Tokenization & Defi
by Dusica Lukac
7 months ago
Tokenization enables liquidity of assets like real estate. Now the union of movies and blockchain is disrupting an industry traditionally ruled by old money in the hands of few.
Recent months have seen a number of high-profile tokenization projects, in real estate, for example. But the financially inclusive and decentralized nature of the concept – issuing blockchain-based tokens representing shares of ownership – makes it predestined for the movie-making industry, where outside-the-box creativity and big money need to be reconciled. Movies and blockchain could be a match made in heaven.
Feature-film financing was one of my first topics when I entered investment banking many years ago. Since then, I’ve been closely following the development of the industry and related financing structures. In this period, we have gone from pure theater ticket sales to advanced home entertainment and multiple-source revenue streams in a matter of just a few years.
It comes as no surprise that the media and entertainment industry has ballooned. Looking at the US alone, 2019 box office earnings are projected to be US$ 11bn, while TV and home video earnings of US$ 96bn are expected. The global figures paint an even starker picture. Statistics for 2019 are not yet available, but 2018 clearly reveals the trend.
Leading film markets worldwide 2018, by number of tickets sold (in millions)
The US market is third in ticket sales. China sold more than 1.7bn tickets in 2018, grossing US$ 7.9bn.
As new technologies enter the film industry, we see for example that global box office revenue for 3D screenings reached US$ 6.7bn in 2018. At the 2019 Venice film festival virtual- and augmented-reality productions played a large role. My imagination goes wild, but I would put my money on earnings from VR/AR box office revenues in a couple of years.
Movies and blockchain enter the scene
There are many use cases for blockchain in the movie industry, many more than meet the eyes. Let me mention just a few here.
Due to the nature of content creation, the film industry involves a huge lineup of experts, talents and administrative staff across countries and sometimes continents. One producer in Cannes told me this year, “I would really like to know whom I am working with every time I start a new project. If blockchain helps with tracking proper credentials and licenses, I am all for it.”
Copyright and ownership
The possibility of registering ownership of an idea, script or creative work on a timely and transparently basis would be welcomed by many content providers. Subsequent transfer of rights to a studio interested in producing a movie would record a chain of titles for distribution rights and build a transaction history on a blockchain. Another area that comes into mind is secure transfer of the contractual obligations through smart contracts, such as self-executing contracts between buyer and seller of services or even distribution. Smart contracts can also be set up to define rules governing the assignment of rights to TV and airline versions, international releases, merchandising licenses and more. Examples of such solutions include Singular DTV, which is focused on creating decentralized movie crews, or Veredictum, which develops applications to register scripts on blockchain.
Sales and distribution network
The smart sales contracts mentioned are a good introduction into another layer of blockchain involvement: it could enable revenue collection and seamless pro rata distribution to all participants. This space is growing up as many good startups are entering the scene. These include FilmChain, which takes care of end-to-end transactions in creative industries, Cinzen VOD or Decent, which is building a distribution network on blockchain, and many others.
This is my personal favorite. Blockchain is an ideal tool to solve this huge problem. We know that in 2018 alone US$ 31.8bn was lost to piracy based on the latest report from Digital TV research, and expectations are that by 2022 this figure will hit US$ 51.6bn. Film content meta-data can be encoded with a cryptographic transaction on a blockchain. Access to upload or modify content can be made only with transactions on a blockchain, creating an immutable history of records that can deter unauthorized transfers. There are many growing solutions in this space as well, such as White Rabbit, which facilitates payments between viewers and holders of film rights, or Custos Media Technologies, which motivates users to report illegal activities with embedded bitcoin bounty and offers turnkey content protection using blockchain.
After the financial industry fell in love with blockchain due to its transactional and immutable nature, the film industry followed. This new financial efficiency opens the doors to potential revenue sharing on new levels thanks to tokenization. Tokenization of revenues or tokenization of merchandising, such as video games developed on the back of the franchises, could become a new business model in the film industry. That’s why we have a significant number of projects looking at the tokenization and financing tool. Its attractiveness is high for individual filmmakers and studios, in different ways, of course.
Seeing is believing – Examples of film-financing tokenization
Papicha, a film submitted by Algeria to the Oscars in February 2020. It was honored with the “Prix Un Certain Regard” at Cannes 2019. It received financing from two Hong Kong companies, Lumière’ and FinFabrik, by tokenizing its equity. As Lumière’ CEO Patrice Poujol, said, the liquidity of the instrument was attractive and the tokens are tradable over the counter at CrossPool (FinFabrik).
Demand Film is an Australia-based cinema-on-demand distributor that has launched a new cryptocurrency called Screencreds. It rewards users who watch and promote trailers for upcoming releases. It recently entered the European market as well.
ProxiCoin is a new startup created and owned by Proxima Media that announced US$ 100m in funding through issuance of security tokens, allowing investors to back studio-quality film and TV series. It also enables fractionalized ownership in film, television, music and other IP-driven content. ProxiCoin holders will be partial owners of the Entertainment Stock X (ESX), an innovative platform operating similarly to a stock exchange for financing entertainment projects (under regulation A of the JOBS Act). The financing came through Hong Kong-based Step Ventures and Central Wealth Group.
Daywalker Movie Fund by Wesley Snipes, a tokenized US$ 25m fund that gives token holders access to a portfolio of production features covering the whole value chain – from the actual movie to games, merchandise and international property rights – via Lichtenstein Cryptoassets Exchange (LCX), which is bringing this project to life. The token holders will benefit from many perks including part of the profits, while another part of the profits will be reinvested in future productions.
Atari Vision Tree in cooperation with tZero announced a US$ 40m security token issuance to film the Nolan Bushnell biopic. The token will be aptly called Bushnell token and it will pass on part of the film’s profit as well as some of the voting rights on casting decisions and production to the token holders.
The MovieCoin Smart Fund (MSF) token is being advanced by famous Hollywood financier and producer Christopher Woodrow through his Movie Coin company. It is selling US$ 250m worth of security tokens to finance 60 films over the next 6 years. In his interview with Forbes, Woodrow stressed the importance of bringing liquidity to the otherwise illiquid market of film financing. He also mentioned important incentives like reducing the period over which invested capital is locked up to one year thanks to the tradability of MSF tokens, compared to a standard timespan of years.
We are expecting more such projects to come to life soon and hope to be there to help them live long and healthy lives. However, this article in no way represents any investment advice or endorsement of any project mentioned. All investments entail risk and you should seek professional investment advice from a licensed financial advisor before making or accepting any investments.
About the author
Dusica H. Lukac is a Partner at DL Capital Partners, as well as a co-founder and Chief Strategy Officer of Digital Asset Network (DAN). After decades in investment banking, hundreds of millions under management and dozens of M&A deals, she has crossed over from Wall Street to Tech Street. In 2018, she was honored as Fintech Consultancy in CEE by Wealth and Finance International. More on topic, she took part in a blockchain panel at the Cannes Film Festival in 2019 (link here). Dusica chooses to stay close to the innovative and exotic financing structures as the best place to add value. This piece reflects her personal opinions and does not represent the views of DL Capital Partners or DAN.
Please note: This is third-party content and does not represent an endorsement by Blocks99, nor does it necessarily reflect the views and opinions of Blocks99 and its editorial team.
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