The Creator and Ownership Economy: Part One

Today, we’re going to break down the growth and history of the creator economy and where Web3 fits into the picture. Then, we’ll run through the current state of the creator economy and some of the key problems it faces, diving into the role that the ownership economy wrought by Web3 can play in resolving these problems. Subsequently, we’ll explore the current landscape of the creator-ownership economy and the tools available to creators, and finally try to predict how this economy will grow over the longer term.

While there is no one universal definition for who or what a creator is, let alone the creator economy, for the sake of our discussion today, let’s begin by setting context with some key definitions.

• Creator: An individual (or a group of individuals) that produces media with educational and / or entertainment value, with the intent of growing (and, in most cases, monetising) an audience.
• Creator Economy: The world of commerce produced by the creator class, which earns a majority of its income by creating content and monetising its audience in various ways.
• Ownership Economy: Popularised by Jesse Walden of Variant Fund, the ownership economy is where the next generation of products / services will be owned and run by its participants via alignment of incentives using tokenisation. This permeates all industries – entertainment, decentralised finance, infrastructure, consumer, etc.

The below Venn diagram is helpful to understand the relationship between the creator and ownership economy.

With these definitions in place, perhaps we can look into how the current world of content creation and distribution came about.

To better understand how the creator economy has evolved over time, we can categorise it into four different eras – the Hobbyist Era, the Distribution Era, the Independent Era, and Ownership Era.

The Hobbyist Era began with the rise of social platforms like Myspace, Friendster, and the early days of Facebook. These platforms were characterised by bi-directional follows, following people you knew in real life, and no value accrual.

The Distribution Era came about with the rise of the ‘influencer’ class of creators, alongside platforms like Instagram, YouTube, and Snapchat. These platforms were characterised by uni-directional follows, i.e., following people you had never met in person but who provided you with entertainment / educational value, and value started accruing to various stakeholders via advertising. The advertising business model consists of:

• Displaying still / video ads to users;
• Paid endorsements of products / services;
• Affiliate marketing.

Effectively, these platforms became a promotional channel for other businesses to achieve their objectives. As Mario Gabriele from The Generalist puts it, creators pay with the resources invested in content creation, the audience pays for this effort with attention, and advertisers buy the attention accumulated by the creator.

The Independent Era was led by a move away from the Distribution Era platforms, as the primary means of revenue generation for creators. There was a shift from creators selling other brands to becoming the brand. Creators now started selling their own products and services by leveraging platforms like Shopify, Substack, and Patreon. This allowed them to not only capture more value but also deepen fan relationships.

Somewhere between the Distribution and Independent Eras, creators, after reaching some scale, began investing as a tertiary model for value generation. This is definitely nascent with only a minority of investors taking this leap (e.g., Animal Capital by the Sway Boys), but we believe this area is underexplored primarily because education and infrastructure to invest in their forte – the creator economy – was and is not available to the long tail of creators.

This brings us to the Ownership Era, which is Web3’s introduction to the creator economy. While we will go deeper into this segment a little later, this marks the introduction of new tools which blur the line between the creator and the audience and make the creator / fan relationship less transactional by generating value via the creation of micro economies for each creator, as opposed to one dimensional business models.

The below diagram, with credit to Mario Gabriele, demonstrates the above dynamics:

In short, creators and users today create the most value and capture only some of it, while the platform itself captures disproportionate value.

This is so due to the following reasons:

Unsustainable Dynamics for the Long Tail of Creators

Since content can be reproduced and consumed infinitely, consumption is concentrated to the content made by a select number of creators. For example, if a doctor is 10% better than the rest, they won't attract 10% more demand – they will attract all the demand. Similarly, everyone wants to consume only the absolute best content, simply because they can. Therefore, earnings get concentrated to these select best creators, making earning a livelihood very unsustainable for the majority.

Stakeholder Misalignment

As noted by Chris Dixon, in the early days of a centralised platform, it behaves in a positive-sum manner to attract as many participants as possible. However, when participant growth hits the top of the S-curve, the relationship turns zero-sum and turns from collaborative to extractive. Now, the network effect is too strong for users to simply abandon the platform. You can understand this dynamic better here.

The fundamental issue here is that all centralised platforms (due to shareholders being a separate entity to platform participants), are required to be valuable as a company. They, unfortunately, can only do this when they extract as much value from the value generated by platform participants.

Therefore, for a platform to be as ‘friendly’ for creators as possible, it must be owned by them. Right now, Employee Stock Ownership Plans (ESOPs) are meant to align incentives between employees and the platform. However, these are limited by legal and financial infrastructure across geographies and socioeconomic backgrounds and, rather crucially, only address the platform’s operators rather than the creators, who are its cash cows and main users. Since creators are arguably the most value additive stakeholder, and ESOPs are not able to remunerate them well enough (or at all), there is currently no way for creators to effectively reap the benefits of the time they have spent on the platform.

In sum, creators do not own their content, 3rd party developers cannot control their code, all platform participants cannot influence the policies or decisions of the platforms they use, and the predominant business model is an opaque, advertising based one that gives outsized advantage to the closed-garden platforms.

So, what is the promise of Web3?

As mentioned earlier, the ownership economy is the hypothesis that the next generation of products / services (across industries) will be owned and run by their participants via alignment of incentives using tokenization. Ownership manifests itself via financial gain, governance rights, and / or social clout.

This world is enabled by Web3 technology, specifically the advent of tokens, which, akin to IP, HTTP, SMTP, etc., are a protocol-level innovation. Think about tokens as an internet-native property rights system – for the first time ever, you can literally own a piece of the internet. This piece can represent anything from a mere JPG to a part of any internet product / service you use. As examples, Bitcoin and Ethereum are the first user-owned networks at scale.

Using tokens as ownership assets, and coordination structures such as DAOs, creators can own not just the content they produce, but the platforms themselves. As the participants will be the owners, they can collectively decide policy and product decisions for the platform, with no external pressure for profit extraction.

Tokens, due to being internet-native, are different from equity in the following ways:

Accessibility

This allows anyone with an internet connection to interact with tokens while also allowing fluid and instantaneous transfer. Unlike equity, they are not limited by geographical boundaries. This easy accessibility allows ‘Patronage+’ to emerge. Coined by Jesse Walden, Patronage+ is a new paradigm where supporting creators is not only an act of altruism, but also one of investment. In other words, patronage with the potential for profit.

Programmability

One can codify rules within the token (the medium of value exchange) to facilitate commercial relationships, which today require 3rd parties to enforce. For example, one could program digital scarcity via NFTs, which allows creators to tangibly value their work that is digital in nature. This is more about restoring pricing power for creators, rather than artificially restricting consumer choices. You can read more about how NFTs will affect creators in our article on Web3 Music.

Another example of programmability is composability. Now, building on top of others’ work (e.g., remixing) does not hinder the original artist from getting financially compensated, as one can program royalties to flow to Wallet X, every time any value is transferred to Wallet Y.

Hyper-Specific Data Insights

Due to the on-chain nature of tokens, creators can verifiably get insights into the quality of a fan across varying parameters such as when an individual supported them, how much they have consumed their content, their quantity of financial contribution, etc. This allows them to incorporate the data into their future work and create more bespoke content for their fans, should they wish to do so. They can also offer hyper-specialised perks to their ‘true’ fans and, in general, engage with their fans much more effectively, allowing them to build a much tighter community that stands the test of time.

Tokens invert the creator lifecycle. Under the Web3 model, creators face a Catch-22 – to make money, you need an audience, but to grow an audience, you need resources to fund content creation. Thus, new creators invest resources with only the hope of making the endeavour a profitable one. In Web3, creators can begin their journey by crowdfunding using a token (fungible or non-fungible). In this model, the ‘fan-owners’ have skin in the game and are therefore incentivised to act as evangelists for the creator and their work. You can learn more about this phenomenon in Li Jin’s article here.

Tokens allow for deeper monetisation by allowing creators to generate more value from their most ardent fans. This brings to life a tiered strategy of having product / service offerings for each level of fan while simultaneously increasing the upside potential for value generation from a creator’s super fans. Beyond monetisation, creators can imbue utility into their tokens, thereby making their fans (those that are token holders) active participants in content creation, as opposed to only passive consumers. Interesting experiments of this type are Shibuya and Mad Realities.

As tokens can fundamentally align platform growth and its participants, it could give rise to much larger and more robust networks than we’ve seen to date. As the platforms will serve users, and not shareholders, users might not want to optimise for share price, which completely flips Milton Friedman’s view, where the main goal of all corporations is to drive profits for shareholders. For the first time ever, we now have the technology to align incentives to optimise for other metrics. However, it is important to note that an easily tradable creator token does bring in the perils of speculation which can rapidly destabilise incentive alignment. A token, therefore, needs to be very carefully designed and if it is to be used to build a community, serious thought needs to be given to having a token in somewhat of a closed-loop ecosystem.

Lastly, Web3 can bring value back to digital content via digital scarcity. Over the last two decades, free-to-use platforms have commoditised and devalued content. As a result, the act of paying for content has significantly reduced. However, the ability to create digital scarcity has the potential to cause a reversal in this trend. The following is a useful quote to understand why this is important:

“If I do a job in 30 minutes it’s because I spent 10 years learning how to do that in 30 minutes. You owe me for the years, not the minutes.” – Someone on the Internet.

While it is not beneficial for every piece of media to be digitally scarce, the ability for creators to make their work scarce unlocks a variety of use cases that can all be monetised. An artist, for example, does not need to let go of her Spotify streams – rather, she can use Music NFTs, limited edition drops, and other perks for her most ardent fans while maintaining a presence on Spotify to reach a larger, more general audience.

With that, we come to the end of part one. After understanding what exactly constitutes the creator economy, its evolution through time, the current drawbacks within the system, and the introduction of the ownership era due to Web3 technologies; in part two, we will go deeper into the convergence of Web3 and the creator economy.