The latest well-publicised craze in the art world is non-fungible tokens, or NFTs.
NFTs were relatively unheard of until recently but interest in them has skyrocketed since early March when Christie’s sold a digital work of art by the contemporary artist Beeple as an NFT for an astounding $69.3 million, and Jack Dorsey sold the first ever Tweet for over $2.9 million.
Despite the recent headlines, many may still be unclear about what exactly an NFT is. In essence, it is a unique digital asset that can be bought and sold. Some assets, like pound coins, are ‘fungible’ which means that they all look alike and carry the same value. Non-fungible tokens are one-of-a-kind and not interchangeable, likes pieces of art whose value depends on their specific characteristics. Each time an NFT is bought and sold, the transaction is recorded in the public blockchain ledger. This record enables verification of a buyer as owning the original version of a digital asset. This is what gives the NFTs value – in the era of digital content being easily copied and recopied, the record reflects who owns the original work (rather than simply a digital copy).
Rights-holders in the media and entertainment space, including film and television producers and studios, actors and directors, as well as musical artists, models, vloggers and content creators more broadly who own the rights in their material, may see an opportunity here to capitalise on this trend.
One way of doing this is to sell the content itself as an NFT for commercial exploitation. There are already examples of some smaller rights-holders choosing to raise finance for their projects by selling NFTs representing a proportion of ownership to financiers. This method is certainly innovative, though depending on the sector it may prejudice their ability to exploit the content – for example, for films and television series, a traditional distributor would likely insist on ownership being transferred to them entirely rather than being split out among multiple individuals or entities.
Another perhaps more straightforward method of participating in this brave new world is to sell ancillary or marketing content (such as stills, clips, scripts, posters, artwork, raw and blooper footage, and other collectibles), as NFTs for enjoyment solely as a work of art. Many fans and collectors may be willing to pay top dollar to be the owners of these original digital works. However, there are certain important legal aspects to keep in mind when selling rights to content in this way.
As part of the sale, rights-holders may enter into an agreement either directly with the buyer or with the platform on which the NFTs will be sold (on the basis that the platform will pass the agreed terms on to the buyer). Either way, this agreement should reflect certain restrictions.
If the NFTs are being sold as art, the agreement (especially the rights provisions) should make it clear that the buyer may exploit the content as a piece of art only and not for any commercial purpose. Rights-holders will want to ensure that buyers cannot acquire content as art collectors only to then sell that content to a third party for use in, for example, merchandising. The agreement should also specify that the buyer has no right to edit or adapt the content in any way. Ideally the buyer will indemnify the rights-holder against any breach or unauthorised use.
The agreement should contain a so-called ‘no injunct’ provision, enabling the rights-holder to step in and cease the buyer’s exploitation of the content if the buyer is using it other than as a piece of art.
Before even listing content for sale, would-be sellers should ensure that their ownership of the content enables them to sell rights to it in this way. They should ensure they have been assigned all rights in the content without reservation, for example from actors appearing in the material, writers who have written the script and/or performers whose music features in the material. Generally, if a content creator has entered into an agreement with robust rights language under which no rights are reserved by the assignors and all image rights are cleared and moral rights waived, they should have no issue selling the right to exploit the content as a piece of art. However, it is worth double checking. Often marketing rights and the right to exploit ancillary content will sit with a distributor rather than the content creator under the terms of the distribution agreement. Another point to watch out for, is that if particular content features an actor, performer or other individual, further permissions or payments may be required for use of that individual’s likeness or performance.
NFTs could present a lucrative (and headline-grabbing) additional revenue stream for rights-holders – if they can manage to navigate the complexities of the paperwork behind the glamour.