Oct 28, 2022

Can Bluechip PFPs Become the Next Walt Disney?

Jaewon Kim
Translated by elcreto
Image Source: BAYC


1. Introduction

2. Walt Disney: Growth & Strategies

3. PFP Projects Aspiring to Become the Walt Disney of the 21st Century

4. Why VCs Invest in PFP Projects: Growth Potential to Become a Global IP

5. How Are PFP Projects Different From Web 2.0 IP Companies? IP Tokenization

6. Learning from Disney: The Future and Growth Strategies of PFP Projects

7. Final Thoughts


1. Introduction

The hype over NFTs was short-lived. With a nosedive in the trading volume, the market has rapidly cooled off, turning bearish since the end of Apr 2022. Still, regardless of their industries, numerous global giants are actively exploring ways to enter the NFT market. According to The Block, the volume of funds flowing into the NFT market remains solid.

nft 시장, nft 마켓, nft 카테고리, 블록체인 펀딩
Source: The Block

Yuga Labs’ announcement was followed by a series of announcements from Doodles and PROOF that each raised $54M and $50M. There were also rumors that Chiru Labs, the creator of Azuki, completed a Series A funding round worth $30M. In this unfavorable market climate with the interest rate soaring yet higher and liquidity drying up, what potential could they have possibly discovered? This article seeks to offer a walkthrough of the growth path and business model of Walt Disney, undoubtedly the largest IP company.

2. Walt Disney: Growth & Strategies

Tracing back Disney’s footsteps uncovers similarities with the developments that have unfolded with PFP. PFP projects are akin to Disney’s business model in that they create content based on IPs (characters) and implement the OSMU (One Source Multi Use) strategy. In this very sense, blue-chip PFPs are considered very likely to walk the same path with Disney, and this article will try to sift through the clues to identify the growth potential and outlook for the PFP projects.

The Coming of the Walt Disney Studios

The history of the Walt Disney Studios dates back to 1923. In 1923, Walt Disney and his older brother Roy released black-and-white short Alice's Wonderland, in which animated characters interact with real-life actors. The film was quite popular and landed a deal with a distributor. In the same year, they set up the Disney Brothers Cartoon Studios—which later was renamed to what it is now as was suggested by Roy Disney, the Walt Disney Studios, in 1926. The Disney brothers stayed sharply committed to Alice’s Wonderland for the following four years.

Later on, the Studios launched a new character, Oswald the Lucky Rabbit, and released as many as 26 films within a year based entirely on the cartoon. Unfortunately, Disney lost the rights to Oswald to its distributor that took advantage of the loopholes in the contract. But as the saying goes—in the midst of every crisis, lies great opportunity—the Disney brothers debuted the legendary Mickey Mouse just a year later in 1928.

The Birth of Mickey Mouse, Disney’s Greatest Intellectual Property

In 1928, Walt Disney released Steamboat Willie, which was the first cartoon with sound. An animated cartoon character making sounds in sync with his actions just blew everyone’s mind. It is not hyperbole to say that the 1930s hailed the beginning of the age of Mickey Mouse given its annual revenue of around KRW40B solely from character merchandising. The Disney brothers carried on the colossal success with successive hits like Snow White and the Seven Dwarfs (1937), Cinderella (1950), Alice in Wonderland (1951), Peter Pan (1953), Sleeping Beauty (1959), and 101 Dalmatians (1961). Yet, Disney’s formidable IP brand and wealth are not solely the result of the success of its animations. Walt Disney himself was fully aware of this and sought ways to leverage Mickey Mouse to push the boundaries of his business. Here, I’ll try to lay out three overarching strategies to take a deeper look inside.

디즈니 OSMU 전략

A) OSMU Strategy Laid Out in a Napkin Sketch

Below is Disney's "Synergy Map" from 1957, which he sketched out on a napkin. It is a snapshot of Disney’s core business strategies that depicts how it: i) brings its character assets to life in the cinemas, ii) scales them to build up its entertainment channels like Disneyland (theme park), merchandise and souvenirs, magazines, cartoons, and music, and iii) adds value in the end.

디즈니 시너지 맵, 디즈니 시너지맵, 디스니 성장 전략
Source: Disney's "Synergy Map" from 1957

The above sketch explains how Walt Disney successfully turned the IP characters into revenue, maximized the synergy between businesses, and expanded the ecosystem. 60 years on, it is a surprise that PFP projects are pursuing almost identical strategies. Disney’s strategies are similar to the OSMU (One Source Multi Use) strategy, under which PFP projects are creating various content using their IPs. Apparently, when it comes to business strategy, Disney was 100 years ahead of the recent PFP projects.

Largely, there are three significant advantages to this strategy: i) lifespan of IPs is extended while depreciation is minimized; ii) production of content maximizes revenue; and iii) business model expands.

  • Increased IP lifespan and minimized depreciation: Unlike some of the highest-grossing movies that fail to expand their IPs, Disney characters are hardwired to be reinterpreted and reproduced through various business channels. This is why a character created in 1928 continues to offer you a delightful, lifelike experience at Disneyland.
  • Production of content maximizing revenue: While animation “Cars” made $1.4B at the global box office, merchandise and content of the animation raised a whopping $10B.
  • Expansion of business model: Aside from producing animations, Disney has constantly taken various approaches to its content production to venture into countless business domains, including fashion, games, toys, magazines, movies, music, publishing, and real estate as well as media.

B) Vertical Integration Enhancing Profitability

Alongside OSMU, vertical integration of the value chain is often regarded as another key pillar to Disney’s strategy in the initial stage of the business. This is exactly contrary to Netflix’s horizontal expansion, where the price differs for the same product. Disney directly engages in every stage of its value chain, from entertainment, media, Internet to marketing, and many more. This way, it was able to cut cost and remain meticulous about controlling the quality of the content and products, winning itself a competitive edge. During the course, the reduced intermediary cost and enhanced profitability gave it a firm footing for growth.

디즈니 수익, 디즈니 통합, 디즈니 성장 전략
Source: Reforge

C) Acquisition Spree Leading to Horizontal Integration

After vertical integration secured Disney enough cash, it was high time for horizontal integration. Disney started to buy up film studios and its competitors and seize on momentum to ramp up its IP. High-profile acquisitions include: Touchstone Films (1984), Miramax (1993), ESPN (1998), Pixar (2006), Marvel (2009), Lucasfilm (2012), and 21st Century Fox (2017). It seems safe to say that such horizontal integration helped cement Disney as a global IP giant as well as top-notch media entertainment group. As is widely known, such winning streak was followed by the launch of OTT service Disney+ at the end of 2019.

디즈니 전략, 디즈니 성장
Source: The Walt Disney Co.

Three Key Strategies Delivering on Disney’s Stellar Performance

Disney’s performance metrics shot up, propelled by OSMU-driven profitability and vertical and horizontal integration. There were, of course, perilous moments for the company, most notably upon the death of Roy and Walt Disney (1966, 1977), crumbling demand for family movies (early 1980s), and attempts of hostile takeover at times when its controlling interest was at risk (1984). All in all, however, Disney has managed to navigate all these and been smooth sailing with epic performance numbers. Between 1991-2021, revenue shot up from $6B to $67B, hitting the mark of 1,000+ percent growth. Anytime when the performance neared flat, it devoured IP giants like Pixar, Marvel, and Lucasfilm one by one to beef up its content and weight class. Yet, net income has trailed off since the 2020 Covid-19 outbreak due to sluggish offline business.

Source: Happist

By business segment, Disney’s flagship services, such as media networks, parks, and experiences and products, have grown fast to take up a significant portion of the revenue with Studio Entertainment and Direct-To-Consumer & International (streaming and worldwide media and advertising services) are chasing right behind. While the pandemic has made a significant dent to the revenue from parks and products, slashing it from $26.2B in 2019 to $16.5B in 2020 (-58% YoY), the launch of OTT services like Disney+, Hulu, and ESPN+, gave a bump to the DTC revenue, surging from $9.3B in 2019 to $16.9B in 2020 (+81% YoY).

디즈니 성장 전략, 디즈니 미디어, 디즈니 성장
Source: Happist

3. PFP Projects Aspiring to Become the Disney of the 21 Century

As was mentioned earlier, the business models of BAYC, Doodles, and Azuki are akin to that of Disney in that the underlying common strategy of their businesses is character-based OSMU. While Disney regards Mickey Mouse IP as the foothold for business expansion—centering on movies and media, PFP projects are targeting different markets to boost their brand awareness and business. Here’s the key features of each project.

3-1. Yuga Labs (BAYC): Metaverse

BAYC, depicting a bored and rich ape drinking bourbon whiskey on a yacht, seemed like a perfect reincarnation of Thorstein Veblen’s Leisure Class. No wonder the young and rich crypto OGs were swept off their feet. The

CryptoPunk collection, from very early on, used to be a symbol of newly emerging crypto millionaires. Yuga Labs gained an edge by being the first mover to introduce NFT membership—hosting IRL parties, doing token airdrops, and selling merchandise exclusively for the BAYC holders. Yuga Labs leveraged breakout NFT collection BAYC as a springboard to advance into multiple other business domains, such as fashion, merchandise (Superplastic X BAYC), movie (The BAYC Trilogy), and music. Currently, Yuga Labs’ focus is on metaverse and gaming, and its own metaverse The Otherside is underway. On May 1, 2022, Yuga Labs raked in $170M solely from the sale of Otherside Land.

pfp nft, pfp 프로젝트, BAYC, 유가랩스
bayc 로드먑, pfp nft, pfp 프로젝트, BAYC, MAYC 로드맵, 에이프코인
Source: Yuga Labs

3-2. Doodles: Entertainment

Launched in Oct 2021, Doodles is a collection created by well-known artists Tulip, Burnt Toast, and former CryptoKitties PM Poopie. While Yuga Labs is focusing on metaverse, Doodles is pushing ahead with the entertainment business. Doodles co-founder Keast (Tulip) says that Doodles’ ultimate goal is to become a Web3 entertainment company with its focus set on i) music, ii) animation, iii) consumer products, iv) gaming, v) IP partnerships, and vi) events and attractions. Setting sail on this journey, Doodles appointed celebrity musician Pharrell Williams as its CBO (Chief Brand Officer) and former Billboard president Julian Holguin as the CEO. Pharrell Williams then led the effort to establish Doodles record label and sealed a partnership with Shopify.

두들스, 두들스 nft, pfp 프로젝트
Source: Doodles

3-3. Chiru Labs (Azuki)

Azuki is a beloved PFP project that calls itself the “skaters of the Internet.” It’s been particularly hyped among Asian investors with a Japanese anime vibe and high level of sophistication. Unlike BAYC and Doodles, Azuki’s target market remains less articulated in the absence of details about its roadmap or direction. Yet, at least fashion, animation, cartoon, consumer product, and metaverse quite clearly seem to be areas of business that they wish to set foot on, given Azuki’s milestones so far and mindmap. Further, the recently released Beanz collection will lay the groundwork for the project to build a brand line like Kakao Friends and Line Friends.

아즈키, 아즈키 nft, pfp 프로젝트
Source: Azuki fanart by @Csaw07

4. Why VCs Invest in PFP Projects: Growth Potential to Become a Global IP

At this point, many of you have already figured out why VCs choose to invest in PFP projects. Some of you who think of NFTs as JPG files with no intrinsic value may not get this. But for those who see the potential of a global IP powerhouse like Disney from an NFT project, it’s a different story.

The global brand licensing market is huge, sitting at around $275B as of 2022. Under the assumption that NFTs manage to take up a meaningful portion of the market, the growth potential of BAYC, Doodles, and Azuki warrants an anticipation—and hence, the valuation of $4B, $704M, and $300M-400M of the leading projects in the NFT market suddenly seem to make more sense.

Now, take a look at the most hyped IP assets in the media and entertainment sector. Nintendo raised $92B in revenue with the world’s biggest IP asset Pokémon, and Disney generated $75B from Winnie the Pooh and $70B from Mickey Mouse, totaling $145B in revenue. The billions Disney generated from a single IP hammer home the reason VCs give high valuations and invest in PFP projects.

pfp 프로젝트, pfp nft, nft 시장, nft 전망

5. How Are PFP Projects Different From Web 2.0 IP Companies? IP Tokenization

Although PFP projects and Disney’s businesses share much of their business strategy in common, Web3 projects and Web2 companies do exhibit clear distinctions by design—most notably in terms of tokenization of IPs.

A) Ownership Distribution

Web2 companies hold 100% of the ownership of their IPs. Disney is known to be the most meticulous among them. Walt Disney was once betrayed by its distributor after letting it control the copyright to Oswald the Lucky Rabbit and ended up losing its rights to the character in 1927.

By contrast, most NFT projects at least partially allow their holders to monetize the NFTs, which is the case for all three projects, BAYC, Doodles, and Azuki. Although not often, copyright holders of some NFT projects choose to switch to CC0 license, forgoing their copyrights—most notably, Nouns and Moonbirds.

Since NFT projects grant rights to commercial use to the holders, emulating Disney’s moat of vertical integration is not actually feasible for the projects. But this could also mean that projects will no longer have to produce content on their own. And indeed, numerous holders are accelerating their brands either by creating content or through the value chain of multiple business units, i.e., food and beveragemusicmovies, and alcohol beverage (See below for diagram). It’s like a partial surrender of their ownership have won them a battalion of 10,000 supporters.

BAYC 전략, pfp 프로젝트, BAYC 버거
Source: Bored & Hungry

B) Holders Can Cut Both Ways

Holders are fundamental constituents for NFT projects. They can turn into substantial support for the project as they leverage their NFTs to start their own business or create content. The level of contribution and engagement of the communities of BAYC, Doodles and Azuki is indeed extremely high. But at the same time, such a large base of holders is a double-edged sword, given the risk of too many chipping in and disrupting the decision-making process of the project. In this sense, the management of Web2 companies may be better positioned to push and facilitate business initiatives as those companies have them lead and be held accountable for a project.

One other thing to consider is the risk that comes with the holder-centric benefits scheme. Most NFT projects, not to mention BAYC, have introduced membership system to provide exclusive benefits to the holders, i.e., airdrops, IRL event tickets, and consumer products. While such benefit schemes that explicitly favor holders may strengthen affinity among holders, members of the communities who do not hold the NFTs may feel deprived and left out. This may result in limiting the potential of a project to build up its community and fanbase. It’s never been a concern for Web2 companies in the first place since they own the IP assets.

6. Extrapolating from Disney: The Future and Future Growth Strategies of PFP Projects

In this section, we extrapolate from the history of Disney to speculate on the future and growth strategies of PFP projects for the coming years.

A) Possible Minting and Expansion of OSMU

As has exactly been the case with Disney for so many decades, PFP projects will likely keep exploring ways to diversify their content as their OSMU strategy expands. Also, just like BAYC’s launch of ApeCoin, other projects may follow suit and launch tokens that can bind their content together. Once minted, tokens will open up an array of possibilities, serving as a tool to raise funds, boost governance, pay for services native to the project, and many more. For instance, the tokens may instill a sense of belonging in members who’ve been unable to purchase the NFT or can be distributed in the form of a grant for those looking to start a new business. At some point next year, we expect blue-chip PFP projects to start launching their tokens one after another.

pfp 프로젝트, BAYC pfp, pfp nft, nft 시장
Source: Cointelegraph

B) Securing IP Pipelines

PFP projects are expected to keep minting separate NFT collections that share the universe together—just like the Marvel Cinematic Universe (MCU)—in a push to secure an IP pipeline. The fine line they need to tread is to make sure the sequels should be able to present uniquely different stories and roadmaps under the overarching theme of the same universe. It’s as though superheroes like Iron Man, Spider-Man, and Thor have different storylines but would band together in The Avengers to fight off a common enemy. The strategy stands to empower PFP projects to be able to secure pipelines without having to dilute the value of their original collections. Releasing compatible derivative collections as in the cases of BAYC’s MAYC and WoW’s WoW Galaxy carries not only scalability limitations but a risk of value dilution—a max of 1-2 collections is considered appropriate.

마블 nft, pfp 프로젝트, 마블 pfp, nft 시장
Source: Bleedingcool

C) M&As (Vertical Integration)

Lastly, battles over mergers and acquisitions will likely intensify in the NFT market as we’ve already seen Disney’s hard push for M&A expediting the process of absorbing competitors and building an IP empire. NFT pioneer Yuga Labs’ Mar 2022 acquisition of CryptoPunks and Meebits IP attests to this. In the meantime, Web2 companies may opt for a buyout of PFP projects as there simply is no better hassle-free way for cash-rich large corporates to cope with the latest technologies and market trends and ramp up profitability.

pfp 프로젝트, pfp nft, nft 시장
Source: Movie Geek

7. Final Thoughts

In this publication, we projected that PFP projects would follow in the footsteps of one of the longest-standing IP champions, Walt Disney, on the grounds that they too carry out OSMU business based on their IPs. We focused on extrapolating the growth potential and growth strategies for PFP projects from the 100 years of Disney’s history. In our view, there were three over-arching growth strategies for PFP projects: i) possible minting and OSMU expansion, ii) IP pipelines secured through expansion of universe, and iii) M&As. These also seem to be the reasons VCs invested in BAYC, Doodles, and Azuki. The PFP market does warrant an optimistic outlook, given the size of the brand licensing market ($280B as of 2022) and valuation of Disney’s IP assets—and this is why Disney’s particular interest in the NFT market makes more than enough sense.


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