NFTs’ Latest Play: New Revenue Streams, Fan Engagement Opportunities

Do you have sports memorabilia proudly displayed in your office, or tucked away in a box somewhere in your garage? At the time you purchased them, you may or may not have considered them to be an investment. If you own, say, a few collectible limited-edition baseball cards or a signed photo of a Most Valuable Player, you may be able to cash in on them — but it would be a one-shot opportunity. However, when you bring in a digital component to collectibles, the situation changes dramatically and pushes the boundaries of what’s possible.

I find NFTs or “digital collectibles” (DCs) just as intriguing as cryptocurrencies, a related topic I wrote about in the September/October issue of The Financial Manager, recently referenced by MFM past president Mary M. Collins in this TVNewsCheck column.

Richard Taub, managing director of Pequan Group (a consultancy that specializes in audits, artificial intelligence and blockchain solutions) authored an article titled “Diving Into the NFT Business,” part of a special “Maximizing Content Returns” report that appears in the current issue of TFM. I was fascinated by this piece, as Taub uncovered the world of DCs and how the media industry could get in early and profit from this growing and potentially massive, global market opportunity.

The impact of digital technology on the music industry is a prime example of how the collectibles market may be facing similar challenges and possibilities. Taub points to Napster as the first company that stepped in to truly transform an industry largely dependent on physical product (primarily compact discs) that had to be purchased at stores or shipped to buyers. Once Napster made it possible for people to purchase music online, with the option to buy only the songs they wanted vs. the entire album, consumers became the winners as the industry was forced into digital efficiency. Soon, books, videos, gaming and news joined the digital revolution. As it turns out, the same can be done with sports memorabilia and other DCs.

There’s currently speculation around the size of the global market for traditional and “old school” collectibles, which include sports memorabilia, stamps, coins, books, trading cards, toys, music and autographs, with various sources valuing the market between $200 billion and $370 billion per year. A number of tech companies already in the DC space believe around a third of the total collectibles market will eventually be transformed to digital — the equivalent of $70 billion-$120 billion. For perspective, the annual profit of Google parent company Alphabet is $40 billion, and sales of movie tickets in the U.S. prior to COVID-19 were $11 billion per year.

What’s key to the DC market, Taub says, is the potential for their revenue to become recurring. Sellers, which can be individuals or companies, not only receive payment for the initial sale of a DC, but also through secondary market transfers enabled by smart contract technology that keeps record of the owners’ data. Each time an item is sold, a royalty payment can be instantly generated to the owners. Owners of royalties can even sell their “title” to revenues for a potentially larger single payout.

The process for creating DCs is relatively simple. First, a company that specializes in making or “minting” DCs must get involved. Companies such as NFT.kred and Mintable manufacture DCs as an outsourced service, also serving as digital trading markets for the assets. Other modes of distribution are further propelling the industry. For example, Samsung introduced phones in June 2020 that have a pre-installed digital asset wallet for storing DCs. Consumers can also pay for DCs via distribution hubs that serve as retail storefronts.

Taub uses a well-known sports moment to illustrate how a digital scenario for collectibles could come to life, with the “Miracle on Ice” at the 1980 Winter Olympics where U.S. college hockey players inexplicably pulled a stunning upset over the Soviet team — the defending champions — and eventually took home the gold medal after defeating Finland.

Here’s how it could play out: A 60-second clip of the game’s final moments is created digitally, including sportscaster Al Michaels’ clock countdown and famous line “Do you believe in miracles?” during which the U.S. team throws their gear in the air at the final buzzer. To differentiate this clip from others easily viewable on YouTube or elsewhere, autographs of all living members of the American team are collected and digitally applied to the clip, along with reflective commentary from Michaels, team coaches or other notable individuals. Only 20 copies of this clip are made, honoring the team’s 20 players. A single image of the clip is captured and appears as a photo within a picture frame that hangs on the purchaser’s wall, but the entire video and commentary can be played by pressing a button on the frame.

The U.S. Olympic Committee (USOC) owns the 20 copies, and when it sells them (Taub suggests they may go for $500,000 each), not only does the USOC earn significant revenue through the sale of each of the 20 assets, but the team’s players (or their estates) will also earn a royalty every time the DC is re-sold. For example, if a buyer passes away and the inheritor decides to sell the collectible, it may be placed on a global exchange for auction. As soon as the highest bid is collected, the USOC and players (or their estates) will receive royalties.

Imagine similar scenarios for other DCs. The NBA has already tapped into this lucrative space, reporting $500 million in DC revenues in the first quarter of 2021 alone. In June 2021, Mattel launched DCs of three Hot Wheels classic toy cars.

DCs can be more than just a revenue-boosting tool — they can also serve as meaningful rewards to encourage fan engagement and loyalty. One of my company’s divisions, Warner Bros., took such an approach when it released 91,000 free, limited-edition NFTs featuring characters from Space Jam: A New Legacy, which included favorites like Bugs Bunny, Tweety, Porky Pig and the star of the film, LeBron James. Each fan who registered on Nifty’s (niftys.com), the NFT marketplace hosting the launch, received a free NFT which was randomized to include all levels of rarity. We were able to build fan excitement around the movie release while making NFTs more accessible to the mainstream market.

With the upcoming release of The Matrix Resurrections, Warner Bros. will be launching another promotion to engage with fans and allow NFT owners the opportunity to inhabit the Matrix universe as characters that are uniquely theirs.

The possibilities in this digital world are virtually boundless. If they’re not already doing so, media companies would be wise to explore opportunities to apply their own content to DCs and cash in on the new frontier of digital collectibles, all while winning fans along the way.

Cal Mostella serves on the 2021-22 board of directors of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. He also serves on the Advisory Board for The Financial Manager. He is vice president-treasurer of WarnerMedia, and can be reached at [email protected].