Every Wednesday morning, Artnet News brings you The Gray Market. The column decodes important stories from the previous week—and offers unparalleled insight into the inner workings of the art industry in the process.

This week, assessing whether you can incentivize your way to a sensation…

APES MOVE TO SCALE STRUCTURES

On Friday, Yuga Labs, the company that spawned the wildly expensive Bored Ape Yacht Club NFT series, announced that it had acquired the intellectual property behind rival Larva Labs’ CryptoPunks and Meebits projects. Although Yuga Labs will maintain control of the underlying brands and logos for both series, it will transfer the intellectual property (I.P.), commercial, and exclusive licensing rights for each individual CryptoPunks and Meebits NFT to its respective owner, empowering them to legally proliferate, and profit from, derivative works based on the tokenized character. In other words, Yuga Labs will still own the overarching CryptoPunks and Meebits worlds, allowing them to expand on the concepts with new characters and ideas, but the company will cede control of the individual characters whose NFTs have been acquired by others.

This unique arrangement means that Yuga Labs is incentivizing its earliest adopters to assist the company in building an I.P. universe that can move all three projects from the cultural margins to the mainstream. In this sense, their objective mirrors what more and more members of the fine-art establishment have been trying to do in the era of Instagram-ready immersive installations, artist-branded merchandise, and fractionalized ownership. Yet there’s reason to believe that Yuga Labs’s innovative strategy may serve more as a cautionary tale than as a blueprint for success.

There are no perfect parallels for what Yuga Labs is doing here. The best one I can conjure for the art world would be if Takashi Murakami had announced early in his career that he would transfer the underlying rights for each of his different characters—Mr. DoB, Kaikai and Kiki, Miss Ko2, etc.—to whoever owned the first painting or sculpture in which it appeared. 

In this hypothetical history, instead of Murakami himself being the one to produce and monetize any subsequent uses of those characters, the rights to do those things would convey to the individual collectors holding the unique source material. Whether they wanted to license out “their” character’s image as is, or make it the basis of some number of derivative products or vehicles (toys, clothing lines, video games, animated series, whatever), they could do so with the full protection of I.P. law behind them, and the full rights to the net profits of their endeavors.

Yuga Labs embedded this opportunity into the Bored Ape Yacht Club (BAYC) NFTs from day one. The CryptoPunks and Meebits acquisition just gives each token in the two Larva Labs series a similar iterative value proposition to buyers. 

While financial terms of the acquisition were not disclosed, we don’t need a verified deal sheet to know that a huge amount of money is at stake. CryptoPunks have done more than $2.2 billion in total sales to date, while Meebits have generated around $244 million. (Both figures come from OpenSea.) Those numbers suggest that the pact should be worth tens, if not hundreds, of millions of dollars even without the I.P. component, since Larva Labs cofounders Matt Hall and John Watkinson transferred 423 CryptoPunks and 1,711 Meebits from their personal stash to Yuga Labs as part of the deal. (Hall and Watkinson are maintaining optionality on their other existing and future projects, though; Larva Labs is still represented by UTA Digital Assets, the tech-focused branch of the Big Three entertainment agency, according to sources with direct knowledge.) 

The profit motive only intensifies when you consider the bigger picture. Just before Buzzfeed News unmasked Yuga Labs cofounders Wylie Aronow and Greg Solano this February, the Financial Times reported that the company was in talks with venture-capital behemoth Andreessen Horowitz about an investment that would value the company at between $4 billion and $5 billion. The BAYC market is bombastic, too, racking up roughly $2.6 billion in sales in less than a year, per Nonfungible, with Aronow and Solano receiving a 2.5 percent royalty on each resale.

So this is a major consolidation in the NFT gold rush. But more interesting to me, it also represents a big bet on a solution for one of the most vexing problems in crypto: how to fast-track wide adoption and investment in a space founded on exclusivity, even as it pours out rhetoric about paradigm-shifting inclusion and access. 

Fundamentalist Church of Jesus Christ of Latter-Day Saints members visiting Old Faithful at Yellowstone National Park. (Photo by: Visions of America/Joe Sohm/Universal Images Group via Getty Images)

FROM A CLUBHOUSE TO A UNIVERSE

In theory, by seeding out select rights for the individual Apes, Punks, and Meebits, Yuga Labs could reshape the market for these NFTs, as well as maximize its footprint in the broader culture. In practice, however, the move might contribute surprisingly little to the hard task of reverse-engineering large-scale, organic enthusiasm for I.P. that has, up to now, been expressly premised on creating a small, rarefied in-group.

It’s tricky to quantify the existing audience for Bored Apes, CryptoPunks, and Meebits. Many readers already know that there are only 10,000 Bored Ape NFTs, another 10,000 CryptoPunk NFTs, and 20,000 Meebits NFTs. If we want to define their respective fandoms based on ownership alone, each series has a low ceiling, especially considering that some buyers acquired multiple tokens from each. For instance, Bored Apes were only held in about 6,400 different crypto wallets circa mid-March of this year, per OpenSea. 

(Granted, even quantifying ownership is complex, since some of these NFTs were bought by DAOs made up of several members. But for the sake of argument, I think it’s reasonable to say that the complications of DAO membership are offset by the fact that a few individual whales, including Aronow and Solano, own hundreds, or even thousands, of NFTs from each project.)

For the sake of argument, let’s just consider the maximum distribution of these series to be about 10,000 people on average. How meaningful is an audience of about 10,000 people? Well, in 2015, that was a common estimate for the size of polygamist Warren Jeffs’s Fundamentalist Church of Jesus Christ of Latter-Day Saints (FLDS), the splinter group of radical Mormons whose belief in child marriage and blood atonement helped push its faithful into off-the-grid communities largely concentrated in the U.S.’s Mountain West region. I’m not saying that Apes, Punks, or Meebits owners have anything else in common with FLDS members. I’m just saying that you need way, way, way more than 10,000 like minds to make something a mainstream cultural phenomenon. 

Yuga Labs is trying to hurdle this obstacle by parceling out a steady stream of ancillary benefits to Bored Ape owners, as Amy Castor recently chronicled. From new NFTs sent out gratis, to invitations to exclusive in-the-flesh parties and private virtual spaces, to distributions from a promised-yet-unnamed cryptocurrency (currently shorthanded by enthusiasts as Ape Coin), those benefits all have real value. 

However, they’re still only being handed out among the same small club of Bored Ape holders. The clubhouse is unlikely to grow by leaps and bounds as long as the main way to get in the door is by copping one of a few thousand NFTs that recently cost at least $250,000. 

But is this too narrow a definition of fandom? If so, how might it change the conversation around Yuga Labs’s plan to make the world go Ape (and Punk and… uh, Bit)?

Images of CryptoPunks displayed on a digital billboard in Times Square on May 12, 2021 in New York City. (Photo by Alexi Rosenfeld/Getty Images)

FAN ECONOMICS

Even to me, it feels unfair to conflate an NFT project’s pop-cultural reach with the number of people who own the tokens themselves. The official BAYC Discord channel had more than 148,000 members at press time, while Larva Labs counted more than 175,000 Twitter followers. Those metrics nod toward a much larger interest than the one reflected by NFT ownership alone. 

At the same time, there is a towering difference between taking a low- or no-cost flier on something once, and becoming a dedicated fan eager to invest time, money, and other resources on that thing over and over. Yuga Labs needs to get people do the latter to turn the Bored Apes, CryptoPunks, and Meebits into global-market-conquering I.P. Personally, I’m skeptical that passing out monetizable rights will be a meaningful step toward that goal, especially after talking to two experts on fan culture and fanworks (an expansive term that includes fanfiction, fan art, and other types of fan-generated media). 

Professor Francesca Coppa, author of The Fanfiction Reader, called Yuga Labs’s latest move “fascinating” but was unsure how effective it would be. Fanworks, she said, are “like a coral reef, a sign of a flourishing ecosystem.” If a piece of art or I.P. becomes so emotionally meaningful that fans start making their own art or I.P. about it, then the original artist is “probably going to be very, very rich.” But the coral reef analogy works both ways. 

Consider James Cameron’s 2009 sci-fi blockbuster Avatar. Based on ticket sales, it was one of the biggest hits of all time, grossing more than $2.7 billion worldwide, per Box Office Mojo, and spurring four soon-to-be-released sequels filmed in succession. But did the picture have any lasting impact on pop culture, especially in comparison to other record-breaking space operas like Star Wars and Star Trek? Coppa called back to a popular tweet claiming that the clearest proof the answer was no was that Avatar has led to, in her words, “practically no fanworks” in the 12 years and counting since its release. (It is also probably not a great sign for Cameron that the lede of this Independent story on his four Avatar sequels is, “James Cameron is worried no one will watch his four Avatar sequels.”)

“It’s hard to know what makes for a generative fandom,” Coppa said. “It’s not purely about quality, either, good or bad. It’s about there being some kind of space in the work that you can, yourself, imaginatively fill. So whether or not a coral reef will form around CryptoPunks, who knows?”

Yet University of Utah professor Anne Jamison cautioned against using any fanfiction or fan art as a lens for evaluating derivative works or products made by owners of Apes, Punks, or Meebits. The financial incentives provided by Yuga Labs corrupt the comparison. 

“Most people understand fanfiction to be inherently not for profit, a status that many believe helps protect it legally,” said Jamison, the lead author of the collection Fic: Why Fanfiction Is Taking Over the World. “It also tends to be a community affair. So undertaking a derivative or transformative work of fiction expressly for commercial purpose isn’t thought of as fanfiction.”

In Jamison’s mind, Yuga Labs’s scheme sounds more like past attempts to monetize officially authorized fanfiction or other licensed derivative works such as product tie-ins. Both categories have a checkered history, not least because they tend to sanitize or otherwise restrict the content in ways that alienate true fans, many of whom identify as members of marginalized identity groups that have long turned to fanfic to take beloved characters into territory that would be taboo. 

The most infamous example of this failure may be Amazon’s now-defunct Kindle Worlds. An arm of the retail giant’s Kindle Direct Publishing service, Kindle Worlds sold only fanfic blessed by the original rightsholders, who took 35 percent of sales. Amazon shut down Worlds in 2018, with no real specifics as to why. But given Jeff Bezos’s interest in money over pretty much everything else, I know which explanation I’d bet on.

A mockup of offerings from the forthcoming Bored and Hungry burger pop up in Long Beach, California. Courtesy of Bored and Hungry.

THE FINAL FRONTIER

As for whether Yuga Labs will fare better by incentivizing owners of Apes, Punks, and Meebits to dream up or license out derivative projects, we’ll know soon. Castor noted that the world has already been introduced to “a Bored Ape IPA,” BAYC-branded weed, and at least one NFT offshoot. As I was finalizing this piece, my inbox also lit up with a press release for Bored and Hungry, “the world’s first restaurant based on a Bored Ape” (specifically Bored Ape #6184). The pop-up burger joint will run for 90 days but “could be the first of multiple locations,” a statement that can be read as anything between a promise, a threat, and a delusion depending on your temperament.

Does any of the above sound like it’s going to turn the Bored Apes into the Avengers? Call me a cynic, but I don’t see it. The reality is that it’s extremely, extremely difficult for any initial idea to attract the type of genuine emotional investment that Coppa referenced. That resonance has no substitute, and you can’t manufacture the real thing by incentivizing a few thousand early adopters to push derivative products down the populace’s throats (literally, in some examples). To me, attempts to prove otherwise sound less like the growth of organic fandom than a multilevel-marketing business like Amway, Mary Kay cosmetics, or Herbalife.

[Artnet News]

That’s all for this week. ‘Til next time, remember: in the words of Thom Yorke, just ‘cause you feel it, doesn’t mean it’s there.