The Web3/Creator Paradox

The latest phase of the digital revolution is a Read/Write/Own structure where more culture creators can join a new Artistic Middle Class… maybe.

Before we get to today's main topic, some miscellaneous goodies…

• Slow Horses on AppleTV+ is fantastic—I watched all six episodes this week and cannot wait for the next season. Terrific British spy thriller.

• If you want to know what’s next for the Star Wars universe, don’t miss this Vanity Fair piece.

• Netflix isn’t just thinking about ads: it’s also thinking about live events, which are TiVo proof and therefore… better for advertising.

• If you’re an arachnophobe like me, then stay away from this TikTok (which also has some bad language).

• My father recommended this fascinating piece from Time about the value of forgetting. Thanks, Dad!

• This week’s Bradism: The hardest question in life is "what matters,” but everybody's answer is different and changes when they aren't looking.

• Please follow me on Twitter for between-issue insights and updates.

On to our top story...

The Web3/Creator Paradox

Calling something “Web3” makes it sound like everybody agrees on what it means. That’s not the case: we’re at the start of our Web3 journey.

It might be more accurate to call it Web3.001.

There are different shapes of Web3, including DeFi (Decentralized Finance), Cryptocurrencies, Decentralized Autonomous Organizations (DAOs), and digital goods like Non-Fungible Tokens (NFTs). This boosterish PDF from Andreessen Horowitz, a Venture Capital (VC) firm that has invested heavily in Web3, is useful if a bit uncritical.

In this column, I’m focusing on creators—artists—and how they might and might not use Web3 to make a living.

Web3 in Context

It’s important not to talk about trends in isolation because trends tend to collide. Here is my current, most optimistic model for how Web3 fits with other trends:

Note: for a pessimistic model, check out the terrific work of Molly White, who runs Web3 Is Going Just Great. Her site details the grift, abuse, fraud, and exploitation happening in Web3 platforms. HBR just profiled her in this illuminating interview.

But let’s stay optimistic…

The Dream

I first ran across the phrase, “If you are not paying for it, you're not the customer; you're the product being sold,” in Eli Pariser’s book, The Filter Bubble. Pariser attributed it to Andrew Lewis in a 2010 Metafilter post, but it turns out the idea goes way back to the 1970s and television.

This in a nutshell is the vision of the digital economy that Web3 rebels against.

In Web1 and Web2, we the users are the product: we exist to consume other people’s work or (if we’re creative) to donate freely our own work to extractive platforms (YouTube, TikTok, Facebook, etc.) that take our labor and make themselves fabulously wealthy by selling ads next to it.

Web3, in contrast, gives users (re-dubbed “creators”) the chance to make money from their work. If the first phase of the web was “read only,” and Web 2 was “read/write,” this third phase is “read/write/own.”

Gosh that would be wonderful. In fact, it would make real a dream that I’ve had for many years. I first started talking about an Artistic Middle Class back in 2007. Here’s an excerpt from that 15-year-old article:

Given how comparatively cheap digital filmmaking and distribution are, we are looking at some exciting potential: within the next few years we will, I think, see the emergence of an artistic middle class. While there are fewer opportunities for people to become sickeningly rich as the makers of culture (movies, TV, music, books, paintings, etc.), there are more and more opportunities for folks to make a nice living as artists.

But it’s hard to see this potential through the gauzy distractions of the Big Media American Dream where you write that book, that song, that script and are set up for the rest of your life. That dream will still be a reality for some folks, but the number is shrinking. There’s a new dream out there, where you can make videos or music for a living, have that be your full time job, never make it to the big time and still afford a house with a yard and private school for your kids. It’s a new dream worth pursuing, and one that we as a culture should start to make a real topic within our discourse.

Between when I wrote that in 2007 and 2020, though, most of the profits from creating art from the margins (that is, art created without the help of a big corporation like a TV or movie studio or book publisher) went to platforms like YouTube and Spotify.

Today, most creators don’t make a lot from their audiences directly, which is why some of them look for sponsors, try to become influencers, or try to break into better-paying traditional media.

With Web3, creators can now sell their digital art as NFTs directly to their fans. Plus, if a fan then resells the art to somebody else (because with scarcity come secondary markets) the original artist gets a cut, like a newfangled royalty check.

A remarkable, don’t-miss Fortune article by Taylor Locke describes one successful version of this among a group of artists who are selling their songs as NFTs.

The most successful of these artists is Snoop Dogg, already a massive success outside of Web3, who earned $300,000 in a single day on the platform Sound.xyz. Those are not typical numbers. Singer songwriter Iman Europe, in contrast, has earned a total of $60,000 on Sound.xyz, which is still a lot more than she makes from Spotify and maybe enough to survive for a while as an artist.

The Paradox

Two populations are investing in Web3: VCs and Creators, and their interests don’t necessarily align. Let’s stick with Sound.xyz as a test case.

VCs are in the Grand Slam business. They need massive scale for their investments to be worthwhile. One rule of thumb a prominent investor shared with me was 15x: if a VC writes a $1 Million check, that VC wants $15 Million back. The VC needs a platform like Sound.xyz to become huge with thousands or millions of artists and millions or billions of listeners to engage and buy in micro-transactions regularly to reach that scale. So, for Sound.xyz to succeed for the VCs, it has to be big like Spotify… albeit with better compensation for the artists. Spotify, however, has a huge head start in the “what shall I listen to?” business. Another challenge for the VC is that there’s no barrier to entry for another platform to come in and create its own community of artists and listeners.

It’s unclear, by the way, how Sound.xyz itself makes money. According to a TechCrunch article, the company does not take commissions from selling songs on its platform: 100% of the money goes to the artists. That’s great for the artists, but how long will Sound.xyz be around after it burns through the $5 Million it raised from Andreessen Horowitz? If the company goes belly up—as most startups do—then what happens to the artists, the NFTs they’ve created, and the people who bought them?

Individual Creators who want to join the Artistic Middle Class are in the Base Hit business. But they still need a community of supporters. Kevin Kelly famously describes this as an artist needing 1,000 True Fans to survive. Finding those thousand fans is a lot of work. The discovery process for artists to find fans won’t be easy, even if a platform like Sound.xyz dominates.

As I said at the outset, we’re in the .001 days for Web3, but my guess is that the best case scenario—which is still pretty good—is that Web3 will make the dream of an Artistic Middle Class a reality for more people than ever, albeit still a slim minority of working creators.

Creators will find their most profitable fans within a 100 mile radius of where they live, with nice extensions outside of their home regions. It will be hard work, but with direct economic relationships with their 1,000 true fans they’ll be able to work hard at being creators, rather than having a straight job by day and doing art on the side.

These creators will also have to work both sides of the fence, releasing work on digital platforms like YouTube and Spotify so that prospective fans can discover them, while holding back still more work to direct-purchase Web3 platforms. The trick will be to make the platform stuff seem like generous free samples rather than a bait-and-switch.

A very few of these creators will wind up working with traditional record labels because platforms like Sound.xyz de-risk taking on new acts for those labels.

One thing I’ll be watching for: if an artist who has built her community on Sound.xyz then gets a label contract, how does she treat the fans who got her there? Plus, what happens to the value of the NFTs fans purchased on Sound.xyz? I suspect that the responsible creator will release new songs on the traditional record label in order not to betray her true and loyal fans.

Outside of music, we can extend this line of thinking to authors, painters, photographers, videographers, and other artists. Fewer creators will become fabulously wealthy; more creators will join the Artistic Middle Class, and the platforms will suffer… but only a little.

There will be many more stars, each burning less brightly, but the sky will be beautiful.

Thanks for reading. See you next Sunday.