supporters.

Creator economy: 

“I’m not a Businessman, I’m a Business, man.” 

• Jay Z

In this section we are not only talking about social media influencers and youtubers, but artists, musicians, writers, movie producers, actors, newspapers, magazines, chefs etc. When you take all of this into account, the creative economy is worth well in excess of $1 trillion dollars I would expect. 

Two problems here: 

• First creators livelihoods, their connection and relationship with their community is ultimately intermediated by 3rd party platforms making their earning substantially less secure

  • They are also held hostage to the whims of the algorithms which largely determine what content will be amplified and therefore successful. 

• Second, the economics of these platforms are based upon eyeballs and views and therefore disincentivize quality

Since the industrial revolution and the rise of Taylorism drastically increased the variety and quantity of consumer goods, companies have relied on various forms of mass marketing to drive consumer demand. Today, consumer spending is the lifeblood of advanced economies with household spending accounting for 70% of the US economy. This is very different from the economy of even the late 1800s in which most families could only afford the basic necessities of life. Advertising played a fundamental role in shifting the economic engine of society and the creating the consumer economy. In fact, many of the world’s most recognizable brands were built on the back of TV advertising. However, back then consumers could only choose from among a handful of channels so consumer attention was easy to capture. 

The internet and the rise of social media radically changed this dynamic, fragmenting our attention. “In a world flooded with choice, attention becomes the most valuable commodity.” In an attempt to appeal to the new generation of consumers, brands appealed to prominent youtubers and instagram influencers, the rising stars of the new social media landscape in an attempt to reach their communities. This new method of engagement and marketing has been dubbed the creator economy and it has grown enormously over the past 5 years to a value of over $100 billion today. As the space has evolved and the amount of paid content on social media sites has proliferated exhausting users, brands have begun changing the way in which they advertise in the space. Originally, brands paid social media influencers for posts or collaborated on one-off marketing campaigns to advertise new collections. However, as the market has become saturated with this content brands have increasingly focused on establishing long term partnerships with creators that align with their ethos and the target demographic for their products. 

The extraordinary growth in the creator economy has been fueled by the convergence of e-commerce, social media and online communities and this trend is nowhere near finished. As these trends become increasingly intermeshed it should create a golden age for the creator economy; however, the current creator economy suffers from a number of problems that will limit its growth rate and decrease the attractiveness of the overall ecosystem. 

Counterintuitively, despite the success and value created by the creator industry, it is exceptionally difficult for the average creator to make money. There are two basic reasons for this. First, the creators' relationship with their community is mediated by platforms which capture a majority of the revenue and make the creators revenues much more uncertain. Second, the current advertising revenue mode prioritizes clicks and eyeballs irrespective of the quality of the content and the customer which pushes creators towards clickbait and sensationalist content in an effort to break through the noise and have their content noticed on a platform. While these problems won’t stop the rise of the creator economy, they will slow down its growth and make the industry substantially more dystopian, concentrating wealth in the platforms and the biggest influencers - and promoting valueless, clickbait content - at the expense of smaller creators producing high-quality niche content for a core group of dedicated fans. 

First, lets discuss the problem of a creator economy that is largely intermediated and controlled by platforms. While it is user engagement and content that has made platforms like instagram, facebook, youtube, twitter and tiktok successful the platform captures the vast majority of the value created by these activities. Youtube makes north of $30 billion a year in ad revenue, only some of which trickles down to the creators of its content. Moreover, Youtube is likely the best of these social media giants. The other platforms share close to nothing with the creators of their content. 

Equally problematically, because creators relationship with their community and followers is intermediated by third party platforms their livelihoods are at the mercy of these platforms. If they are banned for whatever reason, they lose access to that community and their related income. Even if they are not outright banned the success of a creator’s content is dependent on the platforms algorithms, which are black boxes. This means that creators can suddenly find their content demonetized - for discussing sensitive issues like the Coronavirus pandemic or the war and Ukraine or for no reason at all. The biggest complaint of many creators is that they are held “hostage” to the algorithm and possess zero leverage in the relationship. In fact this is a frequent complaint of my sister who is a Tiktok dancer who is currently shadow banned we think because the algorithm thinks she is underage (she’s 20). 

The second problem is that these algorithms and relatedly the advertising model that accounts for the vast majority of these platforms revenues use clicks and eyeballs as their primary metrics. The typical form of advertisement on these platforms and on the web in general are banner ads or embedded advertising. Advertisers pay for these ads based upon the number of eyeballs that see them and the number of clicks they generate. As such these platforms generate more revenue from sensationalist or click bait titles than nuanced and informed content. As a result, the algorithm promotes this content more heavily creating a race to the bottom in which creators compete to have the most eye-catching titles in order to have their content amplified by the platform. As sensationalist and clickbait titles dominate the recommendation engine of these social media platforms, more nuanced, informative and ultimately valuable content suffers. While this leads to greater advertising revenue and more engagement for platforms and creators in the short term, ultimately it is a tragedy of the commons, decreasing the value of the platform and creators content in the long term. 

In combination these two interrelated problems have made the creator economy quite dystopian. Although numerous studies have shown that the advertising campaigns of smaller influencers with a core group of committed followers and high levels of creator engagement lead to substantially better ROI on marketing spend than mega influencers, the algorithms do not reward these creators for the value they create.

The vast majority of advertising dollars in the space are captured by the platforms. Of the economics that do trickle down to creators, the vast majority are captured by the top 1%, the social media tycoons with tens of millions of followers who are becoming brands in their own right. While the internet was suppose to democratize creativity and create more opportunity for all, in reality it has concentrated the economic returns of the creative economy in the top 1%, steepening the power law distribution of returns. Fortunately, the emerging ownership economy or web3 offers creators an alternative way of connecting with their community and monetizing their work. It promises to even the playing field and share the economic returns of the creator economy more fairly among all industry participants. 

Brings transparency because the distribution of economic returns within a community is clearly visible to all participants, increasing fairness. 

Despite this, 99% of creators cannot earn a sustainable living through their work. The platforms and middle men capture a majority of the economic value created, distributing scraps to the actual creators that make their platforms value. Moreover, the top 1% of creators capture the vast majority of the money that does trickle down to the actual creators, leaving very little for the 99%. 

It is a truism in current industry dynamics that the gatekeepers of an industry make more money than the creators. Music labels make more money than artists. Studios make more money than directors or actors. Art buyers and distributors make more money than distributors. Social media companies make more money than social media influencers. 

This is because in the old world, it was exceptionally difficult to reach your audience and finance your initial work. Gatekeepers reaped the majority of the economic rewards because without their capital to finance an artists first albums, and their reach to introduce their music to influential people within the industry, new artists were almost guaranteed to fail. Additionally, the gatekeepers and middle men in a creative industry are always more concentrated than the actual artists or creators. Again this tilts power in favor of the gatekeepers because they control a much greater swath of the industry and have the ability to ruin the careers of creatives who cross them or push back against the economics they demand. 

However, as the technology underlying the blockchain, NFTs and web3 more generally continues to advance, the role of gatekeepers has become more replaceable. Gatekeepers coordinate the flow of investment and creative works within an industry. However, distributed ledger technology and smart contracts are largely capable of replacing gatekeepers function within many industries. 

Another problem in the creator economy is that much of their interaction with their users is mediated by the algorithms. Content creators on youtube for example are at the mercy of youtube’s algorithm which rewards overly emphatic video titles and can demonetize certain videos for content related to war or other random and somewhat arbitrary subjects. This creates a very uncomfortable situation for many content creators in which their livelihoods are dependent upon the whims of an unknowable and opaque algorithm upon which their connection and access to their community and users depends. 

Additionally, as much as social media has grown over the past decade, influencers have grown faster. The huge followings that today’s influencers and content creators enjoy has begun to tip the balance of power back in favor of the largest influencers and creators. Increasingly, these new social media and content personalities see themselves as a brand rather than as a brand advertiser. They want to own an economic stake in the value they create for companies or they will create their own competing companies. Josh Red Bull energy drink example. 

The rise of web3 and NFTs gives these creators another option. The ownership economy literally allows creators to treat their brand and work as a business and sell access/shares to their community who will then own a stake in their success. 

Books and Publishing: 

Our ability to tell stories is unique, separating humanity from the rest of the animal kingdom. This ability evolved over the millennia from cave paintings and oral traditions to the invention of writing and eventually the printing press.

Most books today are written by a single author. But this is a relatively recent development. Our species’ oldest stories were passed down as oral traditions by generations of bards who each added their own creative flair to the story. Thus, many of the most important books in history like the Bible, the Iliad and the Odyssey were composed by many people over centuries. Their origins and authorship are therefore unknown and unknowable.

Web3 technology allows for similar cases of emergent collaborations while simultaneously providing the tools to attribute credit for various sections to their authors.

Simply put, these stories evolved based on old technology.

We can now do better.

Web3 technology offers writers the ability to take back control of their creative work by providing a flexible market for crowdfunding and a better value proposition for investors. Moreover, web3 promises to enable a new generation of living books which continually incorporate community contributions into the writer’s original work — creating books capable of self-evolving.

The value behind crowdfunding through NFTs and decentralized books becomes more apparent when we examine the difficulties authors face with the traditional publishing industry.

Why the Traditional Publishing Industry Sucks

The book publishing industry has not changed substantially since the 1990s despite the advent of the internet and the rise of Amazon. The industry operates as an oligopoly that has in fact become more concentrated over the last several decades through a series of M&A transactions.

Today, 5 global publishing companies control 90% of the anticipated top-selling books. This industry concentration decreases the leverage authors have and leaves them with lower pay & benefits.

The global publishing industry suffers from several other problems. Here are a few examples of those problems.

1. The industry is Slow
2. Outdated Economic Model
3. Opaque Approval Structure
4. Discrimination
5. Legacy Business Models & Antiquated Marketing Strategies

*The industry moves slowly. *It can take weeks or months for authors to hear back after submissions. And that’s just acquisition. Getting your book into print can take up to two years.

Outdated Economic Model. Despite the increased accessibility on the customer's end, authors typically only receive 5–20% of a book’s royalties after the advance has been repaid.

Complicated and Opaque Industry Structure with Multiple Gatekeepers. Authors need to hire agents to pitch their manuscript to publishing houses. Those agents typically take 15% of the author's net pay. Authors also need an acquiring editor, and editors usually assign prereaders to pre-approve submitted content. Even if the editor loves your manuscript, they still must sell it to the rest of the team. This complexity creates an opaque approval process in which books often get rejected for unknown reasons.

The Traditional Publishing Process is Rife with Discrimination. The 2020 study Rethinking ‘Diversity’ in Publishing, found that writers of color do not receive the same industry access, creative freedoms, or economic value as white counterparts. Black writers with large followings frequently get paid 3 to 10 times less than white authors with smaller followings.

Outdated Marketing Strategies. Publishing houses have large marketing budgets and strong relationships with bookstores, online reviewers and media outlets. However, their marketing strategies have not changed substantially since the 1980s.

Even so, Publishing houses typically only use these resources for books they believe can be bestsellers. This leaves most indie authors having to self-promote their content while still paying a huge percentage of their economics to publishers.

The Rise of Self-publishing

The difficulty and poor economics offered by the publishing industry have led a huge number of authors to self-publish. The self-publishing industry began in 2007 with Amazon’s self-publishing innovation, Kindle Direct Publishing. In 2011, at least 148k books and 87k eBooks were self-published. By 2017, the total number of self-published books had grown to 1.5 million.

Self-publishing is no longer restricted to niche books or authors who couldn’t make it in traditional publishing. Certain self-published books witness extraordinary levels of success. A few examples: The Martian, Fifty Shades of Grey, Eragon, Rich Dad Poor Dad and Still Alice.

Self-publishing allows authors to move faster, keep creative control, retain subsidiary rights (audiobooks etc) and earn better economics. Self-published authors typically retain 50–70% of their book’s royalties.

Many self-published books that went on to be successful were considered too niche to be economically viable by traditional publishers. There’s also evidence that self-publishing is increasing diversity, as it improves publishing access from minority groups.

But self-publishing in its current form also has its problems. While self-publishing offers significant advantages compared to the traditional publishing model, it suffers from some drawbacks.

Drawbacks to Self-Publishing

Publishing through a traditional publisher usually means that authors get a cash advance, and the publisher bears the expense of editors, designers and marketing strategists. Thus, self-publishing requires significant up-front capital in order to hire the professionals necessary to get your book ready for market.

Crowdfunding might enable authors to battle some of these problems. But crowdfunding platforms typically charge high fees and offer limited returns for investors. This decreases overall participation and liquidity.

The Promise of Decentralized Books

Web3 has the potential to be the greatest improvement to the storytelling industry since the invention of the printing press. Over the last decade, financial markets have been trending towards inclusion and democratization of access. Huge numbers of successful start-ups have focused on providing ordinary retail investors the opportunity to invest in asset classes that have traditionally been reserved for the financial elite.

Crowdfunding books through the sale of security tokens and non-fungible tokens (NFTs) is an extension of that trend. NFTs enable people to invest in their favorite books and authors, while receiving robust property rights in return. Over the years, the success of those books & authors will be directly linked to the value of IP. Imagine investing in Harry Potter in its early years and receiving revenues from and characters in JK Rowling’s incredible fantasy universe.

Furthermore, investors will have access to more methods of monetization. Instead of waiting for royalty payments, investors will have the option to sell their IP rights in decentralized markets whenever they see fit. The infrastructure for such markets already exists.

Another thing to consider is that the NFT’s can be dynamic in nature. Dynamic NFT’s can evolve. This evolution happens in the token ID, Metadata or the content attached to the token. This method allows holders to propose changes and improvements to the book. Investors can then vote on those suggestions. The winning ones would then be incorporated into the token metadata. This serves to protect the decentralized nature of the investment process.

Crowdfunding through NFT’s can convert financial backers into contributors. Investors are now able to contribute to the overall project. With time, those contributions will help to convey knowledge, skills, expertise and experience of these investors to other IP projects. This will not only benefit the investors, but it’ll also significantly benefit the final product.

The US constitution is a perfect example of how this might work. It’s a powerful document built upon certain “self-evident” truths that proposed a new form of representative government by and for the people. This was a heretical idea in the days of absolute monarchy, and it went on to reshape Western Civilization. The Constitution was not written or decreed by a single individual. Instead, it was the end-result of the ideas of several founding fathers.

The document is the result of collaboration.

However, even the constitution had to be amended numerous times to better reflect the universal values it stood for. Today we believe, slavery and denying women the right to vote are inconsistent with the ideal “that all men are created equal”. The 13th and 19th amendments ironed out inconsistencies in the Constitution’s message and made it a better document. In total, the US constitution has been amended 27 times. Yet the process for amending the constitution is extremely difficult and time consuming.

While the underlying ideas of the constitution are universal, its systems are not. The world the founders lived in is very different from the world we live in today. In many ways the constitution is preventing meaningful reform on issues like mass shootings, women’s’ right to abortion and the influence of money and PACs in politics. While the ideas espoused by the constitution were revolutionary. The methodology by which it is updated was constrained by the technology at the time.

Decentralized books through web3 technology have the potential to arrest a decades long decline in the earnings of writers and supercharge a new literary golden age. Leveraging web3 technologies allows existing authors to find investors and contributors to their project who will help them finance and create the best version of their work while making money in the process.

Community-owned and edited IP promises to give control of NFT project lore and content back to the holders, creating better products in the process.

Ultimately, I believe that this technology will enable a new generation of DAO constitutions, powered by web3 and controlled by the community of holders. These constitutions can help to establish robust governance frameworks and enable DAOs to organize effectively in much the same way as the US constitution did for our government 250 years ago. More on this in a later section. 

**Media and Entertainment: **

One of the industries I believe will be the first to be disrupted by NFTs is the media and entertainment industry. 

The entertainment industry has experienced seismic shifts over the last decade and the forces underlying this shifts are far from over. A decade ago most TV shows debuted on network television. The big 5 studios accounted for a significant majority of the content produced. Movies always appeared in theaters and then were released on DVD. Online streaming was still a relatively new concept and Netflix was relatively unknown. 

This is emphatically not the entertainment world we live in today. 

Today everyone understands that the future of entertainment is instant video on demand available on any wifi connected device. In the last few years practically major entertainment brand has moved into the streaming market. The massive influx of new entrants to the market has significantly altered industry dynamics, making it harder to retain subscribers and increasing the cost of content. 

As the number of streaming platforms proliferate, subscribers become less loyal to individual platforms. They adopt a mercenary approach, signing up to one streaming platform for a few months until they get bored before moving on to a different streaming service. The difficulty in retaining users has led streaming platforms to focus on creating or buying blockbuster content that retains existing users and draws new ones. Huge shows with expensive budgets like Stranger Things, Game of Thrones / House of the Dragon, Euphoria, The Mandalorian, and The Rings of Power become a reason to subscribe to a particular platform. Moreover, key movie franchises that are frequently rewatched like the Marvel movies have proven essential to drive subscriber retention. 

The huge shift into the streaming market has led to a massive influx of capital for original content and a related shift towards cost-plus deals that has drastically increased the cost of content. Under the previous economic model, a significant portion of producers, directors and lead actors compensation came in the form of backend participation. Key talent with backend participation would get a percentage of every dollar earned above a certain threshold of return for the financier. This economic model helped to align incentives and keep the cost of productions down. 

However, this is not the typical economic model utilized by streamers. Most streamers rely on cost-plus deals and backend buyouts under which they pay a premium over a TV shows budget - 10-20% is fairly standard - to buyout the backend and ensure that they own 100% of a piece of IP. This allows streamers to capture all of the revenue from the original content that appears on their platform and ensures that third parties do not gain access to their proprietary viewership data. While this model was initially very successful it has a couple of major downsides.

Cost-plus deals have significantly increased the cost of content and while reducing the quality. Since key talent no longer have access to backend participation they tend to demand more up front cash to participate in productions. In essence through cost-plus deals the streamers are paying out as if every production will be a hit. Furthermore, cost-plus deals often don’t result in the best products. Since directors and actors receive the same amount of money regardless of whether their production is a hit or not they have less incentive to put in the extra time and effort to ensure that it is successful. 

Many producers, directors and actors hate the cost-plus model and want to own some economic upside in the success of their productions. 

Some select quotes. Creative Sharecroppers 

The cost-plus model has not done any huge favors for the bottom lines of the streamers either. Increasing subscriber churn and the escalating cost of content have led to most of the streamers losing billions of dollars a year and their is no end in sight. Netflix is the only profitable streamer and there is no longer a viable path to profitability for many of these platforms. If things continue as is, in a couple years it may be that every streamer except for Netflix, Disney +, Apple and Amazon (which can afford to treat their streaming services as loss leaders) will go bankrupt.

Add somewhere that studios are increasingly financing the low hanging fruit, producing franchise sequels that bank on an existing audience. While this may increase the return on investment in the short run, it decreases the attractiveness of the overall media portfolio in the long run. There are only so many sequels you can produce and the lack of funding for new ideas means that you are not building as many new franchises for tomorrow.  

This state of affairs has led many content buyers to pull back on spending and pause the greenlighting of content. There is currently huge uncertainty in the market. However, the major players are still greenlighting content. In fact, content spending is expected to increase at a mere 2% this year down from 8% last year. Hardly an armageddon in the entertainment market. 

Underlying Trends

Despite the near term problems in the entertainment market, there are a number of underlying trends that mean that the entertainment market will continue to grow and be valuable for years to come. 

**Growing Smartphone Usage **

The majority of hours of video streaming are now taking place on people’s phones making entertainment much more accessible than ever before. What’s more smartphone adoption in the rest of the world is nowhere near complete. As smartphones become cheaper and average incomes rise, more and more people in developing countries will be able to afford smartphones increasing the consumer base for entertainment.  

Centrality of Content

Technological improvement is making stories more important than ever. This is especially true in the context of the gaming market, which is one of the fastest growing major industries in the world. Over time, the gaming and entertainment worlds will become ever more enmeshed, creating value in both industries. Entertainment will become interactive and you will be able to play the plot of a sci fi or fantasy series as your character. 

Entertainment and consumer behavior

Already entertainment powerfully influences consumer behavior. For instance after the first two Transformer movies, GM saw a 10% gain in sales for yellow Camaros. As technology continues to improve, the ease of buying items you see in a TV show or movie and the immersiveness of that content will naturally increase. Both of these trends will drive more money into the entertainment market. 

A Film3 Future

Despite the attractiveness of the entertainment market over the long term, the industry is currently suffering from a number of intractable problems that will inhibit its long term growth. Creators lack the power and capital to obtain a good negotiating position which hurts the creative output of the industry. Buyers are faced with long development timelines and uncertain demand for projects. Skyrocketing costs are bankrupting streamers. 

Fortunately, web3 can help solve a lot of these problems. 

As a rule of thumb, in the entertainment industry, the more money you spend developing an idea the better your negotiating position with buyers. If you just have an idea, buyers will typically offer you a take it or leave it type deal with very little upside. As you invest more money into developing your IP, producing a bible, format and ultimately a script your negotiating position improves. 

However, this takes a lot of money. Independent production houses routinely invest $500k-1m developing a piece of IP. This requires a lot of working capital if you consider that independent financing studios often have dozens of pieces of IP in development simultaneously. 

NFTs have the potential to radically alter this process. 

NFTs offer creators a way to raise money to cover development funding and start building a community around a piece of story much earlier in the process. The ability to connect directly with a writer or directors fans is a huge bonus of this type of arrangement. Having a dedicated community also allows the creator to iterate faster and test their ideas and thinking about the direction of the story with the community. 

This gives creators a much better position when negotiating with buyers and derisks the investment for buyers as they can see that there is indicative support of the concept and a core group of fans already in place. 

Crowdfunding and community building for content.

The Fracture and Claynosaurz are great examples of how NFTs can be leveraged to build a web3 native IP universe. 

The Fracture is a sci-fi brand born on the blockchain that tells the story of a post-apocalyptic world controlled by an elite of augmented humans that live apart from the forgotten mass of normal humanity that is plagued by enigmatic extra dimensional beings. Over the past year the team has succeeded in building a fanatical following and adapting the storyline to take advantage of the ideas and trends they see in the community. The brand is currently in the process of scaling up their content and building a game around their storyline and NFTs. 

Claynosaurz are a digital collection of animated dinosaurs made out of clay. The collection has been designed by a team of 14 world class animators who work at some of the largest animation brands in the world. They released an NFT collection because they wanted to create something of their own. 

They have built a huge following of 40,000 on twitter and are leveraging their community to quickly sound the market for various ideas and incorporating community feedback. 

They plan to continue to produce short form content to keep their community engaged and test the appeal of various storylines and ideas. Over time they plan to allow holders to evolve their Claynosaurz and build a game around the NFTs. 

This is essentially the lean startup model applied to content incubation and community building. 

However, I believe the true market opportunity is in the adaptation of the best existing sci-fi and fantasy books to TV shows and movies. 

How this would work is that a founder would get in touch with a sci fi author that they are a particularly big fan of and secure the rights to option their book for some agreed upfront payment and a percentage of the backend participation. The founder would then raise development funds through an NFT sale, some of which would go to securing the book option with the rest being invested into development of the IP.

This strategy is made more appealing by ChatGPT and generative AI. The cost of content production, both script development and special effects will come down precipitously over the next decade. TV shows and movies that would previously have only been accessible to the largest studios with massive budgets will become cheap enough to be produced by any large independent studio. 

As blockbusters become less and less expensive, having a series of them will become incredibly important to streamers. However, there are not that many storylines that you can invest billions of dollars into across the length of a franchise and have it end up well. You need extremely strong IP.