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Web3 has unlocked a treasure chest of new investments for retail and institutional investors alike. Cryptocurrency, which is synonymous with Web3, will obviously spring to mind but as blockchain technology rapidly evolves, investors are discovering novel avenues to park their funds.
This article was prepared in collaboration with Franklin Templeton Digital Assets.
New Wave Alternative Music
Alternative assets are hardly a novel phenomenon. Throughout the course of investment history, assets such as real estate, commodities, collectibles and infrastructure have allowed investors to not only diversify their portfolios but also hedge against swings in traditional markets. Web3 is now broadening the scope of prospective alternative asset investors.
Aside from cryptocurrency, NFTs were the first mainstream investment vehicle leveraging blockchain that garnered global attention. Whilst the industry is looking at JPEG flipping in the rearview mirror (for the most part), NFTs still offer great potential for alternative and experiential investments.
In February 2023, Rihanna's 2015 hit 'B**** Better Have My Money' was released as an NFT, packaged together with royalty rights for the track. Each of the 300 NFTs cost $210 and offered rights to 0.0033% of the streaming royalties. “A valuation of $210 per 0.0033% of the song theoretically places a total value of $6.36 million to the song’s streaming royalties,” Decrypt reported.
Swedish firm Anotherblock is behind the rationalisation of Rihanna's track and has worked with the likes of The Weeknd and R3hab to offer streaming royalties on Ethereum. Investors can use a self-custodial wallet or through the third-party wallet service Paper to buy the NFTs with ETH.
Music royalties have proven to be lucrative investments. Michael Jackson didn't buy the rights to songs by The Beatles, The Rolling Stones, Bruce Springsteen and Elvis Presley just for clout. Justin Bieber, Shakira, Bob Dylan, Neil Young, B-52s, Red Hot Chili Peppers and Imagine Dragons are among the increasing list of artists who have sold their libraries over the years.
Other blockchain-based music royalty platforms include Royal and Bolero. Royal is working with artists such as Nas and The Chainsmokers and offers NFTs on Polygon. Bolero uses Polygon too and has sealed deals with Agoria and Yemi Alade. Its focus is on the master recording and the underlying IP.
“We are taking IP, we are fractionalizing, and thanks to this, we are able to offer multiple revenue sources,” said William Bailey, Bolero’s co-founder and CEO.
Investors are receiving encouraging results thus far. Anotherblock CEO Filip Strömsten said the platform's recent royalty payouts saw “approximately 9% annualized dividend yields.”
NFTs now allow the wider market to access streaming rights, lowering the barriers of entry to the asset class for both retail and institutional investors. Beyond royalties, NFTs are augmenting music industry investments by connecting the artist and fan directly. Smart contracts created by the artists enable them to offer unique, exclusive real-world fan opportunities and thus open up new revenue streams.
Gaming the Gaming Industry But Not Necessarily Web3 Games
Web3 gaming is a polarising topic with die-hard Web3 natives advocating for its disruptive capabilities whilst old-school console gamers disregard their existence as mere Ponzi schemes draped as industry evolution.
Gaming revenue is expected to exceed $300 billion by 2026. It's a stat both traditional gamers and Web3 gamers like to quote. The democratisation of digital assets allows gaming companies to capitalise on the industry by offering players ownership of their characters, skins, weapons, cars, etc.
Earlier this year, Sony applied for a patent to track in-game digital assets on a distributed ledger for this very reason.
Unlike the heated backlash triggered by the likes of Square Enix or Ubisoft for shoe-horning NFTs into their games, Sony's NFT patent was surprisingly well received. In a poll by Twitter user NFT POWER RANKING, 55.3% of respondents said they were "aggressively bullish" about Sony's NFT patent, whilst another 21.9% opted for 21.9% "bullish" and 13.1% went for "mid bullish." Only 9.8% said they were "not bullish."
However, the overall gaming industry has been facing an uphill battle. Over 6,000 jobs have been cut in the games industry jobs in 2023 so far.
Traditional gaming firms Epic Games, Telltale Games, and Team17 made cuts over the past month whilst Web3 gaming companies Star Atlas studio ATMTA and Otherside developer Yuga Labs also reduced their headcount this year. Web3 gaming investment also dropped 37% in Q3 2023 to $600 million, down from $973 million in the quarter before.
Nonetheless, it's hard to ignore the potential of the industry as ownership of digital assets cannot be underestimated for both traditional gaming and Web3 gaming.
Virtual goods and virtual currency activities in games amounted to a $100 billion industry last year. "But that's $100 billion spent on something you don't even own," Siu said. The evolution of this is "spending on something you actually own, which can have additional network effects and value accrual."
"Spending on something you actually own, which can have additional network effects and value accrual." Institutions understand this too. "Traditional financial managers understand this appeal, and that's why there's so much activity, starting with Bitcoin and Ethereum, but it's expected to translate further down," Siu said.
NFTs - Not For Trash
NFTs earned themselves a rather notorious reputation last year. Synonymous with pixelated profile pictures with astronomical price tags as well as egregious scam projects, NFTs were a badge of honour for degens but a display of lunacy for the rest of us.
As the market recovers from crypto winter, failed NFT projects have fallen by the wayside, allowing for projects with a modicum of substance to emerge. Instead of capitalising on the technology of NFTs to flip JPEGs, the industry is using the technology to create more innovative, sustainable and lucrative products to invest in.
"NFTs enable identification of and direct interaction with communities of engaged fans, opening up commercial opportunities and the ability to cultivate, grow and connect to different communities," investment firm Franklin Templeton said in its report Disruptive Technology Views Experiential investing: How Web3 commercial transactions are creating new asset classes.
"This is vitally important because network effects are the foundation of the value created by platforms."
Music royalty and IP rights on the blockchain, accessible through NFTs are proving to be a case in point. Fractionalising ownership of music democratises the process and splits revenue with the parties who are most sincerely engaged with the artist.
Gaming is facing an NFT backlash but the industry has come to the realisation that its audience won't be fooled by shallow products that simply carry the NFT label. Gamers want more from NFTs and the industry is slowly innovating to accommodate them.
Consequently, these blockchain products are emerging as viable alternative and experiential investments for investors to seriously consider.
If you're interested in reading more on the topic of experiential investing in the blockchain space, click here.