Approaching NFT collectibles and merchandising as investments

NFT’s are popular in some parts of the industry right now with projects creating collectible series left and right. Here is a simple explainer:

With the popularity it’s no wonder that big brands want to jump in. After all collectibles are an established market, from to to and things.

And if you have collectibles, you of course have tie-ins. Here is the example of the day:

From the article:

Warner Bros. is launching the sale of 100,000 nonfungible tokens ([NFTs]()) of “Matrix”-inspired avatars later this month. The studio is pairing the hype over NFTs with the upcoming release of “[The Matrix Resurrections](),” aiming to gin up excitement for the long-awaited fourth movie in the popular sci-fi franchise — and also potentially landing a $5 million windfall over the sale of the digital-collectible NFTs.

Merchandising also has been around for a very long time and it shares a lot of the mechanics and dynamics of collectibles. For example both have always been quick to adopt new technologies:

Starting with paper prints, some form or collectibles evolved from black and white into colors, then foiled prints (metallic colors!), 3D stickers (“It’s 3D if you stare long enough!”), holographic stickers (“It is kinda really 3D if you wiggle it!”) and so on.

Or merchandising starting with wooden figurines, moving to molded plastic figures, then molded plastic (“Realistic movement!”), then mechanical moving parts (“”), then light and sound (“Woop! Wooop! Wooooop!”) and so on.

Merchandising. MERCHandising! MERCHANDISING!

So now people are wondering: Is that part of this ? Is this just cashing in on a hype? Should we buy this? Should we invest in this?

Learnings from the collectibles & merchandising market

There is no fixed value for collectibles & merchandising. Demand, capability and willingness to pay fully define the value.

  • Are you interested in this specific thing?
  • Do you have the money to pay an arbitrary price?
  • Are you actually willing to part with your money?

And merchandising items turn into a collectibles quite frequently because the potential market is so much bigger. Not many people know about specific collectible trading card games, but a lot of people know about Star Wars movies. So there is more interest, thus a bigger group of potential buyers with money.

The tricky thing about collectibles in general is that they intuitively seem valuable, but rarely are. And that is because very few people are willing to buy, even if interested and capable.

Typically it goes like this: “I would buy this if I had enough money to spare”, but there is no threshold what would be “enough” money. Other things like house payments, nicer furniture, vacation etc. are always more important while this digital picture-thing is not really that relevant once the payment screen comes up and you have to enter your credit card details.

Because let’s face it: The technology is irrelevant. Of course printers were proud about colors, foils and holographic materials, and maybe some in the industry bought really technically nice pieces, but that’s a tiny niche. The vast majority, even collectors, don’t care about materials or technology (maybe only in the sense of preservation).

So let’s ignore the technology hype and look at for example the Matrix NFT for what this is: A product to advertise and reinforce the importance of a cultural topic. Or simply:

It’s merchandise for a movie.

And that’s all you need to know to evaluate further, applying what we know about digital goods with market dynamics for collectibles and merchandising.

It’s about rarity

Sometimes you have collectibles or merchandising that nobody really cared about at the time of their release. Way later they become relevant again and thus the demand & thus value goes up. Typical example: Merchandise for a movie that bombed in theaters, but years later became a cult classic, spawning new reboot or spin-off movies.

With physical goods, collectibles & merchandise that doesn’t sell is not kept around. Instead it is quickly replaced by something else that sells. Unsold goods are usually returned and . As a result once they become relevant again there is way less of the original items in circulation, making them more rare.

And rarity drives demand, too. If people are interested in the topic and have the money, then they want the rarest thing because it’s the most interesting —

A rare thing has more status with peers (fellow collectors, other fans) and makes a better story to tell to outsiders.

With digital goods however, there will always the originally produced (minted) amount. Nothing gets lost or destroyed (assuming people don’t all lose their wallet keys). Scarcity has to be artificially built into the concept.

But rarity is at odds with the concept of marketing and reach — you want your collectible to be known to drive demand and you want your merch to be an advertising for your main brand. They need to be available.

Hence for the Matrix NFT’s:

The studio claims is the largest “PFP” (profile picture) NFT drop ever with the 100,000 unique avatars available for purchase.

No wonder — it can’t be rare because this is advertising.

Trading card games for example get around this problem by introducing scarcity as a mechanic: Most cards are common, some are uncommon, a few are rare and an exclusive set is really, really rare. Of course as physical goods they get even rarer as time goes on and some are lost.

So, as a rule of thumb: If no scarcity model is built into the concept, then collectible or merchandising NFTs are cute, but won’t have lasting value.

It’s about condition

Looking at trading cards and comic books, the condition is everything. There are rules and around how to grade the condition of a collectible and the value difference between a “Mint”, “Near Mint” and “Very Fine” condition is stark. The million dollar comic book auctions you sometimes hear about? Yeah, those are absurdly rare examples that have been expertly stored and taken care of. Your garage sale find with creases, faded colors and pages missing? Maybe 10$. If you can actually find a buyer.

Same thing is true for collectible action figures: Still in the box and well taken care of? Great! Unboxed? Less good. Already played with for years and stored in a bin since then? You’re lucky to find a buyer.

This also makes physical collectibles and merch rarer as time goes on. Again, more rare is more interesting, more status, better story.

But digital goods do not age. At least not in the traditional sense. They are always “mint condition”, which seems great at first until you realize that this means that there is more supply and thus less demand. Not rare = less money.

Interestingly enough, the Matrix NFT managed to add an artificial condition:

With the initial Nov. 30 launch, users will have the opportunity to buy one or more randomly selected, hyper-realistic “base” avatars resembling ordinary people trapped in the Matrix. In the second phase, beginning Dec. 16, owners of the “base” avatars will be given a choice — take a “Blue Pill” and have their avatar remain locked in the Matrix, or take a “Red Pill” and transform their avatars into resistance fighters unplugged from the Matrix, having the same bodies but featuring entirely new clothing, hairstyles and accessories inspired by the characters from the “Matrix” films.

So, everybody making a choice will “unbox” their collectible action figure NFT and automatically devalue them. Interesting twist, adding the potential to create artificial states that are similar to a condition. But the rule will be: Never touch your NFT and then we’re back to square 1: They are always the same.

It’s about the topic

So if they don’t get destroyed or lost and are always in perfect condition, what remains? Well, the thing itself. The more interest in the thing itself, the more likely it is that you will find a buyer. Simple as that.

Let’s say your create an NFT collectible without any other features than the implementation itself, pretty much a “Hello, World!” NFT, then your market will be “people interested in the technology NFT”.

If you create an NFT merchandising around the Matrix, then your market is “people interested in NFT” + “people interested in the Matrix movies”. Better brand, product, movie, topic means bigger market, means more buyers that are interested in the collectible, increasing the pool of people that are capable of buying, but it also increasing the group of peers within to gain status and it makes an even better story to outsiders.

You don’t want to be the person telling your dinner guests about how interesting this action figure from the really underrated 1981 movie from this totally unknown director, representing this absolutely brilliant actor that nobody has ever heard of and has a 3.1 rating on Rotten Tomatoes.

You want to casually show them the framed issue of Hulk #1 from 1962 on your wall before you start the Marvel movie night on Disney+. Because, sure, you’ll still be a geek, but that’s kinda cool, right?

So besides rarity and condition the only differentiating factor for digital collectibles is: What is the cultural thing the NFT is attached to?

As a result digital goods rapidly lose value when the cultural topic they are tied to vanishes from the public pop-culture consciousness. We see this as merchandising becomes worthless if nobody remembers the initial brand. Or vouchers for in-game virtual item losing relevance if their game goes offline. And niche cult classics don’t have a big enough base. The market is always way smaller than you think.

That’s why global, multi-decade brands like Star Wars, Disney and now Marvel are so valuable.

In the case of Matrix? Well. Even without seeing the movie I still don’t think it’s a good investment. Even great, genre-defining style icons like Matrix are not good enough. Or ask yourself: Would you buy a Neo doll from the first Matrix movie? What about if it’s coated in holographic plastic and playing the Nokia tune when you press the smartphone? For how much? Your friends? Your parents?

If you think: “Yes”, then REALLY think about it. Don’t fall into the trap of “I would buy this if I had enough money to spare” — really evaluate your willingness to part with good, hard cash.

And if you want to see NFT collectibles and merchandising as an investment, then pick the topics and brands that you know will still have cultural relevance for the duration of you planning to keep the investment. And beware: Such things lose relevance FAST.

Collectibles and merchandising are Ignis Fatuus value

(or ) value are things that intuitively seem valuable, but aren’t. Don’t follow their ghostly lights of technology into the swamp of bad investments.

I mean, don’t get me wrong: You can of course buy the thing because you like it. Not everything needs to be an investment.

I loved playing with karate chomp action figures as a kid when they were “the thing”, so new technology is always cool to play and have fun with.

I loved playing with Magic and other collectible card games and traded card like mad within my circle of friends when we all played. Sometimes I think: “Surely, these cards I kept in my show box are worth something, right?” but the truth is: No. All are heavily played with, none are really rare, nobody really cares. It was a thing of the moment.

Technology things that are cool right now don’t automatically turn into good investments, especially if the technology becomes a commodity.

Want more proof? Look at your box of old phones. Come on, I know you have one. They all were the hottest thing of the moment, right? The most stylish edition from the coolest brand. “Surely my old BlackBerry cult phone or that Nokia Communicator 2000 fur edition or that Microsoft Kin thing that nobody had are worth something?” No.

“Come on, how cool is that Motorola Pebl? Surely SOMEONE…”

My guess? In 10 years that Matrix NFT will end up with 200 other movie and pop culture NFTs on a USB-like stick wallet thing, selling for the equivalent of a single movie ticket. Watch a couple of episodes of if you don’t believe me.

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Dirk Songuer

Living in Berlin / Germany, working at Microsoft, loving technology, society, good food, well designed games and this world in general. Views are mine, k?