Recession, Risk, and Decentralization: New Digital Financing Techniques for Increasing Content Diversity
Economic downturns generally have a negative impact on media production, especially in the film industry.
As the industry struggles to recover from the pandemic, and faced with escalating production costs worldwide, major production houses and on-demand content providers are already tightening their belts, resulting in a reduction of resources and, as usual, a greater aversion to risk.
While the impact is difficult to predict, many are already anticipating it.
The combination of a slowdown in investment and greater risk aversion will lead to intensifying two underlying trends identified by producer Niels Juul:
· Increasing algorithmic governance based on past successes as criteria for selecting future productions
· Concentrating command power in the hands of NADA (Netflix, Apple, Disney, Amazon)
The ongoing challenge of funding unconventional content
Unfortunately, when many organizations, including the Canada Media Fund, are actively promoting greater diversity in national media production, the above trends are having the opposite effect on American productions, as Martin Scorsese and Francis Ford Coppola emphatically pointed out in 2019.
The efforts of public agencies and independent funds become even more important in such situations, as private funding, seeking sure returns on investments, dries up.
Another possible solution for countering these macro trends is to decentralize and divide the funding process by giving audiences and communities of enthusiasts the opportunity – indeed, the responsibility – of funding the kind of independent content they want to consume.
This was the stimulus behind the wave of equity crowdfunding, led by players such as Indiegogo, Seed & Spark, and Slated, for example, that have been taking up some of the slack in the content financing landscape over the past ten years. Their success to date has been mixed, mainly because of the legal complexities inherent in partially funding a film, television, or interactive work.
More recently, the emergence of decentralized autonomous organizations, whose terms and conditions are embedded in a blockchain through smart contracts, have opened up new opportunities for financing and risk allocation for independent productions.
Thanks to the open tools from the crypto domain, platforms such as Film.io, Blockfilm, NFT Studios, FlixToken.io, Moviecoin, and many others have evolved, all of them testimony to the more or less same revelation: the Hollywood studio system of financing is broken and the diversity and success of independent content needs new solutions in funding and for interacting with audiences.
Unlike the major studios, these organizations are based on decentralized structures and free from the strictures that large centralized decision-making layers impose, as well as the pressure from external shareholders where profitability often takes precedence over the originality and social relevance of any work.
With the right conditions in place for decentralized autonomous organizations to operate, platforms can now accelerate the transition from creative commodity to cultural artifact. The tokens they use as currency are governed by automated, distributed, and visible contracts. The U.S. Federal Reserve has clearly explained how tokens and cryptocurrencies co-evolved.
By issuing such tokens and providing capital distributed among a community of enthusiasts, a platform like Breaker Studios has been able to help fund and distribute a dozen shorts and feature films, including Striding Into the Wind. And it’s no longer a financing fringe phenomenon. The movie, directed by Wei Shujun, was an official selection at the Cannes Film Festival and the Chicago International Film Festival.
Funding revisited: the facts and the limitations
The use of decentralized autonomous organizations and the tokenization of production funding and governance certainly expands the funding pool while increasing the viewer/user sense of ownership for a product or original work. According to actor, director, and producer Wesley Snipes, we can also expect to see tokenized investment funds before too long.
In the same way that some financial institutions see crowdfunding mitigating the perception of risk, crypto platforms can also be combined with more traditional financing to provide the funding required to complete a production budget for a creative project.
Of course, depending on the type of smart contracts the producer plans, it’s also possible that the distribution of risk and rewards will follow a pattern that makes the work more difficult to fit into the conventional scheme of things.
While it may ensure easier financing and deeper commitment, this democratization of funding can also be a major sticking point for producers. Indeed, if all major production-related decisions are subject to popular vote, the mechanics of production and the quality of the work could be compromised. As some with experience have pointed out, the greater the number of participants, the greater the complexity of the decision-making.
There are other considerations. Although it may seem easier to raise funds through these innovative mechanisms, their costs, their potential for financing major productions, as well as the underlying legal complexities, are among the risks that come with crypto funding.
The proof of the pudding is, as always, in the eating. With the tokenization of media financing still at the development stage, its ultimate success can only be fully assessed by putting it to the test. And only time can tell whether the promise of a digital currency becomes the bridge financing dream come true for creators hoping to get their ambitious projects off the ground, or whether it remains forever on the outer limits of the media universe.