NFTs – The Future of Film Finance?
By Benjamin Craig | 01-Feb-2022
Unless you were hiding under a rock over the past year or two, it will have been hard not to come across some of the hype regarding non-fungible tokens, or "NFTs". Global interest in the blockchain based technology was so great that Collins Dictionary named "NFT" as its word of the year for 2021. NFT versions of artworks changed hands for millions of dollars, and even Quentin Tarantino got in on the act, announcing that he would put seven uncut scenes from his 1994 opus, "Pulp Fiction", on the block(chain) as NFTs. Miramax, the studio which financed the film, promptly sued on copyright grounds, but Tarantino seemed determined to press ahead regardless.
Most of the hype around NFTs has been centred on ownership of an 'original' or unique version of a digital artwork. Effectively, a copy of the work is designed as such by a creator, the details of which are then cryptographically placed one of the many blockchains (typically the Ethereum blockchain) to prove said uniqueness and ownership. This is an oversimplification, but you get the idea. As with most things, the value lies in the perception - so long as people believe an NFT has value, it does. This is despite the fact that a NFT digital artwork is otherwise indistinguishable from any other digital copy of that artwork.
When it comes to NFTs in film finance, the excitement in some circles is driven by the ability of blockchains like Ethereum to host ‘smart contracts’ and records of ownership which are cryptographically irrefutable. At a basic level, the idea is that investors would purchase digital tokens (i.e. dedicated cryptocurrency) in a film project. The resulting funds would be used to make the film and the blockchain would record the number of tokens owned by a giving investor, the contractual terms on which the investment was made, and ultimately how the profits would be shared. Investors would also have the ability to trade their tokens in the same way that other cryptocurrencies can be bought and sold.
So if you believe the hype, NFTs have the potential to both revolutionise and democratise the whole film finance process. Enter a new utopia where creators control their work, earn a living, and the evil corporations of old will simply fade into obscurity. Or not.
You must make money to make money
From an independent filmmaker’s perspective, raising money to make a film is arguably the slightly easier stage of the process (although it never feels that way!). The bigger challenge has always been to get the film in front of an audience - specifically an audience who is paying to watch and large enough to generate a useful amount of revenue. Inevitably this means filmmakers must get into bed with industry partners such as sales companies, distributors, and in more recent times, streaming giants. And because these companies typically wield all of the power, filmmakers are often at the mercy of deals on the table. In particular, the dreaded 'recoupment waterfall', a structure in which certain participants get first dibs on the money as it comes in, often leaving little to nothing on the table for those unfortunate enough to be further downstream (often the filmmakers themselves).
When it comes to a promise of an NFT-driven revolution, the hype merchants seem to be missing a key point. It doesn’t matter how you end up raising the money for a film, or how secure, de-centralised, air-tight your investment contracts are, if you can’t get the film in front of a paying audience, no-one is making any money back. And this is before you get into the complexities of the recoupment waterfall, something that will always exist when there is a disparity in bargaining power between the participants. Certainly, a smart contract many mitigate the risk of creative accounting robbing participants of their rightful share, but a rightful share of nothing is still nothing.
NFTs will certainly have a place in the independent filmmaker's toolkit going forward, but they are not some magic resolution to the fundamental challenges that we’ve faced for decades now. Filmmakers must still make quality films that speak to an identifiable audience of an appropriate size. And gaining distribution, in whatever form that takes, remains the key to a film's financial participants seeing any form of return on their investment - regardless of how the money is raised.