Fanaply was one of the first startups to explore the potential of digital collectibles based on music artists, more than a year before the acronym ‘NFT’ was on the music industry’s radar.
In 2019, the company teamed up with the Coachella music festival on a giveaway that saw more than 60,000 people take part. It has since worked with a range of partners, including Ticketmaster, Niall Horan and 5 Seconds of Summer.
In his appearance at the Music Ally China Digital Summit this week, CEO Grant Dexter explained how Fanaply had seen these projects as providing fans with a proof of fandom, or “proof of flex” as he put it.
“Was I one of the first thousand people in at this virtual show? Was I one of the first hundred people to listen to this new single?” he said.
“Those were incredible programs. I think we did something like 30,000 or 40,000 with Niall Horan. I think we went through 15,000 to 20,000 of them with 5 Seconds of Summer. And it was a real proof of concept rolling into 2021.”
And that’s when NFT hype exploded. Fanaply had been giving its collectibles away for free, but this year the buzz has been around selling NFTs, sometimes generating revenues running into millions (and, outside music, tens of millions) of dollars.
Dexter thinks that NFTs should not be judged by the froth of that boom period, however. “This just felt inorganic, it felt like it was on jet fuel, and there was just something that didn’t make sense to me,” he said.
“It turns out that it was a speculator-driven market in February and March, by a very small number of crypto players… I think the truth lies somewhere in between that hype and the slowing down of the business.”
Fanaply has been working with more than 100 artists on paid and free NFT drops – it was a partner for Death Row Records’ first toe-dip in the non-fungible waters in May. It has also worked with sporting bodies the NHL and MMA.
“I think there’s a growing group of fans that are excited about digital products, both in terms of collecting moments and memories, but also proof and flex mechanics,” is what he sees as the meaningful aspects of NFTs.
“Like ‘I was there or I’m here, and I have this and you don’t, or I’m a bigger fan of you’, and I think those all will tie into the future of NFTs.”
Dexter talked about the three reasons people enjoy NFTs. First, community: “being amongst a group of people that share the same passion about you and seeing things that they’ve collected, versus things that you’ve collected”.
Second, that flex. “We’ve built Instagram and AR filters into our NFTs, so that fans can share them inside of their social networks, and be like ‘I own this NFT that is massive’,” he said. “It’s the ability to show off people in your other peer groups things that you’ve collected, or things that you’re passionate about.”
The third aspect is trading: buying NFTs and (hopefully) selling them on for more money. It’s clearly a part of the market, but Fanaply is focused much more on the previous two factors.
“I think other companies are like: ‘you’re here for the NFT and then you’re here to trade it, because it’s just an asset’. We don’t want to be in that game,” he said. “We just think it’s fandom, community, flexing, and sharing.”
Fanaply does support a secondary market in NFTs, but Dexter suggested this is more about an extension of collecting and sharing: a way for fans to fill the gaps in their collections.
“The trading is important because it allows you to collect things you might have missed. But I think it’s just part of the overall process,” he said.
Dexter also talked about one of the challenges for NFTs in general, including music ones. They are intrinsically ‘decentralised’ products, but in many ways their value – especially for the music industry – may come from bringing them back into ‘centralised’ systems around loyalty and rewards.
For example, a fan owning a particular collection might get a chance to go backstage at a show, or an artist might do a free concert for fans who own 10 or more of their NFTs.
“You’re tying real-world value to the NFT, and that means that fans won’t want to take it out of some approved systems that can check to say ‘hey, that NFT is is real, and it scans, and gets you into the show’,” he explained.
“So you’re actually connecting a decentralised network into a centralised ticketing database, or a centralised VIP upgrade database, or a centralised Zoom call. I think that’s the way you can work around it.”
“You’re taking this decentralised behaviour, and you have fans earning and buying NFTs that are rewarding them inside of centralised platforms,” he said, suggesting that this can work well anywhere online where fans can show off their status.
“What a way to flex, like if you have an icon beside you when you’re making comments [on a social network or video platform] and people are like ‘where the hell did you get that icon? I haven’t seen it here before’, and it’s like ‘well, I’ve been to five shows and I’ve bought their yearly NFT, and I was one of the first people to hear their new single’.”
A lot has been written about the costs of minting NFTs, but Dexter offered the opinion that these digital products actually scale up well for artists and music companies.
“There’s no cost of goods, or no cost of production so when we build an NFT contract, it’s $50 whether we build a contract that contains 10 NFTs, or 10 million NFTs. It’s still $50,” he said.
“What an incredible product for a really scalable market, when you can bang out a million NFTs for $50, and maybe they’re earned to start, or maybe they’re a couple of dollars, but as they become scarce and the band grows, and the popularity, and people look back on that NFT, and are like ‘that was a really cool, either experience, or that was a cool looking NFT’, they could have secondary market value.”
Which suggests that the secondary market *is* firmly on Fanaply’s roadmap plans, but with an emphasis on how that works for fans, artists and music companies alike. “Every time there’s a transaction on a secondary market, there’s a piece that goes back to the rightsholder.”
As the session drew to a close, Dexter broke down how he sees NFTs as an extension of, or parallel to, some familiar disciplines for the music industry.
“One way to think about it is another merch table, it’s just digital merch, and then you can think of them as engagement and reward mechanisms, and then I think you can think about them as sponsor-driven reward mechanisms,” he said.
“You could imagine that you have, in United States, in California, you have a beach cleanup day before the festival, and everyone that comes and cleanups the beach can earn an NFT for doing so, that will be part of a collection, of a set that will give you perks once you collect them.”
“At a venue in China, you could have ‘hey, the first 100 people at the show can earn an NFT’, because you want folks to get there early and be on time. And again, that’s part of a collection set.”
Dexter suggested that festivals could run similar campaigns with their sponsorship partners, with a headline act announcing an NFT drop powered by a food or vendor sponsor, where the NFT could offer discounts not just at the event, but throughout the following year.
“That’s a really powerful thing about these: fans actually own them, they’re on their phone,” he said. “We’ve actually built in integration with Google and Apple Wallet, so that you could assign a barcode to it, and you could say ‘hey, you earned this collection of NFT, or the specific sponsor-driven NFT, you get 50% off the rest of the year with our product’.”
“Now, the interesting thing for the vendors is that having a thousand people with 50% off is a huge margin cut, but fans can also trade those, so someone may say to that fan ‘I love this place, I know you were at the festival, but I eat here like twice a week, I’ll pay you a thousand dollars for that, even though you earned it free’, and the vendor would get a piece of that revenue and a couple of customers.”
Again, a role for secondary trading even if that isn’t Fanaply’s current focus. However, Dexter returned to the idea of NFTs as “part merch-table items, part proof-of-fandom items, and part rarity items” that most fans will want to keep “because they’re going to be powerful memories”.
He compared them to vinyl records. “Those are about the music, but they’re also a lot about the memories, and about who you are, and what joy you’ve had in your life, in the past, and now, and how that interconnects,” he said.
“I think NFTs are a digital product that can do that. I think they’re going to integrate into many different systems. I think you’re going to be able to earn or buy NFTs on a bunch of different platforms, and I think they’re going to be checkboxes inside of other ecosystems. Like inside of Facebook, you might get access to icons that you don’t have, because you own an NFT.”
“So, I think they’re going to be ubiquitous across closed and open ecosystems, and I think just as we spend more, and more time online, I think their use cases are gonna grow. And I think how they look, and how you interact with them is gonna change as well, and I think we’re just at the very beginning of that.”
The Music Ally China Digital Summit was held in association with MQA and sponsored by Blokur and Fuga. It is part of the IMX (International Music Expo) event which takes place in October.