There’s a huge difference in who we are internationally. Let them be fooled in America and think there’s a competition there. ‘Cause America can be purchased. You can buy it with marketing dollars.
Any guesses as to who said that? How about what the context is? It’s actually not as easy as it might seem. Is it about politics? How about the corporate news media? Maybe something else entirely? This is actually one of the more incredible quotes I’ve seen from such an unsuspecting source. The person who said that is none other than Curtis Jackson; better known as “50 Cent” in the music industry. Ready for the context?
It’s from an interview where 50 Cent called out fellow New York-based rapper Jay-Z for lacking the international sales in his most popular albums that 50 Cent was able to achieve with his first two studio albums. When I first saw it, I didn’t actually believe it. But then I went to everyone’s favorite scholarly source and saw it with my own eyes. Fifty’s claim actually checks out:
In the chart above, I’m taking the top 3 selling albums from both artists. Not only did 50 Cent do considerably more in worldwide sales for his top selling albums but he also charted better internationally on those albums:
It’s important to mention that these guys were active at the same time. So we’re not really battling the variable of comparing albums sales from different time periods relative to Napster or anything like that. The conclusion that Jackson reached is that Jay-Z has always had the right connections and backing from the American corporate media. He argues this has allowed Jay-Z to enjoy tremendous domestic success even though international audiences favor 50 Cent. Final takeaway, Jay bought his way to the top of the US charts while 50 Cent had genuine worldwide enthusiasm. It’s a heck of a take.
In A “Web 3” World
Even though many of the “crypto bro” traders have moved on to AI stonks over the last 12 months or so, I haven’t forgotten about the advantages offered by digital sovereignty and direct person to person value transfer. Those of you who have been reading this little stack for two years or longer likely remember how bullish I think Web 3 is for independent content creators; particularly musicians. In a Web 3 world, it’s theoretically harder to game the music industry as described in the previous section.
The direct relationship between creator and consumer without a parasitic middleman is one of the more exciting opportunities we have with public blockchains. It’s easy to mock NFTs in hindsight now that most of them have completely crashed in price, but the idea of an artist being able to sell a song or tune as an NFT is still very much alive. Mint Songs may be gone, but Sound.xyz isn’t. Neither is Audius.
But beyond individual creators monetizing their music through Web 3 platforms, we also have the wild tale of Stoner Cats. It’s a story that I think could serve as an example of what is possible if the Gary Gensler’s of the world would simply GTFO of the way.
The Legend of Stoner Cats
Stoner Cats. Oh Stoner Cats. I’m going to try to explain this really simply so that we can keep focused on the important parts. Stoner Cats was an internet media company that raised $8 million through the sale of “Stoner Cat” NFTs that look like this one:
The intention with the funds raised was to create a video web series based on the characters from the NFT collection. This project displays some of the good and some of the bad about NFTs and crypto culture.
The good: the Stoner Cats web series, which actually produced and delivered unlike countless other NFT projects, can be streamed by the holders of the Stoner Cats NFTs whether they were purchased directly or on a secondary market. This is not an insignificant feat and it shows the potential viability of token-gating (Web3 version of pay-walling) content.
the connection to already well established entertainers like Mila Kunis and Ashton Kutcher immediately allowed skeptical onlookers to stamp the NFTs as a “cash grab.” It’s certainly doubtful that Kutcher/Kunis really needed to go to retail NFT buyers to raise $8 million and that wasn’t lost on the project’s critics.
From where I sit, Stoner Cats is one of the more interesting artifacts from the “NFT era” that absolutely dominated crypto from Summer 2021 up until the collapse of Terra Luna. Like just about every single NFT sold during that time, simply being subjectively interesting hasn’t protected the value of the collection:
The week of August 8th 2021, there were 584 secondary sales at an average price of just under 1.6 ETH - or almost $5,300 in normie money. Last week the average sale price was 0.0221 ETH - or approximately $35. Clearly, these NFT holders haven’t done all that well if this was an investment.
What makes it even more interesting as a crypto artifact is that the Securities and Exchange Commission has just deemed the sale of the NFTs to be an unregistered securities offering. Turns out, after a 99.3% decline from the peak, Lord Gary Gensler’s noble kingdom has decided the time is right to start protecting investors and has reached a settlement with the Stoner Cats creators. Among other things, the Stoner Cats team must destroy all NFTs in its possession, assist in the distribution of monetary relief to the affected investors, and of course:
Respondent shall, within 14 days of the entry of this Order, pay a civil money penalty in the amount of $1,000,000 to the Securities and Exchange Commission. If timely payment is not made, additional interest shall accrue
Thrilling.
Here’s my problem with all of this…
Rules = Still Unclear?
Broken record alert! I know. I’m sorry. I can’t help myself. I suppose I just like picking on this agency. In the 4 part summary from the SEC’s filing, point 2 said the following (note, SC2 is in reference to Stoner Cats the company):
The purpose of the Stoner Cats NFT offering was to fund the production of an animated web series called Stoner Cats. SC2 told investors it would develop the Stoner Cats web series based upon the managerial and entrepreneurial efforts of SC2 and its agents. SC2 promised investors in the Stoner Cats NFTs exclusive access to the web series and an online community, as well as access to unspecified, future entertainment content. SC2 offered and sold the Stoner Cats NFTs as an investment into SC2’s efforts to create this content. SC2’s public communications tied the success of the show to the value of the NFTs and thus led investors reasonably to expect to profit from the managerial and entrepreneurial efforts of SC2.
It seems from this point that the only real infraction from the NFT sale is tying the NFT’s value to the success of the show. Because everything up until that part that I italicized could be said about this very Substack. You, my loyal investor reader, fund the production of this content and get access to exclusive material as a result of that investment subscription.
But honestly, I’m not sure the SEC’s position holds up here based on this reasoning alone. Let’s revisit the four prongs of the Howey Test and see if we can check “yes” without a shred of doubt for each prong:
investment of money (absolutely)
in a common enterprise (absolutely)
with an expectation of profit (very debatable)
to be derived from the efforts of others (absolutely)
I don’t know that we really get there on 3 and let me explain why. Unlike other obvious unregistered securities in crypto/NFTs, I don’t believe there was conclusively a quantifiable yield or profit expectation when the NFTs were initially sold. For instance, there wasn’t any revenue from an ongoing business that would have paid out dividends or profit share to token holders. Most of the money Stoner Cats made came from the NFTs themselves not from a different segment of individuals. Meaning, the content that was produced from the fundraise wasn’t resold to an audience on a streaming platform. Stoner Cat NFT buyers are more akin to customers than investors. The SEC seemed to validate this on point 20 in it’s filing:
Investors were told that the Stoner Cats NFT was analogous to a “ticket” and that “if people don’t appreciate it, you can take that ticket and sell it.” Investors were also told that “the more successful the show, the more successful your NFT” will be.
Frankly, the Stoner Cats NFT project isn’t terribly dissimilar from Eric July’s Rippaverse Comics fundraise last year. There we observe money raised to help get the first book to the finish line, a limited number of “Cover A” books, and a secondary market with price premiums. Furthermore, the NFTs sold in the Stoner Cats project were generative and nobody could have known going in if they’d be getting a rare Stoner Cat or a common Stoner Cat. This isn’t too dissimilar from Topps or Panini selling trading cards to 12 year old kids. Sometimes a buyer gets lucky and pulls a card that returns several multiples above the cost of the entire pack on secondary. Perhaps those are unregistered securities as well?
From where I sit, the biggest thing that differentiates Stoner Cat NFTs from any traditional collectible that lives in the analog world is that Stoner Cats the company was paid a 2.5% royalty on secondary sales. But again, those royalties were paid to the token creators not the token holders, so it’s difficult to see how the token holders would have had an expectation of profit just because Stoner Cats the company wanted people trading their NFTs. I read the SEC’s filing and I can’t recall any mention of royalties being the determining factor in the security designation.
Maybe it really is as simple as the SEC says? Or maybe everything that has a price online is now a security?
The reaction from Jonathan Mann was swift and delectable…
By the way, the NFT version of this song is currently up for auction. Winning bid at the moment is 3 ETH - or $4,800 in normie money.
Love this ecosystem or hate it, it’s not boring.
Disclaimer: I’m not an investment advisor. I own NFTs from the Webzee rug pull and from Unstoppable Domains. This post was originally distributed through faybomb.substack.com
