Summary
- Many creators are unhappy with existing systems for the distribution and monetization of their work, citing a lack of control and transactions that benefit intermediaries over creators.
- Web3 tooling such as smart contracts can provide new opportunities for creators to enhance control of their creative output, through the simplification of attribution, payments, and royalty structures.
- While it remains early days for Web3, there may be opportunities for creators to build novel forms of engagement with their audiences.
- Check out our Explainers collection page for more content.
Why are creators unhappy with the current system for monetizing their work?
In the modern marketplace, many creators face significant challenges in distributing and benefiting from the monetization of their work:
- Musicians may earn fractions of a penny per stream on songs that rack up hundreds of thousands of streams, and many resort to intensive touring to generate income.
- Creators such as visual artists, choreographers, writers, and videographers may struggle to retain attribution for their work as it circulates on digital channels.
- Some may see their works resold multiple times with no share of profits, while speculation-fueled “flipping” can harm emerging artists’ careers.
- Where creatives do have a right to royalties, residuals, or other benefits from their intellectual property (IP), many can find contractual language to be unwieldy and difficult to enforce.
What can Web3 offer that’s different?
While more speculative NFT launches and sales may be declining in popularity, evidence suggests that NFTs are here to stay as tools to designate ownership of work.
Web3 advocates point out that smart contract tools such as non-fungible tokens (NFTs) can streamline compensation and distribution structures. When created and integrated correctly, NFT smart contracts can be leveraged to support streaming and other usage monetization. Smart contracts can define the terms of IP usage on Web3 publishing and marketplace platforms, automating payments and licensing, and tracking usage with fidelity.
A significant challenge with existing IP models is that it is difficult to register IP rights, and thus difficult to prove infringement. Web3 advocates posit that blockchain can provide a solution for proving the time a work was created and the identity of its creator, making it easier for creators to enforce their rights. Through Web3 publishing tools, creatives can mint an NFT that corresponds to a unique creative work. NFTs can correspond to digital or non-digital works, and contain unique identifying information that records the date and time of creation, the identity of the creator(s), and the current owner, holder, or licensee of the NFT and associated artwork.
Proponents of NFTs also cite them as a possible mechanism for recouping benefits from secondary sales of creators’ work. Under this proposed system, minting providers and marketplaces would offer a set percentage of resale value to creators at each resale of the work. However, realization of this benefit has been inconsistent. NFT royalty systems are still actively evolving, and can differ between blockchains, with smart contract terms often set by the platforms within which NFTs are minted. In some cases, platforms have retroactively opted to not enforce royalties that were advertised but not stipulated by smart contract code.
With new efficiencies gained through smart contracts, there is an opportunity to create new norms of better compensation. New paid models of patronage—similar to existing Web2 platforms such as Patreon and Substack—may be the future of creativity in Web3 (see our explainer on Mirror, a Web3 publishing platform, here).
To realize the full potential upside of such interventions, policymakers and industry operators should keep the following in mind:
- As with any novel technology, alignment between new industry practices and existing legal frameworks may need alignment. The extent to which smart contracts can serve as evidence of enforceable title (or right to payment/compensation) remains to be seen pending legal action.
- Best practices within industry should emphasize transparency and clarity for creators using products. For example, the code in some widely used NFT templates does not account for royalty payments, making them impossible to enforce. Many marketplaces rescinded their honor code policy for paying royalties, leaving artists unpaid. Better communication and education can help translate the code of an NFT into more equitable attribution and compensation—both with regards to its immutability and the terms of the related smart contract(s).
This article originally appeared in the January 2023 Income and Wealth Creation in Web3 Report by the Crypto Research and Design Lab (CRADL) – a research organization committed to objectively documenting people, organizations, and activities in the crypto ecosystem and their impact on the broader industry.
