The RareCircles Guide to Understanding NFT Commercial Rights
Tags: Web3, Nft Collectibles, Nft, Crypto

The RareCircles Guide to Understanding NFT Commercial Rights

One of the most unique ways that NFT creators have begun providing extra value to NFT buyers is by licensing commercial-use rights. What does that mean? Essentially, it means letting your project become a launchpad for decentralized creativity, allowing your community to use their NFTs in their own creative and commercial endeavours — and even to earn a profit doing so.

The idea has been kicking around for a few years — in 2018, the CryptoKitties project earned some buzz by allowing its community members to commercialize their NFTs, provided the revenues didn’t exceed $100,000 per year. But the idea has really taken off more recently, with new projects popping up left and right.

So, to license — yay or nay?

THE PROS

It shows faith in the community

Since the new initiatives come from your project’s inner circle, they tend to reflect the community’s interests and obsessions. And allowing for their creation unlocks new possibilities for people outside the community to become aware of your project — in short, it’s free marketing. As pointed out in the RC case study of the Bored Ape Yacht Club, commercial-usage rights in that community have created awareness beyond traditional NFT and crypto circles.

It deepens the sense of belonging

Offering rights reinforces the community bond that a great NFT project seeks to create and sustain. Community members, even those who don’t make use of privileges, benefit from that. They also share in the added value earned when the project’s art and ethos spreads further into the world, whether virtually or physically.

It can enhance the project’s longevity

Nurturing community over the long term is one of the major upsides of licensing, but here’s another practical way to ensure your project’s staying power: If community members want to retain commercial rights, they need to retain ownership of their NFT. For a segment of the community at least, that shifts the focus from rarity, flipping, or trading to long-term holding.

It creates new economic opportunities

By providing commercial rights, you’re producing a clear financial upside for your community, in particular those people who supported the project early. The ultimate value of that benefit depends on a host of factors — among them the quality of the art, the broader popularity or awareness of the NFT project itself, and the way an NFT holder makes use of their rights. But the economic potential it creates is embedded in each and every NFT.

THE CONS

It means you lose control over your art and IP

The Bored Ape community has created audience-appropriate offerings (craft beer and comics), but there’s nothing stopping someone from using an Ape for less suitable purposes — or even offensive or hateful ones. That could reflect poorly on the project overall, and even as the original creator you would likely have no legal recourse. To stress the first pro above, you need to trust your community. This is arguably the reason why a project like NBA Top Shot, representing an established, image-conscious brand, is explicit about prohibiting commercial usage.

It limits secondary trading

A community member can’t sell their NFT if they want to continue using it commercially, which means the NFT is effectively removed from the secondary market. It’s a strategy built around offering new value to your community, not flipping NFTs for immediate profit. This is where you need to take stock of what you’re trying to achieve and how important the secondary market is to your project.

It works better for some projects than others

As with the NBA Top Shot example, this is unlikely to work well with projects that are themselves extensions of existing intellectual property — imagine a set of MLB baseball cards that also licensed their owner to sell trinkets with players’ face on them.

For projects involving original art, the strategy is only as good as the art itself — and the enthusiasm and creativity of the community. If you can’t imagine a situation in which licensing IP might add real value for your community, that probably means you need to go back and take a harder look at the project overall.

Written by: Matthew Halliday