This is not a thrill: Your NFT playbook

An actionable framework to provide focus and guide your NFT strategic and operational planning.

Is $23 billion in annual sales volume a fad? How about a 5-year-old market that grew 240X—24 thousand percent—in the last year1. Does that get your attention?

The market in question is the non-fungible token (NFT) arena, which, for many businesses, has quickly moved from descriptions like “cute” and “that can’t last” to real questions like: “OK, so what do we need to do here, people?”

Indeed, the NFT market is a significant emerging business opportunity, and especially for media and entertainment companies with valuable intellectual property, as we outline in our new report, Navigating Opportunities in NFTs. The report cuts through the considerable NFT noise to provide companies with a detailed framework to both establish an NFT strategy and then operationalize it.

Because, with another $12 billion in NFT trading volume already in Q1 20222, it’s time for companies to move beyond wait-and-see and start figuring out which parts of this rapidly trending new market require real go-forward planning—and which are just Pokemon Go.

The current landscape

Of course, everyone today knows what NFTs are and how they work, but let’s start with a quick refresher—just in case. Maybe, you know, a friend was asking, and so you can share this article with them.

NFTs are unique digital assets that are controlled by the creators but can be bought and traded by consumers, at values established by the counterparties, using an underlying blockchain platform that manages all of the related details on rights, ownership, transfers, valuations and security.

Note the emphasis here on a “single unique” creation, which is what separates NFTs from fungible digital tokens like cryptocurrency. One Bitcoin is worth the same value as another Bitcoin, for example, but owning the one “Everydays” digital drawing by the artist known as Beeple is worth a lot more than owning the one original copy of Jack Dorsey’s first Tweet—although both are worth quite a bit. (OK, so now your friend knows.)

Where NFTs quickly get interesting is the opportunity they offer to mine new revenue from existing IP, expand the market for new content, and generally extend branding through new forms of customer engagement, community building and superfan participation. Ultimately, we believe any consumer brand can play in the NFT space, but three industries in particular are on the leading edge:

Media

Rich content libraries are ripe for various extensions into the digital asset market. Major studios are starting to test NFTs like collectible images, avatars and videos.

Gaming

This already digital-savvy industry and consumer base is leaning into NFTs with unique offerings on current games (avatars, levels, weapons); and NFTs are also the basis for a whole new gaming model known as play-to-earn (P2E)

Sports

Dedicated fan bases, celebrity athletes and a long tradition of pay-for-memorabilia make this another leading sector. Animations, digital trading cards and autographed tokens are already part of the NFT market.

The NFT framework

Job #1 is to establish a clear strategy, and quickly. For many companies, this might mean rounding up disparate “let’s try this” NFT initiatives that may have been well-intentioned a year ago, but now need to be brought under a cohesive strategic framework.

Our approach to that framework starts at looking at the interplay between marketplace control and customer interactions. Companies that prefer to maintain more control over the market and their related IP may need to consider building their own tech platform, for example, while companies that are less concerned about market control can leverage existing publicly available markets and the associated blockchain platforms that power them.

Similarly, on customer interactivity, options can be as limited as digital-only tokens to start (low interaction), ranging up to high-interaction hybrid offerings that include the digital token plus in-person experiences like VIP event passes and even a chance to engage directly with an artist.

To help companies use our strategy framework, we’ve developed a series of questions in four key dimensions:


Ambition: What are your reasons for considering the NFT market?


Customer: Who is your target audience, and what type of relationship (new or extended) do you want with them?


Content: What are the details of your IP—what do you truly own, and are there any contingencies on your rights?


Technology: Are you comfortable using open, shared technologies, or do you need to own and operate the tech yourself?

Considerations for operationalizing an NFT strategy

Once you have established the overall NFT strategy, the more challenging job becomes operationalizing it, and especially given how quickly this market is moving. Our report identifies 10 operational dimensions that companies entering NFT markets will likely need to cover, including talent and rights, for sure, but also “the details” like tax and compliance, security and contracting.

Digital rights:
Defining who has ownership of the rights to mint and sell the IP in an NFT format

Marketing:
Promoting/advertising the organization’s NFTs across social media channels and in the digital marketplace

Contracting:
Defining the future contractual requirements and rights to enable NFT minting/selling

Enabling technology:
Defining the platforms, internally and externally, to support the NFT initiative

Cyber protection:
Working with IT to protect the NFTs and their supporting platforms to prevent hacking and unauthorized use of the NFT

Governance:
How NFT rights, licensing, purchases, and sales are monitored and governed across the owners/customer community to protect and preserve the organization’s brand and the customer experience

Talent:
Attracting the talent needed to support and maintain the NFT lifecycle within the organization

Data:
Defining what data is needed to support the NFT initiative

Financial reporting:
Defining the reporting needed including royalty reporting to artists when NFTs change hands

Tax and compliance:
Managing and adhering to the regulatory compliance of the cryptocurrency world

For your consideration

Of course, new opportunities are never risk-free. NFTs are not simply a just-add-water solution, so companies need to be mindful of potential brand, market and operational risks.

The brand impact will be immediately relevant. Will your fans lean into the new offerings, or view them as inauthentic “cash-grabs”? On the market side, the inherent volatility and miniscule track record with such a new arena make accurate financial forecasting of any duration difficult. And executing on the operational needs will not be insignificant—technology, security, compliance, reporting and more.

But then the biggest risk might be simply staying on the sidelines while the rest of your competitors wade in and start figuring out whether NFTs are more iPhone or iPod. And you don’t want to be stuck holding the iPod.

Footnotes

  1. https://dappradar.com/blog/2021-dapp-industry-report, both stats, and same as cited in the lead of the paper.
  2. https://dappradar.com/blog/dapp-industry-report-q1-2022-overview, same source as used in the paper for 2021 number.

Contact us

Scott Purdy

Scott Purdy

National Media Industry Leader, KPMG US

+1 212-954-4207
Ryan Harper

Ryan Harper

Director, Finance Transformation, KPMG (US)

+1 213-533-3308
David Pessah

David Pessah

Senior Director, KPMG Innovation Lab, KPMG US

+1 631-774-1045