TL;DR - Watch the video at the end of this article!
Today, we are gonna continue our conversation about NFTs and Cryptoart as part of the “Beyond the Hype” series. We are gonna address some of the main issues we have in traditional creative industries in more detail, and how the technology behind NFTs could help solve them. We’ll discuss:
The centralization of power within the industries
The difficulties artists have in monetizing their work
Misattribution of art pieces
The extensive and opaque process of Collecting Royalties
Centralization of Power Within the Industry
The first issue we have to address is the high level of centralization of power within the industry.
The creative industry today is heavily guarded by a group of gatekeepers. In the music industry, for example, the major record labels have maintained a well-established dominance , and sphere of influence within the industry. The music industry’s value chain, from composition to recording, publishing, licensing, distribution and marketing, is pretty much centralized amongst them, and even though you have the option to go independent, gaining/acquiring the maximum value for your music is extremely difficult for most artists.
These companies also very much influence the major streaming platforms, which allow them to basically reap most of the benefits within this space as well.
Just so you have an idea of the level of centralization we see in the music industry, Universal Music Group alone is estimated to account for about 30% of global recorded-music sales. No wonder they are heading for an IPO…
Similarly, in the traditional art industry, there’s a very small group of influential people who lead the major museums, galleries, auction houses and art publications. They define which artists should be recognised, and which should not. This creates an inequitable, and sometimes discriminatory market, which is very bad for art in general.
Blockchain technology can assist in remedying the centralization problem we have today. This technology allows the creation of a decentralized (peer-to-peer) network, which removes the need of having central figures to establish trust and for the system to function.
By tokenizing artistic productions, we could have decentralized and open creative industries. Fans and collectors would be more empowered to decide which creators they wanna celebrate, also democratizing the process of discovering new talent.
Difficulties Artists Have in Monetizing Their Work
The second issue we have to address is the difficulty around monetizing artistic productions. In the traditional art industry, only a handful of artists are able to make a decent living off their art. These artists are the ones with access to the main galleries and venues, and consequently to art collectors. And even if you have the privilege of being one of the selected few, the middlemen involved in artwork transactions can take a significant cut every time you sell a piece.
In the same way, for musicians, being signed to a major record label could be a huge advantage, in actually making money off your music. But even then, there’s no guarantee. Many musicians get trapped in abusive contracts and end up getting less than 20% of the revenue their music creates.
Another major problem in the music industry is the current pricing model. The metrics for measuring the value of music today are not exactly efficient. There are fans who value the work of an artist more than others, depending on the connection they feel with that artist’s music. But in today’s business model, it’s very difficult to capture the value from these fans.
Actually, for artists in general, capturing the value of your art is tough in this current model.
It’s said that an artist can thrive off just a handful of true fans — who are the ones that purchase and engage in each and every piece of content that artist releases. NFTs provide the opportunity for artists to sell their artwork directly to their audience and these true fans in an easy way. No abusive contract needed, no multiple third party players to take most of the artist’s pie...as the crypto art market evolves, the artists will become the ones in control of how they monetize their work!
Misattribution of Art Pieces
Another issue in the creative industries is the misattribution of art pieces (or errors and omissions in provenance), which is mainly experienced in visual art.
Works of art are often accompanied by documentation (known as provenance) that is required to attest their authenticity.
The current system of assigning provenance is centralized, and highly vulnerable to corruption and counterfeit. As we live in a digitized era, hacking also becomes a major concern. There’s actually a documentary on Netflix called “Made You Look” that touches on this subject with real cases. I highly recommend it.
According to a 2019 report made by Deloitte, one of the top consultancy and advisory firms in the world, one critical challenge when it comes to broadening the appeal of the traditional art market is a lack of transparency. In this report, 75 percent of collectors said that a lack of transparency was the biggest threat to the reputation of the art market.
On this matter, NFTs promise to be a game changer. As mentioned in the 1st episode of this series, the NFT includes a unique digital signature that comes directly from the creator. This provides proof that the token was created by that person. Without having to go through all the bureaucratic processes, we now have a reliable certificate of authenticity.
Blockchain technology can help to remedy the transparency issues and allow the broadening of the art market, benefiting artists and collectors.
I’m aware that lately, artists have been reporting having their artwork stolen, and sold as NFTs, raising concern in the artistic community. Talk about the absurdity in this space… but I believe this is proof of the immaturity of the market today. As the crypto art market matures, and people become more educated in it, this issue will diminish significantly. This is as allegedly stolen art work will not be accepted as legitimate by everyone else, losing its value over time.
Besides, online marketplaces appear to have developed procedures to address the potential for infringement (for example, OpenSea’s Terms of Service invite rights holders to submit complaints, and state that the site “will take down works in response to formal infringement claims and will terminate a user’s access to the Services if the user is determined to be a repeat infringer”).
Collecting Royalties
The last issue to address is the difficulty in collecting royalties.
It is known that the collection of royalties in creative industries is an exhausting process. In the music industry, the process is sometimes not 100% clear, it takes months for musicians to actually see the money, and that’s IF they ever see it.
In this sense, NFTs minted on the Ethereum blockchain, for example, under the ERC-1155 standard, allow musicians to collect royalties every time that NFT is sold in the secondary market, in real time, by assigning a percentage of return over the reselling price. This means that if that piece keeps being sold for higher prices, the artist benefits from this price increase as well.
This feature also helps painters, photographers and visual artists in general, since reaping the benefits of having their work resold on secondary markets was extremely difficult.
The tokenization of artworks unlocks a more transparent and disintermediated management of intellectual property rights and also real-time settlement of royalties.
Final Thoughts
As blockchain technology evolves, the NFT and crypto art market will evolve to become more established, with wide adaptation, allowing the liberalization of creative markets as a whole. With the emergence of the millennial collector, new ideas and models in the art and finance industry are required to accommodate the new generation’s wants and needs.
The crypto art market will eventually reach a more mature state. And when that happens, the idea of crypto art as an established asset class will become more mainstream. Artists and collectors will be the main winners then!
Now, don’t get me wrong: I still believe the main players in creative industries today are still going to be the ones reaping the most benefits, at least in the near future. You can’t change culture overnight! But I also see the potential, through crypto art, for more artists to get due recognition from people who resonate with their work, allowing the creation of meaningful connections between creators and collectors.
In the 21st century, the legacy centralized model in every industry is incompatible with a digitalized and globalized world. The world is beyond that! And NFTs could be a tool to realise the evolution so much needed in this space.
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