The Future of Content is Public or Token-Gated (Part 1)
Why mass media is destined to be a public good
Welcome to the inaugural edition of Black Box. I’m kicking off with my hypothesis on the future of content, a hefty topic that I’ll cover in two parts. Hope you enjoy!
The history of content is one of rights and access. Value has derived from both protection against reproduction and distribution (i.e., copyright) and exclusion (i.e., paywalls). But these are contradictory and hard to enforce, causing creators to consistently be undercompensated. I believe the future of content will be about rights or access, and the sources of value will reverse. In fact, this transition is currently in process, as evidenced by Netflix’s attitude towards user-generated Squid Game content and the growth of creator tokens.
More monetization, more problems
The idea that rights and access are better separate than together may seem counterintuitive, but it boils down to price versus quantity. Content has a unique asymmetry: it has very high fixed costs of production, but effectively no marginal costs of reproduction and distribution. As a monetization strategy, rights protects price by increasing those marginal costs above zero. Analogously, access controls quantity by artificially creating scarcity. Since production costs are fixed, maximizing profit is equivalent to maximizing revenue, or the product of price and quantity. The problem of monetizing rights and access is that doing so limits both.
In practice, profit is further diminished by the costs of enforcement. Take rights. Copyright infringement is sometimes seen as an “internet problem” that started with Napster, but in fact it has occurred en masse and largely unchecked since (at least) the days of bootleg cassettes. The desire to share content is universal and so deep-rooted that the threat of penalties has never deterred people. In addition, often what we reproduce and distribute are the ideas of a piece of content (i.e., as remixes) rather than the content itself, making detection and prevention that much more difficult. Worst of all, content that appeals to many, and is therefore exceptionally valuable, is the IP most at risk for precisely that reason.
Enforcing access is similarly frustrating. Paywalls are always vulnerable to leaks because the cost of access is fixed and sunk. Payers are therefore incentivized to maximize their return, which by definition can only take the form of a leak. Interestingly, the return itself is almost never financial — how often do you see leaked content for sale? Instead, leakers seem to have a benevolent mentality in which they are “taking one for the team” so that their friends or the online communities to which they belong can also enjoy the content. No enforcement technology can counteract the resulting social status and positive feedback that the leaker receives. Technology is not even mechanically sufficient since once a leak occurs, removing the “original” leak does not prevent subsequent leaks from local copies.
So what should content creators do to get more out of their work? I propose a barbell-shaped strategy that forfeits either rights or access to maximize profit while minimizing enforcement costs. The strategy diverges depending on the intended audience: mass media should give up rights and optimize for quantity, while curated content should open up access and focus on price.
Sharing (and remixing) is caring
That mass media is a quantity play is obvious; it’s literally in the name. Making the IP freely accessible to consumers1, however, is much less apparent. The key to understanding this strategy is the fact that attention has become zero-sum. Reed Hastings famously observed that Netflix’s biggest competitor is sleep — that we have access to much more content that we can possibly consume. Given its scarcity, mindshare itself is value. So when content captures our imagination, its creator should not only allow sharing and remixing, but also encourage and celebrate it. And since going viral is quite rare, mass media should always be available to people so creators are positioned to capitalize if it does happen.
Relaxing rights also helps mass media creators monetize “off-content”. Ads have long been a way to monetize attention, and shared content gets more attention. The popularity of songs used on social media drives users to concert stadiums (and has outright created new artists like Lil Nas X and Bella Poarch). Harry Potter, Despicable Me, and much of the Disney portfolio have are more valuable in merchandise stores than movie theaters because their characters and stories persist in pop culture.
But these examples are still different from my recommendation of intentionally giving away IP to the audience. Why would content creators want to monetize off-content? The optimist would answer that most off-content markets are larger and therefore more attractive. Google and Facebook lead NASDAQ thanks almost entirely to online ads. Musicians make far more money from tours than from albums. The consumer goods market is worth over $1.5 trillion in the U.S. alone, compared to just $12 billion in global box office revenue.
The realist would answer that creators don’t have a choice. Despite how famously trigger-happy Disney is with cease-and-desists, the latest MCU movie effectively enters the public domain the second it hits Disney+ through high-quality pirates. Mass media has never had the upper hand in the fight against copyright infringement. So why not make the IP an actual public good for fans, reap the off-content benefits, and forget the enforcement costs? A smaller piece of a much bigger pie is still better than the leaky bucket of directly monetizing content.
Netflix seems to have realized this with Squid Game. I have never seen as much as a clip from the show, yet I feel like I have studied each episode from seeing UGC everywhere for months. The long half time is no accident — Squid Game is engineered to be a public good. Think about it: the show is based on Korean children’s games and the characters wear track suits. Any able-bodied person can simulate Squid Game to a high degree of fidelity at minimal cost, especially if they ignore wardrobe. Like all internet challenges, the games are easy to understand and play but hard enough to win that the tension between success and failure stops our scroll every time. Netflix is practically begging us to claim our player number and prep our dalgona2.
And so we have, endlessly and on every platform. On one hand, this is remarkable because not once has Netflix struck down Squid Game content for copyright infringement — not when critics called out MrBeast for plagiarism, not even when major brands used its imagery in their ads. On the other hand, this is not interesting at all because it is exactly what Netflix intended. The point of Squid Game is to keep us playing, thus extending its relevancy long past the initial rush of virality (which was itself driven by our play). Rather than targeting MrBeast in a lawsuit, Netflix should be thanking him for reigniting and expanding interest in Squid Game3.
As for monetizing off-content, Netflix is investing heavily in merchandise. It opened an online store last June and started selling through Walmart in October. Given the impact that Stranger Things had on the brands featured on that show, I think product placements could be another successful source of revenue. There are also indirect benefits to keeping consumer attention with open IP. Memes and merch can help keep subscribers paying by bridging the gap between seasons (especially since Netflix releases all episodes at once) and sparking repeat viewings. Monetizing off-content will also help Netflix maintain its growth in the long term by diversifying its income; it can’t continue to add 30 million subscribers per year forever.
What about the other half of content’s future? Tune in next week for curated content, cryptomedia, and creator tokens!
I use "consumer", "audience", and "fan" to mean anyone who engages with the IP without material financial gain. The creator should be the major beneficiary by far of the mindshare that they acquire.
In its own words, Netflix welcomes and celebrates fans sharing and remixing Squid Game content.
The gaming industry has institutionalized this strategy as modding. It is no coincidence that Roblox, Minecraft, and Fortnite are all simultaneously games and platforms for game creation.
Great!
This is cool!