Bollywood's Clip Rights may finally have a saviour in NFTs as they enable Product Differentiation
Updated: Oct 8, 2021
For long, Bollywood couldn't find out a proven method to monetize its vast treasure trove of clip rights. They are present in content deals, lawyers fight over it despite knowing that the actual requirement is for the long form content only, yet 'clip rights' are somehow protected by sellers and excluded from license deals - even though the sellers haven't been able to make good money out of it.
Non-Fungible Tokens of such clips may finally provide a viable method for Bollywood to monetize its clip rights.
Understanding Clip Rights
In all my years of practicing as a contracts attorney in the media and entertainment industry, I have come across various deals concerning audio-visual content wherein ‘clip rights’ have been separately carved out and identified. These rights are not specifically defined under the Indian Copyright Act, 1957, and therefore the nomenclature and its recognition as a separate category of intellectual property is attributable to market usage and industry practices.
Clip Rights do not have a standard definition. As per the business needs of the parties, ‘Clips’ may be defined to refer to one or two minute audio-visual parts of short durations, which contain a particular scenario or sequence, which can be extracted out of a film, web-series, or a music video. These parts are exploited in the form of a clip without running the entire film, web-series, or a music video.
When a television channel plays only comedy scenes extracted from several films as part of a half and hour comedy show, then it’s an example of use and exploitation of clip rights. Lately, some popular clips of few seconds have been used by netizens to make audio-visual memes on popular themes of the day.
In negotiations for transactions involving sale or assignment of any media content, sometimes the question of assignment of ‘clip rights’ also comes up. In an industry that is increasingly realizing the importance of creating and recognizing distinctive forms of rights for maximizing revenues, it became common-sensical for content sellers to identify and carve out ‘clip rights’ from the scope of assignment. Content sellers fight to reserve clip rights with them despite not having means to make use of such clip rights. Eventually only a narrow license of non-commercial use is permitted for promotional and marketing purposes.
NFTs stand for Non-Fungible Tokens, which are a form of a crypto-token created on a blockchain. An NFT is created using the process of minting. I can take my digital art, i.e., the underlying asset, which can be a picture format like a JPEG, GIF, PNG or I can use an audio-visual clip and host it on a file system (IPFS or any central or decentralized server).
An NFT represents a database entry in the blockchain on which that NFT is minted. NFTs are unique certificates of authenticity on blockchains that are usually issued by the creators of the underlying assets. These assets can be digital or physical in nature. An NFT also records the data related to its underlying asset. The data may contain information regarding the seller, the buyer, and a pointer to a URL containing the underlying asset. There is scope for more complex forms of information to be encoded in an NFT, but that is out of scope for this present article.
If you create an NFT of a clip/highlight, then your NFT sits uniquely on the blockchain. This means that your NFT cannot be copied or replicated as another digital unit on the blockchain.
It is true that minting an NFT will not prevent production of a similar copy of the NFT's underlying asset. There is no technical difficulty for anyone to create a copy of the digital art/clip even when it has been minted into an NFT – however, what is not capable of replication is the fact of the ownership record authenticated by the true copyright holder of the underlying asset. This is the primary factor that helps users identify the real owners and thereby authenticate the genuineness of any digital art/clip/content. This aspect cannot be replicated by others who create duplicate NFTs.
Creating Clips into NFTs and Building Communities
A media house could license their clips/highlights to a blockchain based start-up which can then issue those clips as NFTs. This is how Dapper Labs makes available the NBA Top Shot clips by licensing those from NBA.
Alternatively, the media house could set up their own blockchain issuance business that monetizes their clips. This option means that all traditional broadcasting and media companies should create their NFT divisions as a sub-department under their digital teams - which could help build a community around their clips/highlights in order to maximize value for NFTs.
NFT’s monetization potential and the revenues it may generate is an open question for anyone willing to test waters in this territory. NBA’s Top Shots is a prime example of how classic basketball points have been immortalized through NFTs and monetized. Sports clips are another goldmine that are waiting to explode into digital art collectibles for sports fans
Commercial Utilization of Bollywood's Clip Rights through NFTs
NFTs may prove useful for monetizing Bollywood’s clip rights. Popular action or romantic sequences, dance moves, or scenes that have become classic signatures of towering personalities like ‘meri paas maa hai’ reply from Sashi Kapoor to Amitabh Bacchan could be sold as NFTs.
The scope of rights under which the NFT is sold will have to be made clear by both the seller and the NFT marketplace (purely from the standpoint of ensuring clean business). While claims have been made by some quarters regarding NFT's efficacy in acting as a viable contract recording transfer of ownership and determining royalties, the same remains to be tested owing to the limited flexibility available with encoding data on an NFT.
Nonetheless, when NFTs are sold as limited edition copies, i.e, when it is sold like how a film owner sells copies of the films like DVDs, then it can hold promise for monetizing Bollywood's clip rights.
The extra excitement about NFTs is that unlike physical media collectibles, the files represented by NFTs will be forever attached to the buyer’s name and they will not get decayed, damaged or corrupted, although there is one singular threat – the server hosting the file represented by the NFT has to be forever functional. The risk is that if the server goes dark, then the file also goes away with it. However, so long as the underlying asset is permanently available, the NFT buyer has everlasting access to it unlike other physical media/collectibles that run the risk of wear and tear or decay.
Care will have to be taken to ensure that the terms of sale at the marketplace or those made available along with NFT do not claim to transfer ownership rights in the underlying asset - as that could potentially lead to non-enforceable contracts or at worst fraud or misrepresentation. There are examples of people attempting to sell copyrights and right to collect royalties as well through NFTs, but those use-cases haven't matured into a clean co-habitation with the existing legal framework concerning copyright ownership and transfer.
Challenge of Monetizing Clip Rights through a Subscription Model and the alternative for Monetization through NFTs using the concept of 'Product Differentiation'
Business pundits have long tried to come up with successful business models to make use of the heaps of highlight clips and best shots from sporting events and matches, but the same has proven a tough nut to crack owing to the challenges of fitting a suitable subscription model around the idea of charging users for watching clips. Users may not want to subscribe to a service only for watching clips as the consumption time is so less that they may not wish to pay for a fleeting experience.
The subscription based business model proved a tough nut to crack because it would be difficult to convince someone to pay a full month’s subscription fee if they only wanted to access a particular highlight of few seconds. Moreover, it also did not permit users to exercise any personal connection.
The subscription model also relies on the idea called, 'practical value'. Practical value is the value that people perceive when consuming a good or service for practical purposes. A person wishing to eat apple pays for 1 Kilogram of apple on the perceived value of apple as something that can remove a person's hunger. The apple has no other value in terms of aesthetic or any particular rank or taste.
As opposed to the practical value - another type of value that people may perceive is the 'ranking value' which is the value that people feel from the rank of a good or service in a set of similar types of goods or services that people use, possess, or observe. For e.g., if someone is motivated for other considerations such as those pertaining to 'class' or 'rank', the person may buy rare breeds of apple and skip the usual variety.
The ranking value aspect also enables something called 'product differentiation'. In a subscription model, product differentiation is not possible. Product differentiation is a concept in economics and marketing which is utilized in order to distinguish a company's products or services from the competition concerning same or similar type of goods. Economists and business owners have argued and debated the efficacy of 'product differentiation' as a means to maximize profits.
The idea behind product differentiation is simple. People obtain value not only from practical use - but also from a sense of ranking. Classifying seats in an airline as per business and economy class is the simplest example of product differentiation - which airline companies use to maximize profits through segregated offerings and treating different classes of customers differently.
The subscription model for monetizing clip rights/highlights proceeds on the assumption that paying users derive utility from having access to a vast library of clips and highlights which they would return to watching over and over again in exchange for an access fee. By treating highlights/clips as something capable of consumption alone, the subscription model views them only for its practical utility while ignoring the 'ranking value' lying hidden in such clips/highlights.
In a subscription model, everyone pays uniformly. A fan that is desirous of a stronger and deeper connect with any clip/highlight/celebrity is not able to pay differently over a fan that has only a flimsy connect. The subscription model completely misses on the point that clips/highlights may have more than just practical utility in that they may have a higher value as memorabilia capable of invoking a strong sense of nostalgia and capable of building fan-connect. Putting clips and highlights behind a pay-wall interrupts the potential of building that type of a deeper fan connect.
Therefore the subscription model is not able to attract die-hard fans as they share the same space accessible to flimsy fans, while the flimsy fans would have no incentive to pay subscription fees for content that they may not access as much to warrant a personal cost of consumption. They'd rather access it for free - thereby encouraging piracy, while the die-hard fans are unable to reflect their 'ranking preferences' into their buying decisions in the market.
However, in contrast to a subscription model which treats all kinds of fans equally, NFTs are capable of enabling product differentiation by ordering fans' preferences as per a ranking matrix. NFTs are capable of attributing 'ranking value' to clips/highlights by regulating the number of units that may be created for market's consumption. The immutable aspect prevents rampant duplication while maintaining authentic ownership records.
While hotelling argued that product differentiation will only provide slight differences in profit, yet it has been considered as an important strategy for firms because such a strategy can create large differences if the differentiation comes with an in-built ranking preference and value. Harashima (2016) argues that ranking preference and value also creates value in the minds of users. Values derived from practical use have normally been considered in economics, but people will also consume value derived from ranking.
Compared to a plain business model of subscription based access to millions of clips - which many might not be interested in, NFTs could be utilized to attribute ‘ranking’ value for rare collectibles. Clip owners may mint NFTs in limited editions for highly rare collectibles thus driving their value up. For e.g., a bollywood clip of the famous dialoge, "mere paas maa hai" may be minted only once to keep its rarity intact, while forgettable clips could be minted into several tokens depending upon market considerations.
You may ask, this is no different from issuing limited editions of a product - however, with the aid of blockchain technology, there are few advantages that score over distributing physical products, and they are:
(i) no wear and tear as may happen in the case of VHS tape / music CD or other forms of physical collectibles;
(ii) verification in real time of the issuer of the NFT - thus ease in establishing authenticity; and
(iii) Secondary sales can link back to the original owner through smart contracts, which can help the original owner get a fixed percentage of the secondary and subsequent sales of the NFTs.
NFTs could solve the challenges of Piracy
The other challenge for subscription based business model around clips/highlights is finding possible ways to plug revenue leakage that may happen with a paywall subscription model. This leakage happens when fans make clips available on their social media accounts, which they are able to do easily and quickly.
Selling clips through NFTs solves this problem because not only does it establish a way for the producers to monetize their clips, they also permit fans to establish a permanent connect with the clips. This could also help solve the problem of piracy, which in my view is essentially a problem of access.
Consumers desirous of a deeper connect may purchase the NFT, while those who only want to enjoying viewing could watch the underlying clip/highlight linked to the NFT by going to the suitable platform hosting such NFTs.
In this manner, not only will producers be able to monetize their clips - they will also solve the challenge of piracy as:
(i) viewers may access highlights freely and openly by visiting NFT holder's galleries or a common online museum/gallery pooled together by various NFT owners;
(ii) any further piracy may not operate as a loss of subscription revenue for the producer because their income would flow from sale of NFTs;
(iii) distribution of burden of piracy from one single producer to multiple NFT owners who would be interested in enforcing their ownership rights for any illegal or unauthorized duplication of their NFT's underlying asset; and
(iv) over a long period of time with sufficient distribution of ownership rights and NFT based authentication of ownership records, availability of any digital content or digital art piece without its sibling NFT could end up being viewed as an infringing copy by default. This will create a culture of respecting online digital ownership rights and create an inhibition for not consuming content without a sibling NFT.