By Ariane Lindsay
NFTs, Non-Fungible Tokens, are beginning to make their way into the film industry. Because the concept is relatively new, it remains unclear where this may lead. According to The Guardian, Niels Juul, executive producer of Martin Scorsese’s film The Irishman, is making the first feature film funded fully by NFTs. Juul “has set up the production company NFT Studios to fund a series of films,” indicating that he and his investors believe that NFTs will be part of film finance going forward. Juul states that smaller Independent films take upwards of five years to reach an audience due to the greater difficulty they experience in securing production financing as compared to major Studios. Indies and Studios both face the fundamental challenge to produce a commercially successful product. Genre, audience preferences, quality of script, cast, director, and timing all come into play. However, Studios may have access to corporate capital in the pre-production phase as well as a greater ability to benefit from television, cable, and streaming revenues. Studios also may be better positioned to extract revenue from the theatrical release with the pre-sale of foreign distribution rights. This does not mean that Independent filmmakers are at a complete disadvantage. Although Indie films are inherently risky because they typically focus on a niche market, their budgets are smaller and require less capital. They also can realize revenue streams beyond the box office. And here is where NFTs can make a difference.
Juul’s film is titled A Wing and A Prayer – appropriate for a NFT film literally financed on “a wing and a prayer!” The dark comedy is based on the true story of British journalist and adventurer Brian Milton who flew around the world on a microlight aircraft – repeating the fictional feat of Phileas Fogg in Jules Verne’s novel Around the World in Eighty Days. The project is currently underway, although the director and stars have yet to be announced. Funding is being secured through the issuance of 10,000 NFTs in an attempt to raise up to $10mm from individual and institutional investors for a series of films. The NFTs provide certain perks, such as access to set locations, cast members, premiers, and possibly producer credit. However, the key innovation Juul’s NFTs offer is a potential financial return based on box office receipts and ancillary revenue. This “investment” characteristic could be groundbreaking. It is somewhat similar to Equity Crowdfunding, which allows small businesses, and Indie filmmakers, to place equity with individual investors.
Fresh Kills, directed by Jennifer Esposito, is being financed through a $3.5mm initial public offering of convertible preferred shares, tradable on a digital stock exchange, plus $400K of NFTs tied to unique elements of the film – including content, cast, sets, and premier. Although the NFTs supply the producer with a revenue stream, much like merchandise sales of DVDs, posters, and other memorabilia in traditional films, they do not entitle the holder to an ownership interest in, or a financial return on, the film. In the case of Fresh Kills, NFTs are digital merch. In the case of A Wing and A Prayer, the NFTs seem to be both merchandise and an equity-like investment. Still to be determined is how the NFTs track the box office success – or failure – of A Wing and A Prayer, since the funds raised by NFT Studios will be for a series of films. This is noteworthy because films often are financed on a stand-alone basis. Then again, some investors prefer to diversify their investment risk across a “slate” of several films, rather than to concentrate on one. We will see how A Wing and A Prayer plays out.
So exactly what is a NFT? Unlike money which is fungible – two ten pound notes are the same as a twenty – a NFT is “non-fungible.” It is a unique asset, for example a scene or a moment in a film. It is a “token,” meaning that it is represented by a digital certificate. It is stored in a secure database called the “blockchain” and is tradable in a marketplace like Open Sea. NFTs are not a new version of cryptocurrency, which like money are fungible.
It is important to note that with NFTs, “ Images, text, apps and moving images can be encoded into the blockchain but, mostly, NFTs aren’t the work itself”(Hutchinson, BFI). The valuable part of the NFT is the sequence of numbers and letters that represent it on the blockchain. It sounds complicated and esoteric, but NFTs are actually quite suitable for film given their characteristics: unique, authentic, easy to store and protect, and tradable – all of which are attractive elements for merchandise.
NFTs can be a potential game changer, especially for Indies. Film industry interest in NFTs is recent, primarily gaining attention in 2021.The uniqueness of each individual NFT is particularly intriguing. Merchandising always has been an important source of ancillary revenue for filmmakers. According to The Hollywood Reporter, NFTs are attractive because they are “secured via blockchain technology, a vast, unhackable network of computers – guarantees the certificate of authenticity, so owners can buy and sell NFT’s like any physical collectible.” Essentially, NFTs are rare one-of-a-kind merchandise. The hope is that die-hard fans will be willing to spend a great deal of money, generating a new revenue source. The ability to identify and extract more revenue from mega fans within a target audience is important. A NFT buyer essentially pays more for the movie experience than the casual member of the audience who simply buys a ticket. Indies face the greatest fundraising challenge in the pre-production phase of filmmaking. Sales of NFTs based on concept could help. The buyers self-select as true believers within the target audience. There may be a funding opportunity if they can “pay” early. Finally, if Juul successfully can operationalize the equity financing aspect of the NFT as he is intending to do in A Wing and A Prayer, the film NFTs could transform film finance.
NFTs already are a merchandising opportunity. We are in the midst of a potentially disruptive innovation regarding the manner in which films are financed. Whether NFTs or Equity Crowdfunding becomes the path to finance Independent films remains to be seen. The answer to the question posed in the title: merch, yes; financing, we’ll see.
“The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.”