Strategic NFT adoption to combat digital piracy

Abstract

Digital piracy poses a grave threat to content creators and distributors. Recently, non-fungible tokens (NFTs) have garnered attention as a potential solution, though views diverge on their efficacy. Moreover, NFT practices often engender complex tradeoffs between business value and externalities. To elucidate this divergence and inform strategic decisions, we develop an analytical model of a digital content supply chain incorporating piracy competition across three operating models: reselling, agency-selling, and NFT-based. Our analysis suggests that: (i) the NFT model mitigates piracy more effectively than traditional models when content asset value is high or consumer NFT acceptance costs are low; (ii) the creator's NFT adoption hinges on the NFT platform service fee, fixed adoption costs, and consumer perceived net NFT value; and (iii) higher legal content transaction costs catalyze more pirate demand. This study clarifies the complex interplay between piracy, NFTs, and digital supply chain design. It provides creators and distributors an enhanced framework for strategically leveraging NFTs to combat piracy while maximizing value and mitigating risks.