Growing Community-Owned IP Brands

Welcome to another edition of In Transit. Our group exploring the future of entertainment and technology continues to grow.

Thanks for being here.

New: You can now mint and collect In Transit editions as NFTs via the Mirror platform. “Content NFTs” are fascinating, and I’ll write more about them soon.

For now, you can find today's edition here, and a few previous editions here.

Key Takeaways

• NFTs enable participatory experiences and ownership in entertainment, deepening fan engagement.

• Ownership and financial incentives through NFTs enhance community belonging and network effects.

• Successful franchises of the future will integrate participation and ownership into fan experiences.

• Pudgy Penguins exemplifies transitioning an NFT collection into a mainstream brand with community ownership.

• Community-owned brands, like Pudgy Penguins, offer novel ways to grow and incentivize engagement through shared IP rights and royalties.

Blockchain technologies like NFTs enable brands and entertainment franchises to create new, participatory experiences for fans. It’s a valuable opportunity in a world where content increases and attention is scarce.

This is a powerful concept. When we're passionate about something, we want to engage with it. More passion, deeper engagement. Enabling fans to participate and take ownership pulls them deeper, and creates incentives to contribute, expand and grow.

It unleashes interesting network effects. Owning triggers a stronger sense of belonging. Adding a financial incentive makes it stronger.

In an NFT-powered brand, every object in the ecosystem becomes network nodes, whether NFTs from a collection or derivatives like physical toys. Some network nodes are owned by the community. As an owner, you’ll want to display your node, and that attention feeds and benefits the brand network as a whole.

The most successful entertainment franchises of the future will incorporate participation and ownership activities into the fan experience. I wrote about this in a previous piece, “The Spectrum of Entertainment Participation”.

How can an entertainment brand build from community ownership, and what does it look like in practice? There aren’t many concrete examples (yet), but today we’ll explore one.

Meet the Penguins

Pudgy Penguins started as an NFT collection but is quickly becoming a mainstream consumer brand.

In short, the history goes like this:

Pudgy Penguins launched as one of many “profile picture collections” during the 2021 NFT hype. The original collection consists of 8,888 penguin pictures.

The project lacked proper leadership and long-term plans (like many NFT projects of that era), like a rudderless ship filled with passengers.

Luca Netz, a brand and digital marketer, bought the project from the founder in April 2022 for ≈$2.5M and relaunched it.

Since then, Luca has orchestrated an exemplary brand building exercise that will be a reference for many.

He built a strong social media presence (1.5m+), launched a toy collection in 2000 Walmart stores (selling 750K+ items in 7 months), and announced Pudgy World, an online game-world set to launch this quarter.

Growing with the Community

Most NFT projects from the '21-22 class are struggling today. Many were never launched as lasting ventures, and those that did lacked business plans and models. Or, with a faulty business plan at best.

NFTs can enable the creator to collect royalties on secondary sales (if the marketplace honors the claims, but that’s a different story).

This is an innovative feature for digital objects, but it also misled many NFT brands to pursue an unsustainable path.

They tried to build businesses based on secondary sales volume. The problem: If you’re building a community-oriented brand with ownership at the core, but monetizing secondary sales, you're monetizing churn.

Most businesses thrive on retention. These NFT projects were designed for the opposite.

Pudgy Penguins took a different path, one that requires more effort. Building a community-owned consumer brand requires a thoughtful approach of adding layers, like a funnel, with NFT collectors at the bottom.

(From: https://www.in-transit.xyz/p/the-spectrum-of-entertainment-participation)

This creates a journey that consumers can traverse as their engagement increases (or if it doesn’t, stick to the level you’re at, which is also fine).

For this to be community-owned, some value must also accrue to the community.

Licensing IP from the Community

Pudgy Penguins uses characters owned by the community to create products like toys or videos. The company licenses these characters and pays royalties to the owners.

This is an interesting and novel concept. It’s so novel that Pudgy Penguins built their own platform, Overpass, to orchestrate the process:

The company is currently sourcing IP for their upcoming second toy product line. Any penguin owner can submit it, and if selected, see their penguin become a physical toy (which is cool in itself) and collect a 20% royalty.

There’s also a gamification element where owners collect secondary items (fishing rods) that adds multipliers to the royalty percentage.

As the brand grows, it will create more merchandise and consumer touch points, leading to more licensing opportunities for the community. This process potentially creates an interesting flywheel, with a different incentive and motivation structure than a traditional entertainment or consumer brand company.

This isn’t limited to Pudgy Penguins licensing from their community. In the future, anyone can post opportunities. This could be a brand tapping into the Pudgy Penguins vibe to launch a soft drink. When the soft drink launches, it adds value to the Penguin network, too.

The Overpass platform is built to accommodate other NFT collections looking to grow in a similar way (creating a secondary, software revenue opportunity for Pudgy Penguins in the process).

Wrapping up

Pudgy Penguins is leading the way, turning a theoretical idea (community-owned brands) into practice.

This is different from the traditional top-down approach of consumer brands and entertainment franchises. It’s the approach that I’m convinced will yield the most successful such companies in the future.

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