The great NFT IP flippening

I remember in 2006 reading a book called The Long Tail by Chris Anderson, it’d just been published and was compulsory reading for a Sports Marketing class I was taking at Loyola Marymount University.?

My teacher, Bill Sanders was a sports agent representing the likes of Steve Nash, Carmelo Anthony and Yao Ming. Bill had seen first-hand what web 1.0 was doing to a traditional marketing and distribution model the world was accustomed to up until the mid to late 90s when the average household was discovering this internet thing they now had available on their computer.?

The concept of The Long Tail was the internet could help businesses sell less of more. To elaborate a little, the internet could find an incredible amount of long tail niches and connect these audiences to topics and products they were interested in that weren’t going to be on the shelves of a standard retailer.?

At the time of reading this book in 2006, web 2.0 was simmering underground. I had a MySpace account and had just signed up to a platform called Facebook. YouTube was around but I don’t remember using it, Twitter hadn’t launched and LinkedIn… well, it existed but I was in college so what did I care about that for at the time.?

I point out the above for the simple reason that history is repeating itself. The next evolution of the internet? Web3. It’s different, it’s nuanced, it’s currently confusing and it’s change (massive change). But it also brings characteristics of its predecessors in web1 and web2, primarily enabling long tails that web1 introduced and the interactions of one-to-one or one-to-many that web2 still delivers us today.?

A short and sweet way of summing up each evolution of the internet, courtesy of @j1mmy.eth,?

Web1: Read

Web2: Read, write?

Web3: Read, write, own?

There’s a term in crypto called “flippening” defined as one coin overtaking another in terms of market capitalisation. In recent times, it’s been extended to one NFT project flipping another. But what I’m concentrating on for the remainder of this blog is the “IP model flippening” that is occurring due to NFTs.?

Intellectual Property (IP) sounds very corporate but it’s the foundation for so much of what we consume in our lives. Why do you choose to go to Marvel movies? Why does someone choose Nike over Reebok? Why are Pokemon cards staggeringly more valuable than other physical collector cards??

The traditional model of creating IP has been a top down approach. Matt Groening creates The Simpsons, as it evolves and becomes a hit, the brand equity in the show and its characters skyrockets. Inevitably, we then see merchandise made using its IP, rides at theme parks, show bags at festivals, toys, video games and even a feature length film in The Simpsons case.?

I offer you The Simpsons as just a single example but there are many others. Think Disney. Think Hello Kitty. Think The Smurfs. Think Pokemon. Think WWE.?

All of the above brands and their respective IP had a beginning, a genesis if you will. These are all massive success stories and highly profitable over sustained periods of time utilising a top down approach and one critical factor to maintain their success, ‘stay relevant to their fan base’.?

Enter NFTs via web3 and the ownership layer. Right now, in real time, we are seeing the emergence of a new model of creating IP with a huge difference. The difference is the fans can be incentivised with financial upside, governance, access and community. This is a new wave of IP creation and it's native to web3.?

Does this mean the old school way of top down IP creation no longer works? No, it does not. The critical factor of having IP that people resonate with and want to consume still remains. If no one pays attention to your IP, it doesn’t matter where or how it was born.

By now, you might have heard of the Bored Ape Yacht Club. Or Cryptopunks. Or Cool Cats. Or VeeFriends. Or Deadfellaz. Many have ambitions of building out a bottom up IP model. On the recent podcast ‘Overpriced JPEGs’, Cool Cats co-founder and lead artist Clon stated,?

“We want to be Hello Kitty for the blockchain.”?

These are NFT projects with IP attached. But not each project treats the use of its IP the same.?

There’s a lot of nuance to NFTs and we’re only scratching the surface. We simply can’t say all NFTs are the same, they have different intrinsic value with many project founders being explicit in how the token can be utilised and some leaving their desires a little in the grey.?

Laws around IP protection and cross jurisdiction implications will need to play catch-up but for now, let’s classify some NFT project examples into three buckets based on how they’re treating their IP.?

Bucket 1

• Bored Ape Yacht Club (BAYC)
• DeadHeads?
• CrypToadz?
• Deadfellaz?
• Cool Cats?

Bucket 2?

• Cryptopunks?
• Meebits?

Bucket 3?

• VeeFriends?
• Impact Theory Studios Founders Key

Bucket 1 - Project founders here are on the CC0 (creative commons zero) end of the spectrum. They essentially say, “you buy one of our NFTs and you can commercialise and use the associated IP with it. Some of these projects like BAYC will limit the use of the overall project logo but the best way to think about it is, it’s a free for all to use the artwork of your token including making derivatives.?

Below is a statement from one of the BAYC founders, Gordon Goner on 12 May, 2021.?

“We've been getting a lot of questions concerning our logos, and club member's rights to use them. If the logo appears on your ape, then you may use it on a derivative of your ape. To be clear, we have no problem with you selling merchandise with your ape, or derivatives of your ape. That's exactly what the commercial licensing rights are for. But you aren't allowed to use our logos (or other IP, such as site images) in other ways, such as branding of clothing, putting it on the store logo, etc. even if it appears on your ape. We want to continue to encourage creativity among the community and for ape-holders to exercise their commercial rights over their NFT, but using the BAYC logo outside of a derivative exceeds fair use and starts to get people very confused about what's official and what's not.”?

Opening up its IP like this, BAYC’s playbook has been copied by many other projects. DeadHeads was a project that launched shortly after BAYC and I believe always had the same intentions, to allow individual token holders to do what they like with their Deadhead whilst the founding team attempts to grow the overall brand through an animation series (check out an example here).?

This is where the ‘IP flippening’ is highly interesting. Founders are giving up a lot of control but in that loss of control magic can happen. The thesis is quite simple, founders believe that opening up IP to their collectives aligns incentives. The collectors get to attempt (if they want) to make their individual NFTs into something of commercial value and add to the overall brand of the project. Even if they don’t want to commercialise their asset, having IP ownership in the project fosters a sticky community of collectors.?

Some recent examples coming out of the phenomenon that is BAYC:?

• Professional athletes putting their respective apes on their playing shoes (NBA example) (NFL example) ?
• Universal music group signs deal with BAYC to create a metaverse group (remember The Gorillaz)?
• Timbaland and Ape-In Productions?
• Adidas announcing its stepping into the metaverse with BAYC, Punks Comic and Gmoney?

Of course, bad actors could spoil things. If an image of an ape was used to insight crime or a highly controversial issue arose from the use of an ape, how does that play out? I’m not sure. This is all so new.?

The CrypToadz by GREMPLIN is also fascinating. This project is fully on the CC0 spectrum with the founders not putting in guard rails for any type of use. This is genuinely a free-for-all NFT project for token holders.?

Bucket 2?- The best example to use here of project founders are Larva Labs, the creators of Cryptopunks, Autoglyhs and Meebits. The IP restrictions are more limiting than bucket 1 and some grey area remains, particularly around Cryptopunks.?

The consensus amongst the NFT community for the groundbreaking Larva Labs founded Cryptopunks is that a holder can use the IP in certain situations but cannot make more than USD$100,000 in gross revenue unless given consent. This is consistent with Meebits terms and conditions also, a metaverse ready project from Larva Labs.?

Bucket 3?- Respective project founders Gary Vaynerchuk and Tom Bilyeu have lofty ambitions. Both have somewhat flippantly made references to being the next Disney and Marvel on a long term horizon, born out of NFTs.?

Both VeeFriends and Impact Theory Studios via the Founders Key project are doubling down that NFTs will be the breeding ground to build the next generation of relevant IP.?

As of now, the projects differ in that VeeFriends is currently made up of 268 different characters that Gary and his team plan to build out over decades. Holders are also entitled access to VeeCon, an exclusive conference each year from 2022-2024.?

For Impact Theory Studios, Tom and team issued their Founders Keys product with varying rarities and access levels to future projects created by the studio. Their first IP drop being Merry Modz, a Christmas themed NFT that hasn’t had a lot of cut through to date compared to many of the other projects discussed above.?

The plan is to build Merry Modz into a Christmas animation franchise with holders of the tokens likely to see a value increase in the collectibility if the IP is to pop. Again, the way the IP model operated historically is being flipped.?

With these examples in bucket 3, VeeFriends and Impact Theory Studios are approaching the issue of IP protection in a more traditional model. Here’s a short sentence from the VeeFriends website.?

“All VeeFriends characters and tokens are intellectual property owned by VeeFriends LLC, as such token owners cannot sell or distribute VeeFriends characters or designs in any way.”

For Impact Theory Studios, there are plans in 2022 that limited commercial licensing benefits will be available to certain top tier key holders but there are no concrete details right now.?

As individual collectors for these projects, there are more restrictions on the use but collectors of the project are on the whole, backing proven entrepreneurs to deploy their brand building skill set in a web3 ecosystem.?

What do you think a Homer Simpson original drawing would go for these days in the collector market??

In summary, I don’t see one bucket necessarily being better than the other, ultimately, it is a founder-led decision but it will be important for collectors and users of NFTs to understand the different use cases.?

There is so much coming around the corner in the web3 space.?

Many NFT projects are NGMI but we could be seeing a select few being the next big IP global brands, born right under our eyes, right now. We are also witnessing the beginning of the long tail of IP where Kevin Kelly’s 1,000 true fans thesis has never been more relevant.?

They started from the bottom now we here.?