[The Viewpoint] The NFT trend enters the publishing industry

OpenSea, Nifty Gateway, Cargo, Rarible, and Atomic Market are just some of the many marketplaces that allow users to buy and sell non-fungible tokens (NFTs).

Since the record-breaking $69 million sale in 2021 of a digital collage by artist Beeple, the world of NFTs continues to explode and although there is no clear path yet, the most disruptive tech-trend since Bitcoin is making its way into the publishing industry.

An NFT is a digital asset that exists on a blockchain. The blockchain serves as a public ledger, allowing anyone to verify the NFT's authenticity and ownership. Unlike most digital items which can be endlessly reproduced, each NFT has a unique digital signature, meaning it is one of a kind. While anyone can view the NFT, only the buyer has the status of being the official owner, essentially giving the buyer bragging rights.

A simple analogy is to a plaque at a museum that identifies the owner who loaned a painting to the museum. Museum-goers can see the painting, look at photos of it on the museum’s website or buy posters. In contrast, if you own a physical copyrighted work, such as a book, then you have certain rights to that book, such as the right to alienate (sell, lend, rent) it, but not the right to make copies of it or create derivative works (e.g., translations) of it.

The current landscape of NFT sales runs into hundreds of millions of dollars. However, some attribute the current NFT buying activity to brief curiosity in a tech-trend, a soft tool to drum up publicity for NFTs in general, and even the pandemic and consequent lockdowns that have forced people to spend more time in their homes and online. While NFTs in the art world, sports and film industries have caught on fast, the publishing world foray into this digital space is slow.

American writer Blake Butler had given up on publishing his novel titled Decade. For years, he set Decade aside, occasionally opening the Word document and scrolling through as fast as he could, remembering all the work he’d done, then closing the window. In February 2021, he sold it as an NFT for 5 ETH (short for cryptocurrency Ethereum), worth approximately $7,570 (₹5.5 lakh) at the time. It was more money than all his previous books, published the traditional way, combined!

It is difficult to predict what the NFT creative landscape may mean for writers. On one hand, it provides a space for writers to experiment with form, publish and earn money directly and independently. On the other, NFTs are cut off from the larger writing market and culture that doesn’t understand it. It raises knotty questions about what elements of writing are truly valuable to readers.

In its most basic form, NFT technology can be used like an e-book: a writer/publishing house can create an NFT of a book’s cover and then sell it, and offer the text of the book as a file that can be unlocked upon purchase of the NFT. This may be the most traditional form in which blockchain technology can be used in the publishing industry. On the other end of the spectrum are new age 'crypto-writers' such as Rex Shannon who releases each page of his novel CPT-415 as an NFT. Each page is made available to the public once it’s sold. Brickwall, another Italian writer runs a collaborative writing project called The Chaintale, where buying the latest writing NFT in the series gives you the right to pen the next instalment. Another writer, Kalen Iwamoto, wrote a piece that appears as a video of limbs and other body parts, but if you purchase the NFT, download the file and change the extension to PDF, you can read her written piece on her own gendered experience!

The implications for the digital publishing industry could be game-changing. With NFTs, authors and publishers can create special editions of books with a special foreword, or notes from the author, or illustrations more easily than in traditional publishing. Bookplates are other things that NFTs let you create easily. Publishers and authors are also attempting to monetize by minting NFT book covers. Prem Ramachandran, founder and CEO of White Water Public Relations, listed the world’s first-ever NFT fiction book cover on OpenSea.

Another advantage of using NFT technology in the publishing industry is that these NFTs can even be resold, with the author earning at each sale. The value of items like first edition classics or author signed copies will likely increase over time. NFTs allow us to monetize the second-hand book market. Right now, an author/publisher selling a traditional e-book or physical book earns through the initial sale, but nothing thereafter. That book could be sold 10 more times, go through used bookstores, be given to another friend and still not earn any more money. In contrast, each time the NFT is sold or transferred, some royalty could be earned by the author/publisher.

Despite the many advantages of NFTs, one of the reasons the publishing industry is shying away from this arena is the sheer cost of creating NFTs. This makes it a challenge for a typical NFT e-book to be competitive with what we’ve come to expect from e-book prices. Secondly, the 'gas tax,' which is levied because NFTs come at a significant environmental cost, makes NFT prices fluctuate. This digital product is secure because of the complexity of the process, requiring a huge amount of computing power. This in turn requires a huge amount of energy that has major environmental consequences. Third, it’s hard to imagine the value of copies going up if more copies can be produced any time. Even in the print book market, easy online access to used copies has caused the average price of used books to go down.

Beyond the notion that NFTs are “in” right now and will gain value, currently there is no clear incentive for mainstream publishers to expand into the NFT space. Readers of print books are not pushing for NFT books, and print book sales aren’t flagging. It’s possible that authors and publishers will find viable applications for NFTs, but it’s too soon to say.

Like NFTs in the art world, owning an NFT in the publishing world or owning an NFT of the book cover or e-book does not confer ownership of the underlying work that the NFT represents. The difference between buying an original artwork and buying an NFT is that the copyright in the original underlying work does not get automatically transferred to a purchaser of an NFT. While a copyright holder can transfer ownership rights to the purchaser of the NFT at the time of sale, the provisions of the Copyright Act, 1957 (for India), require the contract for sale to provide for such assignment of rights explicitly, in writing. Once the rights are assigned in compliance with the provisions of the Copyright Act, an NFT holder would be considered as the owner of the copyrighted work and the rights of the parties to such an NFT sale, are determined by the governing sales contract. Essentially, this implies that if a publishing house engages a third party to create the cover of a book or if such book cover is created by an employee of the publishing house, the publishing house will need to ensure that its contracts with such third-party or employees include provisions that explicitly state that the copyright in the work is transferred to the publishing house. which will be treated as the owner of any NFTs created using the book cover.

Another aspect authors should consider while creating NFTs of works (for which they have already signed contracts with traditional publishing houses) is that most typical publishing contracts include a clause which uses the following verbiage: "all formats existing now and to be created for the life of copyright." This suggests that authors may have assigned over the copyright to publishing houses for all formats, including NFTs, which can be considered as future created format. Going forward, publishing houses and authors may need to be negotiating actual NFT clauses in their contracts.

Another aspect for publishing houses that have received foreign investment in India to consider before entering into the NFT space is whether foreign direct investment (FDI) regulations allow them to directly sell NFTs to end-consumers. Publishing houses in India that have FDI are not permitted under the current framework to sell directly to the end-consumer due to restrictions on FDI in the retail space. One would have to see whether this restriction would also be applicable in the event that publishing houses mint NFTs. Given that the there is no legal framework for NFTs and cryptocurrency in India, there is a big question mark over whether publishing houses having FDI in India can sell NFTs directly to end consumers.

A lot of scepticism surrounds the future and validity of NFT transactions in India. The question of the legality of cryptocurrency in the country, still remains unanswered. In 2018, the Reserve Bank of India (RBI), had issued a circular asking banks not to deal with or provide any services to entities dealing with virtual currencies, which was struck down by the Supreme Court of India in 2020. The Budget 2022, proposed that the Indian government would tax cryptocurrencies, NFTs and any such asset under the broad definition of “virtual digital assets.”

Thus, the income from transfers of virtual digital assets will be subject to a tax of 30%. At this time, India does not have any law or regulation to govern NFTs. Thus, the future of NFTs in India, especially in the publishing space, depends on more guidance on the scope and extent of legality of cryptocurrency and digital assets from the government, as well as other regulatory authorities.