Special thanks to Sari Azout, and to Jihad and Carlos from Forefront for help getting this piece put together. Follow along with me on Twitter as we set these experiments live over the coming months.

A few months ago, Nir Kabessa and I wrote about why “All SaaS should be tokenized.” The title was slightly hyperbolic, but our point was that token models make a lot of sense for subscription businesses. To summarize its core concept: SaaS business tend to have very low cost of marginal distribution, which means that early subscribers are essentially already investors — each incremental subscriber adds little to the cost base but lots to the ability to reach the point where the flywheel starts spinning. That tipping point may be the ability for the creator to go full time, hire support, or just invest in the quality of their product.

If that piece laid out the principle, this article is about applying it specifically to one application where it has unique benefits: subscription media models. There has been lots of talk about the current battle between “old” media platforms like The New York Times and upstart newsletters on Substack, and I believe tokenization could emerge as a key differentiator for forward-thinking media companies. Especially for new companies and products, allowing early subscribers to benefit from future upside can shorten the time to product market fit.

Are tokens a next step on the path from print?

Media, because it’s media, has had a very public journey through various crises, from print to digital. One particularly well-known journey is that of The New York Times. (Keep in mind that there are actually many media brands in which tokenization would be even more valuable and likely than at the NYT, but more on that later — for the purposes of an intuitive example, the NYT works.)

To understand my point, you don’t actually need to know the story of the NYT’s transition from print, to digital advertising, to digital subscription. What matters is that digital subscriptions are now their biggest revenue stream, and that the transition to those subscriptions and to the digital world has been a difficult but seemingly successful one (as illustrated by their stock price).

The graph accurately depicts the Times as one of the rare success stories in this space. And to be clear, I’m long NYT, even though I don’t expect them to tokenize their subscriptions any time soon. So while I’ll show how tokenization solves some of the issues with their current model, I expect it to be smaller competitors that push this envelope first.

But before we can dive in and unpack the issues that tokens solve in a media model, what do we actually mean by a tokenized subscription?

For the sake of simplicity, let’s imagine that a tokenized subscription to the NYT works as follows:

• To access the NYT, I must hold at least $100 worth of $TIMES (the NYT’s token I’m pretending exists) in my wallet.
• Each year, $100 worth of $TIMES is “burned” aka removed from my wallet via a smart contract.

Let’s imagine that, over the course of two years, the demand for the NYT is constant and therefore the conversion from dollars to $TIMES is constant. Let’s say 1 USD = 1 $TIMES. Here’s how it would work for a consumer:

• I pay $200 and get 200 $TIMES. I can then access the Times from any device using a simple browser extension or app (my wallet).
• After two years of subscription, I have no more access (0 $TIMES in my wallet) and need to renew.

Now let’s consider one final scenario, where the demand for the NYT doubles every year and the token price changes accordingly. Let’s imagine that to start it’s 1 USD to 1 $TIMES, and at the end of the two years, it is 4 USD to 1 $TIMES. For the sake of simplicity I’m using a very simple demand = price model of token price, which is only one way that the system could be designed. A full view on the complexities of how to design the tokenomics around this system could be its own piece, which I hope to write or help write soon.

• I pay $200 and get 200 $TIMES.
• After the first year, the price of $TIMES = 2 USD. So 50 $TIMES ($100 USD worth) is burned and I still have 150.
• After the second year, the price of $TIMES = 4 USD. So 25 $TIMES ($100 USD worth) is burned and I still have 125. If this price is constant, I now still have 5 years of subscription left (7 years total). Note that this would have some negative cash flow effects for the NYT, but I’ll argue why that’s worthwhile later.

Clearly there is some monetary incentive alignment happening, which would make even more sense if the NYT was an up-and-coming publisher (or newsletter writer). Then rewarding early subscribers makes even more sense, since they are really the believers and early investors. There’s also a much simpler model, which is a lifetime membership (the “believer level” subscription that many newsletter writers have employed). In that case, you don’t even need to figure out how to burn tokens; you can just fix a believer price to a fiat currency.

Some might ask: “Why not just buy a normal subscription to the NYT and also get some stock?” It’s a fair point, and the short answer is that this model is even more powerful for smaller media companies that aren’t public yet and have no existing way to allow early subscribers to benefit from future growth. The long answer is that tokenization of the subscription itself creates a tighter feedback loop in the product which fixes some UX issues and encourages subscribers to help grow the business.

Encouraging growth and fixing UX via tokenization

What benefits would tokenized subscription provide for access-based media models? While there are several, the following are some of the biggest ones.

Fixing leakage and the “incognito issue”

My friend Rapha pointed out a usefully simple UX mental model a while ago: any product where you’re spending a lot of time using it in incognito has a pretty big UX problem. Subscription media companies like the New York Times join LinkedIn at the top of that list. The issue is that they need to offer some free tier of access so that people can get hooked — in this case a number of free articles per month — but the only way they mediate that is either via a login or via browser cookies. This leads to an incredibly clunky experience where you can create any number of accounts or use incognito browsers to get aspects of the NYT for free, so long as you’re willing to struggle through those workarounds.

Crypto wallets would make this experience far better. Instead of having to create an account using my email as my unique ID every time I land on a website like the NYT, I could simply log in via a browser extension like Metamask. And people are far less likely or able to share wallets than they are to share login info, which means fewer people using their friend’s mom’s login and bypassing the subscription entirely.

Better incentive alignment

In a non-tokenized subscription world, I have no real incentive to help the media brand grow. As such, I may be perfectly happy to share my subscription with other people, set an auto-forward on the newsletter I pay for, and so on.

In a tokenized media model, I’m incentivized to drive more demand to the subscription. That means I’m more likely to encourage my friends to get their own subscription or to proactively share the content with others I think might benefit from it. This is especially true if we’re talking about newer media brands — the newsletter writer who just turned on paid subscriptions, for example  — where the potential growth could be significant. In that case you could imagine I buy more tokens than I actually need for the subscription, simply because I view it as an investment.

Why don’t we have more tokenized products?

The merits of the argument above beg the question: why aren't publications doing this yet? And the answer, as always, is that it’s complicated. But working through the complexity is worth it; the next wave of web3 will be much more product focused, including how to structure DAOs to ship great products and how those products leverage tokens to outcompete their web2 counterparts.

I aim to experiment with and write about all of that. In fact, we have a few projects launching soon with Forefront, Sari Azout, and one in stealth that I hope will help push this conversation forward via some concrete products rather than just words on a page. I’ll share updates on Twitter, but to give you a sense of the questions we will be grappling with, these are the reasons why the pitch above isn’t quite so simple:

Most people don’t have crypto wallets

If you’re like me, you’ve worked yourself into an internet corner where literally everyone has gone full crypto, but few big media companies reach an audience that is entirely comfortable dealing with wallets and tokens. In order to maximize revenue, they’d need to set up complex parallel systems for fiat subscriptions and token gates. Which brings me to the point below.

The tech isn’t there yet

If you’re building in web3, you’ll know this secret; behind the shiny exterior of the future is a tech world that is very, very early. Key products are yet to be built, documentation for existing tools is sparse, APIs are raw or nonexistent, and so much of the tech that does exist is narrowly focused on NFTs and tokenized communities. As we launch some of these projects over the next months, we’ll share the stack we used and built, but the point is that there’s no off-the-shelf way for a media company to create a tokenized subscription that can deal with a lot of the complexities that, say, the NYT has to deal with.

There are legal risks

Even using the word "legal" feels scary, but let’s just all agree that we’re confused AF about this, right? I’m ready to invest in the first good crypto-legal DAO I find, and bonus points if they offer “crypto taxes in 2022 as a service.” Social tokens have generally claimed to be in securities grey space, because they’re given away, decentralized, and don’t come with any expectation of financial return. This article from SeedClub is still the best article I know of on this topic, and it does seem that a token sold explicitly to mediate access with the hope of a financial return would be even less safe than what is going on today. Launching anything here will mean talking to experts and doing proper due diligence first.

Cashflows and incentive structures

If early subscribers benefit from the future growth of the media business, where does that money come from? The answer is that it comes from your future cashflow, either in the form of extended subscriptions for the early adopter (as in the example above) or via access being sold on secondary markets (if that early adopter decides they don’t want the subscription anymore). That cashflow hit might sound bad, but I would argue it’s no different from the massive discounting that happens in so many economies-of-scale businesses aka most software and virtually all media. The difference is that the discounting comes with the benefit of incentivizing those early adopters to help you grow, which in the world where the audience grows the creator is a very good thing. But the tokenomics are indeed complex, and designing those incentive systems to match what the business needs and will need over time isn’t easy, especially until common patterns emerge.

These are questions we will be grappling with as we launch the aforementioned experiments towards this model over the coming months. We will be documenting them as we go, so follow along and let us know what other areas we should be exploring.

I’m passionate about this for a simple reason: if we can increase the speed of innovation by 1%, the compounding impact on our lives is unimaginably large. For anyone who has worked in early-stage products and companies, you know how heavy the boulder is that rolls up the hill towards product market fit. Allowing early adopters a chance at future upside can make the other side of that hill just a bit lower.

Subscription products are the thing these days it seems, and subscription media products feel like a natural next step for web3 given how much of the initial surge has focused on transactional media via NFTs. Tokenized access encourages the long-term incentives that are already at play in media companies — low marginal cost of distribution and a strong reliance on the early audience for growth. So for those of us who are focused on bridging the gap to web3 for innovative builders, pushing the envelope on this topic is worth the effort and complexities that come with it.