The Future of Film & Media Financing via Web3 — Part 2
From Crowdfunding to Profit-Participation
We’re building up to the big announcement for our film, and the Part 3 of this series of posts, where I’ll go into detail around how we’re working to create new, web3-centric, models of fundraising for that film.
But to set the context, I want to go into more detail about the shortcomings of existing funding models.
The problem with traditional financing
At Netflix, a lot was made of the Content team’s art vs. science approach to decision making. Whether content executives use tools & metrics to estimate the success of a pitch, or their experience and intuition, one thing remains true — it’s ultimately a business decision. Studios, production companies, private investors and streamers invest in content to, on balance, make a return on their investment. This comes in-between the motivation of the content creator — to realize entertaining and compelling stories, and that of the audience — to watch great stories.
You can imagine a simplified value equation where a production is valued according to how much it is in demand by its audience
Connecting the dots between a creator’s pitch and the potential audience for their creation, is what every media investor is doing to various degrees of success — but ultimately it’s a decision, and no one gets it right 100% of the time. Big hits come from nowhere, and monumental flops can be heavily funded.
This is bad for creators who don’t get funded (and obviously feel that there is an audience for their creation) and bad for investors who have to make decisions based on ‘best guesses’ effectively.
Crowdfunding emerged out of web2 as an exciting new prospect for creators to get funding direct from their audience — which is a great way to gauge demand for a project.
Crowdfunding connects the audience and creator, proving the demand is there
However — we’ve produced 2 short films without crowdfunding and here’s why…
When my wife and I started our production company and produced our first short films, we discussed going the crowdfunding route — creating a campaign for our network of friends, family, colleagues to raise the funding for the film.
My problem with crowdfunding is that it’s not a sustainable model for media production — you’re funding projects against an exhaustible supply of goodwill
We felt that if we’re truly launching a production company, we need to establish a sustainable model or else you’re funding against the goodwill of your friends & family, and how many times can you do that?
In the end, our ‘funding model’ was to set the budget for our short films within what we could manage from our own funds.
The Future — Profit-Participation
The ideal would be if we could capture the benefits of crowdfunding — e.g. connecting audiences to the creators and creations they want to support, but not assume an endless resource of generosity and goodwill to fund it.
What if people could share in the success of the films & TV series they helped to bootstrap?
Web3 allows us to tokenize crowdfunding and could easily provide a mechanism for profit-participation:
- People buy NFTs representing a portion of the fundraising budget
- When profitable, those NFTs could be used to distribute an appropriate share of profits to their holders
The problem here is that we have no clear legal framework for doing this — in fact it sits squarely in the middle of securities law and there are a number of steps the issuer would need to take in order to stay within what legal guidelines we do have around selling securities. (More on this in Part 3)