Archived: “Fantasy Hollywood” — Crypto and Community-Owned Characters

Every day we consume popular entertainment centered on characters. A collection of successful characters can become the foundation for a franchise — e.g. Star Wars, Marvel, Harry Potter — that can span decades, and be incorporated into successful products across platforms and media types. 

But today, most successful characters exist as intellectual property owned by a single corporation. This means that fans don’t have any governance, let alone direct ownership, of these characters, limiting them to being only passive consumers of the products and narratives that the corporation decides to create. Even if fans buy public equity in the companies to show support or alignment, it’s difficult to make a targeted bet on the success of a single individual character or franchise, since many corporations are large, diversified, vertically integrated businesses that own and operate many product lines. Shareholder voting wasn’t and won’t likely ever be designed for fans and investors to choose which actor should play their favorite character in the next movie in a series, or to help make other such impactful decisions. 

Sounds crazy to ask for this, some might argue, but the most passionate fans have already been forming online communities, organizing campaigns, and even publishing their own fanfiction online. Instead of dismissing these communities, character IP holders could bring them into the creative process, providing an outlet to test and expand ideas in ways that would have been extraordinarily difficult to manage at scale with legacy tools and technologies. 

Today, crypto technologies like decentralized autonomous organizations (DAOs) and non-fungible tokens (NFTs) enable a new model of character development and ownership that could not only unbundle creative media, but also lower the barrier to entry for online communities to bring new characters into the world. It could also lead to characters that are more fully representative of the communities that support them. 

Opening the closed loop of ‘character governance’

There’s already a broader cultural shift happening in corporations and beyond — just look at the rise of environmental, social, and corporate governance (ESG) investing, or activist investing, or fan communities for all kinds of creators. What these many different flavors of participation have in common is stakeholders or communities seeking new ways to organize and invest both time and money into supporting people and causes that appeal to them. 

We are on the cusp of the same thing happening with intellectual property around cultural characters. 

Early in my career at e-commerce payment and advertising platform TrialPay (acquired by Visa), I worked with some of the most successful free-to-play game developers to help them grow and monetize their virtual economies. One game in particular provided an early case study on the power of giving fans the feeling of “single player” control of a popular character from their mobile phone. It was Kim Kardashian: Hollywood (launched by Glu Mobile in 2014), a simple choose-your-own-adventure-style game where players pretend they are a Kardashian, and make decisions on avatar outfits, fictitious film shoots, and appearances. 

While the game became a major hit, the currency of the game — and all the outputs of countless choices and decisions made by fans — were confined to a closed-loop world: These early gaming experiences demonstrated the promise of simulated governance through an existing popular “character” that they could each individually enjoy, but they never provided the opportunity to work together with a community in a more meaningfully creative way. 

What if, instead, fans could have introduced a new character into the real world, with anyone having the opportunity to participate in the fun, and financial upside, of its success? 

DAOs and the economic incentive of tokens

Enter DAOs. These decentralized autonomous organizations give creative people around the world a mechanism to form communities, and new characters, with real money — much like fantasy sports appeals to sports fans’ latent desire for team ownership (and potentially financial gain). 

There is a market for a decentralized version of a “fantasy Hollywood,” too — it just hasn’t been met yet. 

How would DAOs make this happen? Simply put, DAOs are networks that are run by smart contracts, or self-executing code on a blockchain, that can make commitments for certain rights and responsibilities if you’re a member of that decentralized organization — with minimal or no active supervision by a central figure. Anyone in the world with a mobile phone and an internet connection can become a participant in such a network, and the network may issue tokens to participants according to their contributions (or based on any other factors that the creators of the protocol decide). These tokens can confer certain voting or governance rights, and the tokens may rise in value (not just monetary) if growing numbers of people wish to participate in the network. Because of the economic incentive of the token itself, it’s in the interests of participants to maximize the utility of the network, including by using their “stake” to make good collective decisions on the ongoing operation.

The first iteration of successful DAOs have largely been formed around financial protocols, such as enabling a community of token holders to govern decentralized lending and borrowing by proposing and voting on specific changes to a protocol. While this structure has enabled the growth and operation of new protocols in the decentralized finance, or DeFi, ecosystem, most mainstream consumers don’t have the requisite financial knowledge or interest to weigh in on specific governance decisions like collateralization ratios. 

But the concept of DAOs is useful more broadly, and can also be applied to other use cases where there is a network of people with shared incentives and common interests. The next iteration of DAOs is therefore emerging around creative communities, to enable crowdsourced creativity and coordination (aka “creator DAOs” and similar). 

But communities can form around characters, not just creators, and those communities can collaborate and bootstrap these characters toward a mainstream audience. 

Building communities around characters

Today there are at least two paths by which communities can form around characters, innovate on their IP, establish digital identities around them, and financially benefit from a character’s market success. More paths are certain to emerge in coming years, but I’ll use current examples to illustrate each of the models. 

CryptoPunks

CryptoPunks demonstrates one path where the developer, Larva Labs, created the art for 10,000 characters that each exist as an NFT with unique attributes. A decentralized community of collectors developed around the CryptoPunk NFTs, with their own cultural behaviors and norms, such as using a punk as a profile picture across social media platforms. Though CryptoPunks were originally released for free back in 2017, the community bootstrapped the project to more than $680 million in lifetime sales (with the rarest individual punks selling for more than $7 million). 

Rather than just passively holding punks, though, collectors have also begun to collaborate with each other to create stories inspired by the CryptoPunk character art and bring their punks “to life.” The NFT art functions as a digital LEGO-like building block, or a sort of creative stem cell — either way, providing the basis for fertile imaginations to develop in all sorts of directions and ways. For instance, a group of collectors created a PUNKS Comic featuring 16 punks, complete with backstories and narrative arcs that will create complete character identities for these punks.

Such community initiatives are completely independent from the original developers behind CryptoPunks, however. The community creates brand new art using the original punks only as inspiration as they expand into new forms beyond the creative control and oversight of Larva Labs. These new punk-inspired stories can themselves become new NFTs that community members can monetize and sell as fan art without the need for licensing agreements. When it comes to fanfiction for traditional, corporate-owned characters, fan creativity may increase value and exposure for these characters, but it doesn’t allow said fans to participate in that upside. With PUNKS Comic, however, fans already have ownership in the core CryptoPunk NFTs. Therefore, the success of their punk-based characters and stories drives more awareness and demand for the underlying, original punks — benefitting the PUNKS Comic creators, original developers, and the broader punks community. 

Aku

Another path to community-owned characters starts with a specific character that already comes with a backstory and identity that inspires the creation of NFTs, but then enables a community of collectors to participate in its evolution. One example of this is Aku, a young, Black astronaut character created by former major league baseball player (and self-taught artist) Micah Johnson. 

Johnson had overheard his nephew ask his mother whether astronauts could be Black. This inspired him to start painting his nephew in an astronaut helmet — given the lack of other role models and narrative characters out there like this already — to encourage and build confidence that he could achieve this dream. Johnson then created the new NFT-based character of a Black boy wearing an astronaut helmet. 

When I came across Johnson’s work, and interacted with the community around it, I was struck by the potential that hundreds of millions of internet users — instead of private institutions — could determine the value of an artwork, and also easily own a token representing it. Furthermore, they could use this token, representing their membership in this community, to establish a digital cultural identity. 

This is significant for artists like Johnson, and all artists building a community or who have fans. Black culture and forms of creative expression across music, literature, and visual arts have thrived and driven mainstream global culture for generations, but historically, it has been difficult for Black artists and creatives to capture, let alone own, even part of the value that they produce through that culture. Seeing the power of a talented Black artist selling an NFT representing an inspirational Black character to a predominantly Black collector base felt like the early innings of a new movement, a Black digital renaissance, as I’ve written about before.

Just a couple months ago, Johnson announced that he would be unveiling Aku’s story one chapter at a time by creating ten short-form, animated video chapters of limited edition NFTs that feature Aku interacting with different people and places. Not only did Aku NFTs drive more than $2 million in sales through the first two chapters, the NFTs have a passionate community of supporters who want to see Aku succeed as a positive representation for Black kids and symbol of Black economic empowerment. Through the ownership of these NFTs, early Aku collectors financially benefit from the success of Aku, which could in turn increase the demand and value of Aku digital memorabilia. 

The potential for community-owned and -operated character IP has traditional media resonances, too: Johnson not only worked with a 3D sculptor to create a physical representation of Aku, but it is also apparently the first NFT to be optioned for film and TV. 

“Skin in the character”: The business case for community-owned character IP

In both of the pathways outlined above — whether by creating or extending character stories — NFTs serve as a powerful tool for an artist to test market demand for early representations of their characters. In a sense, it’s an audition, or minimal viable product (MVP), pre- “character-market fit” for their creative vision — in which the early collectors of the NFT are indicators that the style, attributes, and messaging of the art could appeal to a broader audience. 

Unlike traditional focus groups, however, where there is no skin in the game, this model provides a stronger signal to the artist, and to other collectors. If there is enough market demand for that character — enough that individuals are willing to spend hundreds to thousands of dollars to collect those NFTs — then the creator knows that there is “skin in the character,” much like having skin in the game. 

Once the NFTs can sustain a community of passionate early collectors who have skin in the character, the challenge then becomes how to grow that community, evolve the character, and distribute it to a broad audience across mainstream media platforms. In fact, I believe this model could benefit large corporations as well, since under the current system it’s difficult to coordinate and execute on creative collaborations among multiple characters owned by different corporations that view each other as direct competitors. Even when there’s significant overlap in the fanbases of two characters owned by two separate companies, it’s challenging if not impossible to structure these collaborations. Sure, there can be crossovers (as DC and Marvel occasionally did), but it’s hard to do in a way that also provides enough upside for the corporations while minimizing potential competitive issues on the products they own. NFTs and DAOs offer a path forward.

But first, what are the differences with this new way of doing creative work? 

In talking to artists like Micah, his model of decentralized storytelling creates a “choose your own adventure” approach where community members could suggest many different stories or experiences for their character. But how would that work? The communities could distribute governance tokens to the holders of character NFTs, which in turn can be used to vote on key creative decisions. Such collaborative relationships between creator and community are already happening and will only increase as participants explore the possibilities, both creative (including governance) and financial.

Isn’t this just another version of crowdsourcing — the worst way to create quality character IP — and wouldn’t it downplay the creator’s vision? No, because the new, crypto-native emphasis on aligned network incentives makes all the difference: It actually creates a vast field of new models in which the creator becomes more of a community leader, of a decentralized community of fans. We could soon start to see community members together open public requests for proposals (RFPs) from artists and agencies for specific digital content types built around a character, just like people already do (and have done for decades) for developing software in open source projects. 

The rise of character DAOs

But the technology is also here to enable so much more. Here’s one model, completely possible given current technology:

1. A community member drafts a brief for a short film or animated series. Token holders — community members who have obtained either NFTs or fungible “social tokens” that give multiple holders equal governing weight — could vote to approve the brief, and allocate an initial budget for it. 
2. Production companies could then respond to it, creating a trailer with their vision of how they would bring the brief to life. The community reviews all of the trailers submitted and votes with their tokens on which one to fund. 
3. The founding artist functions as creative director working for the token holders to help manage the RFP process, and then works closely with the winning company to execute on the series. 
4. Funds used by collectors to purchase the initial NFTs as well as ongoing drops could be reinvested into a community treasury, which could then be used to crowdfund additional digital content around that NFT character, to increase brand awareness and grow the community around it. 

This may sound far off, but it’s not. Consider how eagerly artists of all kinds are already exploring NFTs and other new ways to engage with fan communities. The interoperability of crypto just allows for the innovations and ideas to build on top of one another at a rapid pace. 

What are the benefits of such a model? Here are a few:

Faster creative iteration. By owning the character — but outsourcing the creative execution of series, movies, or video games that feature it — communities could potentially create new global franchises, and at a more rapid rate than singular corporations can. Instead of executing on one content activation at a time focused on a single market, a “character DAO” could fund multiple shows, films, video games, and merchandise (both physical and digital) that are executed by independent teams focused on different markets — all at the same time. Small, modular communities enable more experimentation, and crypto aligns all the incentives.

Streamlined collaboration. As multiple, independent, creative DAOs emerge around different characters, there will be an overlap in ownership between them. But that’s not a bug, it’s a feature: Such overlaps create opportunities for collaboration among characters across DAOs, for example by creating digital content that incorporates both characters, enabling them to drive distribution across different communities and create shared audiences (and brand ambassadors) without competitive concerns.  

Aligned incentives among DAOs. Community members would be incentivized to support collaboration as customers, and promote it as ambassadors of the brand. Each successful media activation would then convert a new audience into community members who also want to get involved, helping to own and govern the character they just saw in that movie they loved. 

Better cultural representation. Beyond creating characters with positive representations of distinct cultures (ethnic and religious minorities, for instance), such models democratize the kinds of stories that are told. Instead of trying to find existing characters, parents with similar values can now actually collaborate and pool together creative and financial resources to create their own characters, aligned to their values for their kids. 

Value capture and revenue growth. This is not just a feel-good enterprise — there’s real market-making potential here. As the global community and audience grows, and demand for governance tokens and NFTs increases, it could drive additional revenue that can be used to fund even more stories and media around character(s). 

The governance questions

Of course, it’s not all fun and games, either — DAOs, after all, are not just an abstract crypto concept, but systems of people. And while they create new models for human coordination around shared principles or goals, they also present new challenges for effective governance, day-to-day execution, and scaling. Some of these include answering the following questions, which will require significant experimentation, but I share some thoughts below:

What types of decisions should DAOs be optimized around? If communities need to vote on every little detail of a character, the experience will be less interesting, less efficient, and would likely have lower participation. If the decisions that are voted on are too high-level, though, community members may not feel like they have enough control and ownership. 

Who will manage day-to-day administrative and community management functions? I’d argue that DAOs are more effective as a “creative board,” voting on key high-level strategy decisions and roles while outsourcing product management and creative development to third parties through RFPs. 

How will DAOs maintain quality control around the IP? Major character franchises have strict rules around what the characters can and can’t do or say, to establish consistency, identity, and, yes, quality too. Communities will need to establish their own guidelines or principles for their characters that members can use to evaluate new proposals. Ultimately, if communities pursue many different activations of the character across different forms of media at once, some of these will be more successful and better experiences than others. The key here is that all these experiments can happen in a way that they cannot within corporations. 

How will DAOs convert revenue generated from character IP off-chain back into the on-chain treasury? The sale of NFTs enables an easy way to fund an on-chain treasury that can be managed by token holders. But DAOs may need third-party administrators that can provide payments and contract services at the direction of the DAO to bridge off-chain (e.g., real world) and on-chain revenue, expenses, and treasury management. 

***

The costs and barriers of bringing a new character into the world, testing to see if it resonates with a specific audience, and bootstrapping various forms of media and stories built around that character are dramatically declining — thanks to crypto, as new tools like NFTs and DAOs emerge. 

Not only will individual artists have an enormous opportunity to build communities around their work, consumers will be able to move from passive to active participants — storytellers alongside the artists that they support — and previously left-out stakeholders, like parents, underrepresented creators/consumers, and others can find new avenues and voice.

Thanks to Chris Lyons and Micah Johnson for conversations that inspired these ideas. The views here are my own and not representative of my employer.

Posted June 15, 2021