— Scott Reyburn (@ScottReyburn1) January 27, 2018
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Last week’s announcement that online art auctioneer, Paddle 8, was taking an investment from a Swiss blockchain company set off a series of hot takes in the Financial Times and the New York Times about the future of the art market “online.”
The first takes rightly focused on how Paddle 8 was on the rebound from a failed marriage to Auctionata that nearly took down the company. So it was hardly a surprise that the concern would take nearly $9m in fresh capital in exchange for 15% of the company with an additional 36% pre-negotiated at price that could give the Swiss control of Paddle 8 for slightly more than $35m.
As deals go, that’s pretty good exit for Paddle 8’s investors, presuming they can get their hands on the $35m that their minority stake will putatively be worth. It’s unlikely that any of the $9m going into the company now will cash out shareholders given the auction house’s need for capital to sustain and grow its business.
There are two different aspects of the story that are worth following through on. The first is figuring out who is behind the new investment. The second is to ask whether the assumption expressed above on Twitter by The New York Times’s Scott Reyburn—”the last business yet to be transformed by digital technology”—is at all an accurate description of the state of play.
First things first. The Times’s own story on Paddle 8’s receiving an investment from Swiss firm, The Native, describes the Swiss firm as having Sergey Skaterschikov, the former owner of Skate’s Art Market Index and man who purchased ARTnews before selling it to Peter Brant, as its chairman. Skaterschikov had previously led more than one attempt to gain control over Artnet through Vladimir Evtushenkov’s Redline Capital Management. Five years ago, Redline sold its Artnet stake to invest in Paddle 8 which also gave Paddle 8 the option of investing in Artnet.
Skaterschikov went on to buy ARTnews with Izabel Depczyk who had been associated with the Polish firm, Abbey House which ran a variety of art-related businesses that morphed into her holding the position of publisher at ARTnews until the company was sold to Brant.
The Native is meant to be a blockchain and e-commerce company. But that is a description in name only. Only a few months earlier, The Native was actually a Swiss shell company originally founded in 1998 for energy investments. 5EL SA bought The Native in June of 2017 for 8m Swiss Francs. In July, SEL bought a third of a holographic company that is a significant shareholder in a company that creates “‘virtual humans’ for live and holographic concerts, advertising, feature films, branded content, medical applications and training,” including a virtual Michael Jackson.
In September, 5EL SA got into blockchain with a new business unit called 5EL Blockchain Lab. In November, the firm bought Asknet AG which provides e-commerce solutions for the electronic distribution of physical and digital goods.
So 5EL, now The Native, is a newcomer to all of these businesses, including Paddle 8. Skaterschikov is also new to the business, at least as far as the companies documents show. A release dated December 6, 2017 says “The EGM elected Mr. Sergey Skaterschikov, the serial e-commerce, media and finance entrepreneur, and significant shareholder of The Native SA, to lead the company as the Executive Chairman, with Mr. Serge Umansky, head of Blockchain Lab, to remain in the board of The Native SA as Vice-Chairman and also to serve as the Chairman of Asknet AG Supervisory Board. Ms. Izabela Depczyk, the founder of The Native, a content marketing agency that was acquired by 5EL SA in May, joins the board as well.” At that time, the entire firm was renamed The Native.
To top it all off, The Native’s New York office is listed as a two-bedroom apartment in the UN Plaza tower.
If the art market is going to be transformed by digital technology, The Native hardly seems like the experienced player with momentum who’s going to be able to do that. But is it even true that a) the art market is yet to be transformed by digital technology? and b) that it is the “last business yet” to be affected?
There seems to be a knee-jerk assumption that because Amazon has had a huge effect on retail and that advertising and the media have had to re-think their basic business model all businesses have been remade by digital technology. Huge portions of the economy remain substantially as they were. Uber and Airbnb have grown into huge businesses but there’s still taxis and hotels. And though we spend a great deal of time talking about autonomous cars, the fundamental structure of the auto industry in the United States where cars are bought through dealerships that are protected by state laws remains exactly the same.
The auto industry, which has digital businesses for marketing cars to consumers and managing the secondary market, is a good model for thinking about the digital transformation of the art market. There is no reason to believe that digital technology will allow businesses to capture profit margin from other aspects of the business.
From Artnet to Artsy to Paddle 8 to the auction houses’ own digital efforts, there has yet to be viable new business to disrupt the way art has been previously sold. Art fairs which are not built upon digital technology. Yet those businesses have had the greatest disruptive effect on the way art is sold over the last decade.