NFTs: The Next Wave of Hollywood Film Funding?

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The reality of Hollywood entertainment is that many independent films – those who aren’t part of the “who’s who” of the big studio franchise-based financing pool – can take a substantial number of years to get the necessary funding for development and production, if at all.  Many quality storylines just don’t see the light of day or must sacrifice elements of the film that exceed budget to ensure that it merely gets produced. 

It’s no surprise that adequate funding optimizes the quality of film production and ensures a greater reach to interested audiences – let alone, moving the storyline off paper altogether.

The traditional models of funding and ownership of Hollywood films are in the hands of an exclusive club, of sorts.  But a new solution to equalize opportunity and decentralize power has been birthed from blockchain technology.

Non-Fungible Tokens (NFTs) are digital assets that represent ownership of and have breathed a new life into art, sports, gaming, music, brands, and collectibles.  They allow greater exposure for artists and brands while opening the doors to passionate fans and investors to take part in the ownership of prized pieces of digital art, branded products, video clips, and more.

While some NFT ownership rights are strictly limited to the digital asset itself, opportunities with film-related NFTs go well beyond this to blend the virtual and real-world aspects of these tokens.

Beginning with conceivably the biggest incentive, fans of a particular director, storyline, or film genre who invest in a film via NFTs have the opportunity to reap the financial rewards through the shares of box office and streaming revenues.  Investors are brought on without the need of an agent or manager, which is not the case with traditional funding methods.

Tied to each NFT token, investors acquire fractional ownership of film content, whether it be digital artwork or content associated with favorite characters and features important to the storyline, product placement, or of the film rights itself.  Under a partial ownership scenario, the intention is that the revenue generated by the film will be distributed in an equitable manner among the investors.  And, while the film is in production, investors can conceivably choose to stake their tokens to gain even greater yields from their investments.

Beyond the financial rewards, NFTs and the associated contracts offer unique ways for investors to engage the community within which they have invested their monies.  NFT holders can be given screen time in the film, producer credits, or invitations to exclusive premiers, events, or movie sets to hobnob with the cast and crew.  The opportunities are infinite. 

On the business side, the benefits are equally appealing. Securing funding is a toilsome undertaking.  While there are many ways to pursue funds (crowdfunding campaigns, private investors, grants, tax incentives, gap (loan) financing, negative pickup deals (debt financing), pre-sales, product placement, etc.), they aren’t without their own limitations and challenges. 

NFTs offer producers another means of generating funding while securing a built-in fan base who can participate in the production process and potentially reap benefits from the movie’s success.  As an unregulated, decentralized technological tool, NFTs allow the buyer and seller the opportunity to determine the terms of the contract.  Other sources of funding, those mentioned above, have rules and regulations that make utilizing them with success often challenging.

With the promise of movie NFTs, new writers, producers, directors, and actors are empowered to bring their stories, visuals, and voices to life.  And, fans get to weigh in on the types of movies and storylines that get produced as NFT ownership represents their voice and vote.  It’s a win-win for both sides.

While the excitement about the possibilities for NFTs is high, there are opposing viewpoints.

The DeFi has proven to be volatile and NFT investments are subject to this uncertainty as most NFTs are purchased using Ethereum or Bitcoin.  What about fraud, scams, and security breaches?  Yes, however, this is not new to any other period of time and industry.  

Moreover, significant measures are being taken to develop intricate technology safeguarded with layers of security that make it harder, and more expensive to hack a system.  

Then there are environmental concerns.  Since many NFTs are created and stored on the Ethereum network, there has been some pushing back on the carbon footprint and broader carbon impact. 

But numbers don’t lie when it comes to the current staying power of NFTs.  According to DappRadar, indicators show that the NFT marketplace Opensea has 1.2 million traders, exceeding $20 billion in all-time sales volume, as of early 2022. 

A real-world production project employing the use of NFT as a source of funding has greater hopes of success than the name of the film might imply:

Niels Juul, who was executive producer behind Martin Scorsese’s The Irishman, created NFT Studios, a production company for funding a series of films.  Juul, who is in support of overcoming the “antiquated Hollywood system”, expresses sensitivities for independent films in the difficult task of securing funding, particularly at the development stage, and the number of years it takes for films to be released on screen.  

Juul’s ambitious plan is to secure between $8-$10 million through the sale of 10,000 NFTs, where investors will earn a share of any profits and have access to meet the cast and crew, to fund the film called A Wing and a Prayer.  To kick-off the funding efforts, NFT Investments, a UK PLC, has paid $1 million for a 20% share in the production. 

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