How to Build an NFT Movie Franchise
Proof-of-stake licensing: a novel way to decentralize IP and align incentives in fan-creator communities
This article is a brief, general summary of proof-of-stake licensing: the business model behind HIDDEN ONES, an NFT cinematic universe. The project’s whitepaper has all the nitty-gritty.
You’re creating a fictional universe filled with heroes, villains, and deep lore. You’re also into web3/DAOs and see how cool it can be to use permissionless IP to create a permissionless, decentralized content production studio. Imagine dozens or hundreds of people working together to make an openly-accessible & decentralized Star Wars. You want your fanbase and fellow creators to be able to freely use your original media to lift each other up, co-create an incredible world together, and make money.
But you also want a steerable ship, to preserve the core ideas that make your IP unique, and to make sure everyone is working toward a shared vision—without living a legal nightmare. While dedicating your IP entirely to the public domain is a trendy approach in web3 and has been working incredibly well for some projects, it isn’t preferable for this type of high-fidelity IP.
Enter Proof-of-Stake Licensing: a new way for IP owners to distribute commercial licenses to their property cheaply and at scale. This is an effective method for core creators of web3-native IP who want to give their community ownership of a property without the quality control risks that come with the CC0 license. This also allows you to implement a decisive legal infrastructure and shared financial incentives that will help to keep everyone on the same page.
The idea is simple, though presently theoretical (Hidden Ones hasn’t gotten to this part of its roadmap yet):
Establish a DAO around the IP
Distribute licensing tokens to members
Allow members to stake tokens in exchange for a standardized (preferably unlimited & non-transferrable) commercial license
Allow creators to keep the rights to their created work product
Drive a modest royalty on all work product revenue back to the DAO treasury
In this sense, the work product is the artifact produced by the license holder. For example: in a better, alternate reality, a “Lucasfilm DAO” owns the IP to Star Wars. Disney, a member of the DAO, stakes tokens to produce a work product: a sequel with a script optionally vetted by the DAO community.
On completion, Disney owns the sequel and has full jurisdiction over what they do with it, but other DAO members can use new IP they created for the film in their own licensed creations.
The Value Proposition
It’s in the revenue share. If your community/DAO isn’t taking a small royalty from derivatives, you might be passing up an mutually beneficial incentive design.
Royalties aren’t required for POS licensing, but they do allow every single community member to gain financial exposure to every single derivative creation. This is functionally impossible with CC0, and less materially ascertainable with Bored Ape-style semi-permissioned licensing.
Let’s say Carrie, an independent filmmaker, stakes Lucasfilm DAO tokens to license a low-budget Star Wars movie, which eventually makes $1,000,000. If the DAO takes a 5% royalty on Carrie’s movie’s gross (as agreed upon in the license), two things happen:
The DAO gains $50,000 in passive revenue, which it can put toward enriching membership, funding more creations, or marketing the IP to audiences outside the DAO.
Carrie has a built-in market in her fellow DAO members, who have a direct material stake in Carrie’s movie’s success by way of the treasury—which in turn adds material appreciation to their membership and/or tokens. They will want to help Carrie be the best she can be, they will tell their friends about her movie, and they may even purchase it on principle.
For an indie artist with no prior resources or connections, the opportunity to help create a AAA franchise with a built-in market for no more than the cost of tokens could be a career-making factor.
Multiply this figure by dozens, hundreds, or even thousands of artists and entrepreneurs contributing to the franchise across media, products, & merchandise, and the DAO now has plenty of leverage to scale the IP and its community exponentially.
It’s also in the quality control. It’s in the name: proof of stake.
Members are proving to the DAO that they have a stake in the IP’s success by tying up their tokens and entering a formal legal arrangement. The DAO is then able to keep detailed records and bookkeeping on all licensed IP development past, present, and future. And though I don’t believe a DAO using POS should reject projects on a basis of quality, it does allow members to screen for harmful content that could hurt the brand.
Lastly, it removes legal gray area. You’re either a licensed creator or you aren’t. A DAO using POS licensing may elect to enact legal action against unlicensed creators in order to protect their membership. Or they might not care, because, like with the web3 philosophy toward CC0, the more derivatives the better.
These areas are where POS licensing captures nearly all of the open-source, permissionless benefits of CC0 while mitigating the drawbacks that are commendably acknowledged by Blitmap in taking their IP to the public domain.
Here’s a problem, though: you probably don’t have a Lucasfilm DAO or Disney on your side—I know I don’t. You’re probably more like me: making something with love that starts small from scratch. So why would someone even want to license your IP and then pay a royalty too? You have to give them reasons. Here are a few ideas…
It’s what web3 is all about. From MetaHero to Nuclear Nerds, you see brand-new IP being created collectively from its inception with no prior precedent. This is because projects that can effectively bootstrap new IP will allow the community as much direct ownership as (legally) possible. Note that CC0 is, by definition, a lack of ownership.
If you grant DAO membership via an NFT sale, those proceeds can establish the treasury from the outset. Combined with royalties from secondary NFT sales and licensed derivatives, members can benefit from the access and value provided by a strong, consistent treasury.
Following that logic, the DAO can use its treasury to establish funding grants, offer skill development workshops, and market the core IP and member projects at little-to-no additional cost to members.
Great IP/Brand prestige
This comes from little else than having quality art. Make sure the IP’s artistic fundamentals are strong and worth preserving, and artists will be eager to make their mark on the franchise. But don’t be precious, either. Keep an open, curious culture that allows the community to explore new stories, characters, and approaches to the genesis media.
The undisputed foundation of web3. Much has been said on this subject as it relates to crypto-native fandoms, projects, and IP, so I won’t beat this horse. If you keep your vibes right, people will want to play their part.
There are many ways to skin this cat. This is just one idea. If you’re working on something similar, I’d love to talk with you and collaborate!
Stay up to date with the Hidden Ones DAO on Twitter follow our journey in decentralizing the Hidden Lakes Cinematic Universe via proof-of-stake licensing. 👾