From Streaming and NFTs to Merchandising: How Web2 & Web3 Brands Monetize Popularity

TL;DR

1. Web2 vs. Web3 Monetization: Web2 brands like Netflix rely on viewership metrics to gauge digital product success, which doesn't always translate to merchandise sales. In contrast, Web3 uses direct revenue indicators like NFT sales, which intertwine popularity with willingness to pay, offering a clearer picture of market demand and user investment.

2. Pudgy Penguins' Success Model: Pudgy Penguins, a popular NFT collection, successfully transitioned to physical merchandise, leveraging the direct revenue from NFT sales. Their model includes innovative pre-ordering mechanisms where NFTs can be redeemed for physical goods, and the launch of tangible products that also offer digital experiences, such as access to 'Pudgy World'.

3. Strategies for Web2 Brands: Inspired by the Pudgy Penguins model, Web2 brands can adopt strategies like using NFTs as direct revenue indicators, leveraging them as pre-ordering tools, engaging and rewarding their community, observing secondary market dynamics, creating hybrid digital-physical products, and pursuing collaborative ventures to capitalize on merchandise sales beyond traditional viewership metrics.

⁠ ⁠Web2 and Web3 entertainment brands are recognizing the immense potential of merchandise as a sustainable revenue stream. While the strategies differ between the two, the core idea remains consistent: capitalizing on digital products that resonate with audiences. However, the metrics for gauging success and the mechanisms for monetization vary significantly.

#Streaming’s Popularity Conundrum

Web2 entertainment brands, like Netflix, primarily measure a digital product's success based on viewership and content sharing. For instance, the virality of a particular scene from Netflix's "Wednesday" or the anticipation around its "One Piece" adaptation are indicators of popularity. 

Yet, this model has its limitations. The popularity of a TV show doesn't always translate to successful merchandise sales. In the past, Netflix sold merchandise for shows like Stranger Things, Sex Education, and The Witcher, but only after they had proven themselves successful. With increasing pressure to boost revenues and a missed opportunity to capitalize on merch revenue from the popular ‘Wednesday Addams’ show, Netflix is taking a gamble that show anticipation will convert to merchandise demand.

Subscribers pay a maximum of $20 monthly for a vast streaming library, making it challenging to determine how many would spend a similar amount on merchandise for just one show. This means the user funnel from Netflix subscriber to merchandise purchaser is extremely wide, potentially leading Netflix to either overstock or understock based on inaccurate merchandise demand forecasting.

#Web3's Direct Revenue Indicators

By Contrast in the Web3 ecosystem, popularity and willingness to pay are intertwined. The success of NFT collections, like Pudgy Penguins, is directly measured by trading volume. To date, Pudgy Penguins has generated $400 million in sales since its 2021 launch. This figure represents users making a direct purchase of a Pudgy Penguin NFT, which is linkable to the purchase wallet address on the blockchain.

This not only trumps views as a success metric but also offers a more accurate forecast of the market's future purchasing intent. The act of buying an NFT is a clear indication of a user's investment in the digital product, both emotionally and financially.

Moreover, NFTs can serve as innovative pre-ordering mechanisms. Holders can potentially redeem their NFTs for physical merchandise, turning digital assets into tangible products. 

Brands that launch NFTs can generate revenue from the fees users pay to mint and trade these tokens on the secondary market. This revenue not only shows users willingness to pay, but it can significantly offset the risks associated with merchandise production.

Building off of their success as an NFT collection, the Pudgy Penguins brand recently branched out into the merchandise world by launching a toy collection in 2,000 Walmart stores. Each toy not only serves as a tangible product but also provides access to 'Pudgy World', a digital social experience. This duality enhances the value of the digital product by giving it a physical utility.

#Learning from the Pudgy Penguins Model: Strategies for Netflix

The Pudgy Penguins' transition from NFTs to physical merchandise offers valuable insights for Web2 brands like Netflix. Here's what Netflix can glean from their model:

1. Direct Revenue Indicators: Unlike the ambiguous metrics of viewership, NFT sales provide a direct measure of a product's popularity. If Netflix were to venture into the NFT space, they could gauge real-time demand for a show or character, which could then inform merchandise production.

2. Pre-ordering Mechanism: NFTs can act as a pre-ordering tool. By selling limited edition NFTs related to an upcoming show, Netflix can gauge interest and demand. These NFTs could then be redeemed for exclusive merchandise, ensuring that production meets actual demand.

3. Engage and Reward the Community: The Pudgy Penguins model thrives on community engagement. Netflix can create exclusive online experiences or events for NFT holders, further deepening their connection to the brand and show. This could range from virtual meet-and-greets with cast members to behind-the-scenes content.

4. Leverage Secondary Market Dynamics: The trading volume of NFTs on secondary markets can provide insights into the sustained popularity of a digital asset. By observing these dynamics, Netflix can make informed decisions about restocking merchandise or introducing new product lines.

5. Hybrid Digital-Physical Products: Just as Pudgy Penguins toys offer access to 'Pudgy World', Netflix can create merchandise that bridges the digital and physical realms. For instance, a toy based on a Netflix show character could come with a unique code, unlocking exclusive digital content or experiences.

6. Collaborative Ventures: Partnering with established brands or retailers, as Pudgy Penguins did with Walmart, can amplify reach and credibility. Collaborative merchandise or exclusive store launches can create buzz and drive sales.

Incorporating these strategies, inspired by the Pudgy Penguins model, can help Netflix tap into the lucrative world of merchandise, ensuring they capitalize on the popularity of their shows beyond just viewership metrics.

#Conclusion

As the digital entertainment industry continues to evolve, the convergence of merchandise as a revenue stream is evident across both Web2 and Web3 platforms. However, the Web3 model, with its direct correlation between popularity and revenue, offers a more precise and risk-averse approach to capitalizing on digital product success. As brands navigate this new frontier, the integration of NFTs as both a popularity metric and a monetization tool will likely shape the future of digital merchandising.