The explosive demand for non-fungible tokens is driving artists, creators and intellectual property holders to consider their digital options, but the Silicon Valley ethos of “move fast, break things” is a poor fit for brands looking to maximize their intellectual property portfolio values through NFT platforms. Major opportunities exist, but consumers will reward brands that build comprehensive NFT strategies over those that rush to push out one-off NFT efforts.
Why do NFTs matter to brands?
NFTs—blockchain-backed units of data that represent digital files often in the form of pictures, videos and audio clips—are increasingly valuable as commodities covering many entertainment sectors, including sports, music, modern and traditional art and digital popular culture.
The crucial component of the NFT is ownership—while the file itself (for instance, an uploaded photo) is infinitely reproduceable in the digital and physical realm, the ledger of transactions tracked on the blockchain records NFT ownership and provides transparent authentication. The owner has a public record of ownership; though it’s likely that anyone can view and enjoy the contents of the NFT, only the owner owns it and has the record to prove it. In the same way that the autographed, original copy of a New York Times bestseller is more rare, coveted and collectible than a mass-published copy of the same book, the NFT’s value is in its scarcity, uniqueness and record of ownership.
Brands, particularly well-known, public-facing brands, have a unique opportunity to connect with their customers and audiences through NFTs that utilize the intellectual property assets in their portfolios.
NFTs’ intersection with copyright law
Although purchasing a NFT may grant the owner a digital record of ownership of the NFT itself, it does not automatically transfer ownership of the copyright in the underlying intellectual property asset. The copyright for the NFT’s underlying work is owned by the work’s creator, absent any transaction specifically transferring the copyright.
Like buying an original, signed copy of a NYT bestselling novel—the purchase does not include a transfer of the copyright in the underlying literature to the purchaser. A copyright owner has the exclusive right to reproduce, adapt, distribute, publicly perform and publicaly display the work. This includes the right to control the digital proliferation of the work through stamping out unlicensed reproductions.
The typical purpose of copyright ownership is to prohibit the unauthorized copying of a work. This is not necessarily the goal of the NFT owner. For many NFT owners, widespread public use/consumption of the asset is the goal, rather than something to protect against.
Therein lies the key difference that is emerging between NFT markets and traditional copyright-based art and collectible markets: Many NFT owners are attracted by and pursue digital virality and are unbothered by unending reproduction of the NFT they own. In effect, the NFT provides almost a mirror image inversion of traditional notions of copyright ownership; the more widespread the consumption and unlicensed reproduction of the work, the greater the NFT’s value to the owner and to the marketplace.
Brands can test the boundaries of tagging virtual content via blockchain to drive revenue through scarcity, while simultaneously evolving a system that makes tracking digital reproduction and battling counterfeiting infinitely easier.
Take, for example, the National Basketball Association. The NBA has sprinted ahead of other entertainment and sports league competitors through its early incorporation of a well-developed NFT strategy. NBA Top Shot, run by a partnership between the NBA and Dapper Labs, allows users to buy, sell and trade NBA game highlights in NFT form, called “Moments.” The NBA, as the exclusive rights holder to all of the broadcast content, has repackaged its own copyright protected video clips and offered them to fans on its own platform, under its specific contractual restrictions and terms of service. Top Shot's terms specifically limit rights typically inherent in copyright ownership. The terms restrict the rights to adapt, transform or modify the Moment, and prevent the Moment owner from using it for commercial use.
This methodology could be a harbinger for future NFT efforts—transitioning an established brand onto another platform of engagement for its fans, allowing for the brand to control not only the content supply, but also the terms of the marketplace exchange and the extent of the applicable intellectual property protections.
Brands augmenting IP portfolios through NFTs
Some widely known and famous brands are sitting atop stockpiles of consumer goodwill and nostalgia, and NFTs provide an opportunity for such brands to connect with the public in more artistic and creative ways.
While the greatest current potential for NFT creation and monetization likely lies with brands with established, vast legions of devoted customers—some of which are more akin to fans of the brand than customers—creative integration of NFTs into marketing and promotional efforts is available to smaller and newer brands as well. To date, many branded NFT efforts have been relatively straightforward, repackaging content owned by the brand that is under copyright or trademark protection into digital art. The only limiting factors stopping brands from incorporating and proliferating NFTs are internal creativity and external interest.
We expect that most future highly anticipated product releases will include a digital collectible component in the form of limited, sought-after NFTs. Moving forward, brands should also be looking to leverage this cultural mass-adoption of blockchain technology to protect as many intellectual property assets as possible. The brands that can best weave a relationship between their products, services and NFTs will earn marketplace recognition and a sustained consumer interest in their brand that goes beyond the bounds of traditional advertising. Doing so will financially benefit the most strategic and creative companies, and continually increase the desirability of digitally identified assets.