Web3 and Media
How power shifts in media, the impact of ownership, a future for system thinkers. TikTok is bigger than Google.
Welcome to People vs Algorithms 11.
I look for patterns in media, business and culture. My POV is informed by 30 years of leadership in media and advertising businesses, most recently as global President of Hearst Magazines, one of the largest publishers in the world.
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Everybody's talking about “rabbit holes” right now. And everybody seems to be going down them. Mostly the Web3, crypto, blockchain, metaverse kind. While I am deeply interested, you might be tiring of endless prognostications about change and shifts and the future. It does feels like a massive generational therapy session. Maybe it’s just something we have to do right now to take our minds off our strange Covid present.
Let’s go down one together. I will do my best to make it understandable.
Thinking about Web3 took me way back to Web 0.5, when Bulletin Board Systems (BBS) were access points to the network, we carried the same Web3 techno-optimism and the internet sounded like this:
I was a McGill graduate school dropout working at a local cultural weekly paper in Montreal called the Mirror (sadly now defunct). It was an extraordinary place to work, we took great pride in the product. But after five years or so, when faced with unexpected news about becoming a dad, I felt like I needed to find a better paying gig. The publisher, who had become a close friend gave me simple but sage advice; "Focus on the connection between media and digital. You love that and it's only going to grow." Or something like that. So that's what I did and have always been grateful for the direction.
Fast forward to a discussion with my son who’s in town for the Holidays. He is a writer and musician, finishing an under-graduate degree. "You want to go to graduate school," I ask. "No, I hate school," he replies. "You should be a creator," I say, not knowing exactly what I mean but thinking it was the best non-specific long-term advice I could offer.
Later that evening I received a Christmas gift from my daughters boyfriend. He handed me a small envelope containing a card and QR code. I scanned it with my phone and revealed the NFT Monster Punk Club #3490 (pictured above). My first. Surely a "creator" had made it and now I owned it. And it looks vaguely like me. The circle was complete.
What does this have to do with Web3? I've been thinking about it a bit and, while I don't expect it to change much in the way of your Netflix appointment or reading the Times or the $9 billion Apple will spend next year on production, I do expect it will slowly change supply dynamics in media writ large, including how those that make media are connected to the people that consume it. Not to mention a blending of the worlds of ownership and consumption which previously might have separated concepts of "art" and "media".
Web3 is good marketing… and more
There's a good Twitter thread on the definition of Web3. A couple of responses stood out to me. The first, from @andy_matuschak: "This is a sort of counter-intuitive definition given the emphasis on decentralization, but it helps me understand one facet: imagine that all web sites and databases and accounts and services are running on one shared server, and anyone can program it."
The second, from @jstn, a brief "Login w/ wallet."
Perhaps more aspirationally from @NadavAHollander: "A re-architecture of the Internet where value — whether in the form of content, data, or labor — is predominantly captured by its producers rather than its distributors.”
Together these paint picture of Web3 as an open, transparent and decentralized repository of data that everyone can build on top of — a concept that challenges Web2 where protocols are companies (think Twitter and Facebook) who control central data stores and all the rules around them. Importantly, Web3 bakes in two critical ingredients missing in the old fashioned web: identity and money. A novel, decentralized mechanism guarantees trust in a system not controlled by a central entity.
These ideas enable powerful new use cases like the ability to own digital assets, a native and frictionless way to combine payments with all types of information exchange, ownership and control of your personal data and ultimately, more choice in the tools used to interface with your world.
Web3 innovations across the media spectrum
A few things to call out here:
Ownership matters: In Web3 it’s useful to look at the media continuum all the way from Asset to Communication. The addition of art to the media spectrum feels like a good idea. Why? Because art is about owning a scarce asset. Ownership will become fundamental to how we think about digital things, including media in the future.
NFTs are new keys to internet: NFTs (non-fungible tokens) are a special kind of crypto asset where each token is unique. They authenticate ownership of any kind of digital asset. NFTs represent more than unique digital objects, they are objects described by code. As such they become programmable keys to media and gaming communities.
Bored Apes, one of the most successful examples in the NFT space, are more than pieces of digital art or elite status symbols. They are the key to an exclusive digital community.
Smart contracts offer relationship programability: In Web3 the relationships between assets and people are defined by “smart contracts”. This contract is code on the blockchain. Relationship structures are, therefore, programmable, which can dramatically simplify things like rights management of media IP. It also introduces new creative dimensions to interactions that blend transactions and gaming.
Mirror.xyz, for example, is a new blogging platform where your content is treated as an asset. Posts are recorded on the blockchain. Ownership rights and revenue can be divided in creative ways to underwrite projects. Writers effectively get an ownership stake in the platform and can vote on who joins and how it evolves.
Resale rewards: When transactions are recorded on a shared leger and governed by a smart contract it allows for creative iterations on how value is divided. The enablement of downstream royalties is probably the most meaningful example, particularly for artists. This means a creator can get paid when an asset is resold. A smart contract on the blockchain binds everyone together in a transparent relationship with a set of rules that are executed whenever there is a change in the status of the asset. This feature of the blockchain is most often discussed in relation to NFTs but will profoundly impact all aspects of ownership, royalty management, resale in all aspects of media IP, from film financing to management of music streaming rights.
Removing the friction from micro-payments: Cryptocurrencies drive down the cost and complexity of transferring value. As digital wallets proliferate, micro-payment systems will become commonplace across open publishing environments. We are already seeing more of this behavior with the popularity of platform-specific tipping solutions. Web3 will make it easier on the open web.
An interesting recent example points to where things are moving. Superfluid is essentially money streaming between a wallet and one or many recipients in realtime governed by a set of rules. It is programmable cashflow. Any commitment where money is sent over time, like a subscription, can be supported by the Superfluid concept.
Web3 represents a continued shift in power to the creator
Today, the numbers tell a pretty grim story of economics being tilted towards owners of platforms, across all cultural industries. To make $1000 per month, a creator needs about 100K Instagram followers, 2M views monthly on YouTube or 25M on TikTok (New Creator Manifesto, 2021). Contrast this with platforms that provide a more competitive mechanism for creator monetization. Just over 200 subscribers on Substack, OnlyFans, Twitch or Patreon at $5 per month will yield the same $1000. Music artists typically take around 12% of every dollar of revenue they generate (Citigroup, 2020).
The market is shifting. Pressure to rebalance economics is visible across ecosystems as platforms innovate to push rewards to creators with production funds, tipping, affiliate commissions and e-commerce. Market dynamics will always see outsized rewards to a small percentage of creators at the top of the pyramid. Platforms are changing to make economics more enticing at all levels.
Facebook's new creator friendly revenue splits in game streaming and newsletters are examples of the change. Both TikTok and Instagram recently announced tipping features, a longstanding popular feature of live streaming game platform Twitch. Production funds like Snap's Spotlight program offer distribution and direct funding to the most promising creators on the platform. The TikTok Creator Fund is a similar offering.
Further afield, TikTok just launched TikTok Kitchens, a delivery-only program that will expand to 1000 locations across the country by the end of 2022. Creators featured on the menus will get a revenue share and promotion across the platform.
Discovery will be slow to change
Content discovery is, of course, the most valuable asset in any media distribution ecosystem and perhaps most overlooked in discussions of Web3's disruptive potential in media. Facebook, Google and TikTok remain the entry point for most consumers with intense network effects, and the changes above notwithstanding, innovation in blockchain doesn't undermine their economic power.
Patreon's Sam Yam imagines a future where power starts to shift, but it's hard to see from here:
Even Yam, of Patreon, recognizes the limitations of the burgeoning field. He anticipates a future in which both the social-media giants and the creator-economy brands are avoidable altogether. Each creator will instead have her own custom-built platform, “their own world top to bottom,” from the underlying technology to the published content—an “ownership economy.” For the time being, though, the bulk of users will continue to rely on the pre-established attention economy for the bulk of their digital consumption. “Facebook, Instagram, YouTube, those are just as dominant as ever,” Jin said. “Today, no one finds a person on Patreon; you go there after you’ve found them.” In other words, to be a creator, you still have to be an influencer after all.
As creators rise, media brands fight for relevance
For many media brands, the creator economy presents a conundrum — what is the role of brand when audiences increasingly value the intimacy of a direct connection to a human creator?
Running Hearst Magazines, this was a persistent question I faced from teams around the world looking for answers as to how to compete in an increasingly influencer-driven media landscape. The issue was particularly pressing for our Chinese colleagues. In that market, web publishing had given way entirely to social platforms like WeChat, brands like Elle, Bazaar and Esquire lived in a competitive reality dominated by independent influencers / creators. At the time, my pat and perhaps disappointing response to teams was to a) be more influential in what we create and b) find ways to incorporate influencers in our broader brand platforms. This of course is much harder that it seems, particularly when influencer media power began to eclipse our own.
Bigger picture, the middle "operational layer" of media becomes less important to provisioning of content from the creator to the audience. Software and horizontal services are automating the most difficult areas of value creation in media companies — the monetization of content (programmatic advertising), creation tools and subscription management (Substack), and next, rights management (blockchain innovation). Obviously in scaled entertainment and sports categories, production complexity, marketing investment and global subscription platforms will continue to drive value in the center of the business. Change will be more profound in publishing.
Media brands will continue to be aggregators of talent but more creators will go direct on their terms with the support of enabling platforms. Increased competition will tilt balance to content suppliers and steadily change the economic equation with platforms. Or creators will slowly find alternatives. Hybrids structures will emerge where groups of creators "rebundle" to offer a simpler package for consumers (emergent examples Puck, the Every collective). And a new generation of aspiring creators raised on Youtube will continue to put pressure on the system. 75% of kids aged 6-17 want to grow up to make videos for Youtube and related platforms (the Sun).
In short, Web3 forces continued erosion of the power of gatekeepers. Before we leave this topic, it's interesting to have a quick look at the art world where NFTs are forcing a dramatic shift in power structures. Typical gallery commissions run in the 50% range. In contrast, NFT sellers share 2.5% with the OpenSea marketplace. This provocative tweet from Artnet contextualizes digitals disruptive potential:
But around 2018, a new paradigm began.
In NFT, there are no museums.
No galleries, other than the marketplaces, and the galleries made by collectors themselves.
And thanks to tools like @oncyber_io, anyone can create a stunning metaverse gallery in about 15 minutes.
But you’ll also see artists like @larvalabs snapping up multi-million dollar sales with no museums, no galleries, and no market makers in between you and the art.
Not to mention the million-dollar plus sales that take place on @opensea, every single day...
And it is not just well-known projects on @opensea
Any artist, from anywhere in the world, with no invitation, can mint a drop.
So now, with NFTs, for the first time ever...
YOU can decide which artists will define this generation.
YOU can access their art before they get big
YOU can make them big, by voting with your wallets.
By showing them in your own galleries...
Or simply displaying them as your twitter profile photo, as I've done here.
Or in your social feed, which pioneering cryptoartist @XCOPYART, who got his start on Tumblr, calls,
"The digital streets"
In a recent interview, Brian Eno was less sanguine: "NFTs seem to me just a way for artists to get a little piece of the action from global capitalism, our own cute little version of financialisation. How sweet – now artists can become little capitalist assholes as well." Take that Beeple.
Ownership, membership and loyalty
Ownership is a powerful force. Web3 will create a future where far more people are invested in the success of the media they consume. This will happen in small ways through NFT ownership that embraces a collector mentality in sports and fandom, in media brands that are formed to serve narrow interest groups and supported with shared equity structures like DAOs, in crowdfunding initiatives that underwrite larger entertainment undertakings and bond the funders to the success of IP. Or simply the evolution of a media subscription where membership imbues a series of benefits enabled by the blockchain from content access to Discord channels and access to physical events. Media looks more like a collective. And an asset class.
A friend passed on a quote the other day that is useful context. Joe Kraus, founder of search engine Excite, commented on the service’s ultimate demise at the hands of Google:
Reviewing this jolting experience a year or so later, Joe Kraus had by then acquired a significant insight into why Excite had failed and Google had triumphed. He talked about how Excite had been a 20th Century company seeking all its revenue from the top 10 companies in America, as media businesses had been doing for decades. But - and this is the upside-down revolution - Google structured its business around attracting the top million, or ten million, advertisers in the US.
And then Joe Kraus told me something that I regard as one of the keys to understanding how different life is now compared to the world in which I have spent most of my life. It's one of the most important statements we have ever broadcast on my Radio 4 programme In Business. He said: "The 20th Century was about dozens of markets of millions of consumers. The 21st Century is about millions of markets of dozens of consumers."
This is an important notion. It’s hard not to think of a future where Web3 technologies bind participants with niche interests as invested stakeholders in content-driven communities. Web2 created mass public spaces in the form of Facebook and Twitter. Web3 may offer an opportunity to rationalize communities and perhaps create more civility. Here’s a good quote from VC and thinker, Sam Lessin:
Web 3.0 is — at the most abstract level — really about right-sizing communities to a scale people can have a sense of personal purpose and place. It is about giving people ownership in meaningful way in the context of the people they want to be with and impressively extending that experience.
In life, many times it turns out that everything is — in a sense — also its own antithesis. Web 2.0 brought the world together, but also in many ways tore it apart… Web 3.0 the next iteration of that technology, will help communities build distinct space in a healthy way, but — here is the kicker — in doing that / in creating ’space’ will likely also help us come together in healthy ways.
The future is for system thinkers
There's something else going on here that extends from ownership concepts born by Web3 and from broader trends in game culture.
Gaming is mass. Gaming is social. Gaming blends creation and play. Gaming is built on concepts of ownership. Activate's Technology and Media Outlook 2022 does a good job of presenting this reality. Virtually every entertainment and consumer technology company — Apple, Microsoft, Netflix, Amazon, Facebook and Google — are heavily invested in the category.
What's more Web3 presents a rich new palette to think about consumer engagement for every media company around how to incent participation, create hybrid membership / ownership structures and more broadly make interacting with content more fun for consumers. Perhaps another way to think about Web3 is as an open gaming platform for everything. Modern media thinkers should become students of the domain by observing everything from Mr. Beast to Cryptopunks.
And pay attention to the wallet. The wallet is more than a place for digital money. It's a foundation of identity. It will become an important connection to authenticated media experiences.
Let’s recap. Whether Web3 is a marketing buzzword or not, as Elon Musk, recently quipped on Twitter, something pretty significant is happening and it will have pretty broad implications for media. It’s hard not to see world where people making content at all levels have more control over their audiences and better paths to monetization. This changes supply dynamics in the industry, puts new pressure on platform to re-balance creator economics and creates new community driven models for niche media.
Web3 is a lot of things, among them the creator economy, the ownership economy, NFTs, an identity system, digitally native money and a new programable model for relationships. Collectively these innovations will redefine media for decades to come. They guys at Bankless call it the crypto renaissance. Let’s give the last word to them:
There were two technologies that brought on the renaissance. First, the printing press. This democratized and scaled communication. Second, the double-entry ledger system. This democratized capital formation and scaled commerce.
Communication technology and ledger technology. These two technologies were responsible for bringing humanity out of the middle ages of monarchs and feudal lords and into a golden era of culture, science, and human progress.
Well…we’re at it again.
The internet is our new communication technology and crypto is our new ledger. We’re at the beginning of a new renaissance brought on by crypto. Legacy institutions will erode and fall, new governance systems will rise, culture will bloom, new lands will be settled, and a new class of Medici will create a world of economic opportunity.
We’re living in the crypto renaissance.
Let’s hope so. Have a wonderful weekend and restful Holiday / Troy
Note: I am going to take next week off. See you in two.
5 other good things:
1. In 2021 TikTok is a more popular domain than Google for first time.
2. One of 203 good slides in the 2022 Activate / WSJ deck.
3. Mulch is here. I love the internet.
4. Non-Fungible Olive Garden. Free breadsticks!
5. How Y Combinator Changed the World (Wired paywall)
And… many thanks to Dash, another satisfied PVA hat owner.