AFM 2021 – The Hollywood Reporter

NFT-mania has officially seized the indie film industry. The craze for non-fungible tokens, essentially certificates of authenticity for a digital file, anything from a work of online art to a full feature film, which allow the owner to trade them in an online marketplace, has already burned through the art, gaming and collectables industries.

Now it’s the movies’ turn, as directors, producers, distributors and financiers are jumping on board the NFT bandwagon, riding what they hope will be the next big thing in independent cinema, and not just the next flash in the pan.

Indie industry first-mover Kevin Smith took the plunge in April, announcing he would auction off his upcoming horror feature anthology Killroy Was Here as an NFT.

“Whoever buys it could choose to monetize it traditionally, or simply own a film that nobody ever sees but them,” Smith noted, saying that the NFT auction for Killroy was essentially a high-tech version of what he did in 1994 when he took his debut film Clerks to Sundance and sold it to Miramax.

Jennifer Esposito’s plan is more ambitious. The Summer of Sam and The Boys actor is planning to make her directorial debut with the indie feature Fresh Kills, financing the movie through a combination of NFTs and a first-of-its-kind public offering to sell shares in the film. Investors who want to back the project, described as a mob story set in Staten Island seen from a female perspective, can buy securities in Fresh Kills, Inc. which will be floated on digital stock exchange Upstream. The IPO target is $3.5 million, which will go towards funding the $3.9 million Fresh Kills budget. Additional financing will come through the sales of NFTs linked to the project, including unique digital work created by award-winning artist Gala Marissa, executive producer credits or walk-on cameos for fans.

“It’s a great way to finance the project and build a fan base that will watch the film once it’s released,” Mark Elenowitz, president of Horizon Fintex, the software group behind the Upstream platform, told The Hollywood Reporter.

The Fresh Kills offering is structured so that Upstream investors will be at the front of the line should the movie make money and receive a 110 percent payout on their investment before other shareholders in the film receive any dividends or returns. After the payout, the investors’ preferred shares will convert to common shares representing 25 percent of the copyright in the company/film. The remaining 75 percent will be owned by Horizon with a typical indie film backend structure allowing talent participation derived from the producing company’s shareholder interest in the film.

Esposito is billing the high-tech financing solution as a means of letting ordinary fans choose “character-driven content” and “the stories and voices of women” by being directly involved as film investors and profiting from any success.

“We strongly believe this model can be an alternative to traditional Hollywood funding and will enable new voices to be heard and seen across entertainment that haven’t had the same opportunity,” notes Elenowitz.

An area where the NFT model has already shown proof of concept is in movie merchandising. Way back in 2018, 20th Century Fox released limited-edition Deadpool 2 digital posters to promote the Ryan Reynolds superhero spoof. For the launch of Godzilla vs. Kong this year, Legendary Entertainment brought out a seven-piece collection of original work inspired by the film, created by Australian digital concept artist BossLogic (Kode Abdo), which could be purchased as NFTs. The digital work itself can be easily copied and pirated online but the NFT, which is secured via blockchain technology — involving a vast, un-hackable network of computers — guarantees the certificate of authenticity, so owners can buy and sell the NFTs like any physical collectible.

In the indie space, Motion Picture Exchange (MPX), ahead of this year’s American Film Market (AFM), closed a deal for traditional distribution and NFT rights to its throwback music comedy Electric Jesus with 1091 Pictures. 1091 will release custom-made digital collectibles connected to the feature, which stars Brian Baumgartner, Judd Nelson and Shawn Parsons in a story about a Christian hair metal band in the 1980s.

“From a customer perspective, NFTs give entertainment fans a way to truly own their experience with their favorite content,” MPX boss James Andrew Felts told THR. “In a post-physical market, this will become an evolution of a prized DVD collection, a poster of your favorite movie or a ticket stub from a memorable night at the cinema. From a business perspective, this new consumer behavior, powered by blockchain and web 3.0, will open the door to entirely new ways of distributing content — new rights, new windows and new revenue streams.”

Whether NFT-backed tech can truly be more than an add-on for the film business — a new way of doing crowdfunding and selling movie chotskies — is being tested at the moment by online film platforms such as Vuele, which launched this year as a “Netflix version of an NFT.”

The service premiered with Zero Contact, a low-budget thriller starring Anthony Hopkins and Aleks Paunovic shot largely over Zoom in the early days of the COVID-19 pandemic in 2020. Vuele auctioned off various NFTs connected to the film, including ones that allowed fans to be digitally edited into the film alongside Hopkins, though only in the NFT version of the movie, not the one planned for wide release.

“In terms of financing, I see [NFTs] as a part of the finance plan either as a pre-sale or a carved-out item that would then be given to equity investors as collateral,” says Rick Dugdale, co-founder of Vuele and CEO of Enderby Entertainment. “It’s getting harder and harder to finance indie films and an NFT strategy can provide 5-10 percent of the financing which could be enough to move it over the line.”

Major challenges remain, which could prevent NFTs from gaining widespread acceptance in the film industry. Most non-fungible tokens are purchased using Ethereum or Bitcoin, cryptocurrencies which are both notoriously volatile — not a favorable attribute for customers looking to buy movie tickets or pay monthly subscription fees — and environmentally problematic due to the extensive computer power needed to run the underlying blockchain technology.

For the moment, however, the indie film world is energized with the promise of a new source of capital for a congenitally cash-strapped industry. We’ll see if, come AFM 2022, NFT remains a buzzword or has become a punchline.