Learnings from paying artists royalties for AI-generated art

In 2024, we launched Tess.Design, a marketplace of fine-tuned AI image models where artists got paid a 50% royalty every time someone used their style. Less than two years later, we shut it down. This post is a candid account of what we built, what the data showed, and what any entrepreneur should know before trying to build an AI licensing business on top of creative talent.

The Problem We Were Solving

By 2023, AI image generation had become mainstream and deeply controversial. Image generation models like DALL-E and Midjourney trained on billions of scraped images, often without artist consent or compensation. Surveys consistently showed that consumers believed artists deserved payment when AI generated content in their style. Yet no business model existed to make that happen.

Media companies were in a stalemate. Outlets like Rolling Stones and Fortune wanted AI-generated imagery for blogs, thumbnails, websites, and graphics. But their legal teams were nervous about copyright exposure, given the numerous ongoing lawsuits. So the publishers either banned AI tools entirely or turned a blind eye to their use, hoping for the best. 

Tess was our answer to this problem: an AI image generation platform where every image was traceable to a single consenting artist, who earned a royalty in its production. In this way, we argued that Tess was the first “properly-licensed” image generator that produced the same quality images as Midjourney and other leading models. 

How the Business Model Worked

Tess Artists submitted a set of their work to fine-tune a Stable Diffusion base model. The resulting model, linked to that artist's aesthetic, was listed on a public marketplace at tess.design/models. Subscribers paid for access; the artist earned 50% of the revenue when subscribers used their model.

The legal architecture mattered as much as the product. Working with Fenwick, we constructed a contributor agreement and Enterprise Service Agreement built on a novel copyright argument. We posited that because all outputs were stylistically transformed into the contributing artist's aesthetic, the artist held copyright over the derivative works and could license them downstream to customers.  This created a clean chain of copyright ownership, something no other AI image generator at the time offered.

To seed the marketplace, we offered 25 founding artists an advance royalty of $300–$4,000 based on their portfolio quality and audience reach. In addition to income, we pitched artists on these value propositions: 

• Passive income from royalties on every generation
• A dashboard showing exactly how their model was being used
• A free Tess subscription to use their own model for brainstorming and scaling repetitive work (roughly 1 in 4 artists took advantage of this)

What 325 Cold Emails to Artists Taught Us

In building Tess, we learned a lot from the growth path of Spotify, which took two years to develop its partnerships with record labels. Unlike the music industry, however, illustration and digital art is fragmented. We reached out to 11 illustration agencies about getting their artists on Tess. 0 said yes. So we went artist by artist—sourcing contacts from Instagram, LinkedIn, agency websites, and the bylines of editorial publications we admired.

We reached out to 325 artists over about 6 weeks. The leads were high-end editorial artists who make illustrations for magazines like the New Yorker, take custom commissions, and maintain distinctive styles for studio work. 

The response rate was striking: 

• Almost 50% of the artists we reached out to responded to our cold emails.
• 6.5% of artists that we reached out to agreed to join Tess and had models trained on their work
• 22.4% of artists were hard nos. 
• 20.8% of the artists were maybes - took calls, asked questions, but never committed
• 50.2% of artists did not respond to us

For artists who said no, their objections fell into four categories:

1) Ideological opposition to AI: Many artists saw AI as categorically exploitative, regardless of the revenue model. 

“There is no such thing as ethical AI, full stop.”

2) Brand dilution. High-end artists worried that enabling anyone to generate in their style would cheapen it.

“ I don’t want it used by a cigarette brand”

3) On principle: Some believed art should be made by hand, regardless of the compensation structure.

“As an artist, I hold certain values regarding the creative process, and I personally feel that AI-generated art goes against those principles. While I acknowledge the technological advancements in this field, I prefer to maintain a hands-on approach to my work”

4) Reputation risk of being associated with generative AI, which the industry generally sees as terrible.The artist community was hostile to AI in 2024. Joining Tess meant risking cancellation. One artist put it plainly: "I've seen how other artists get fried when they say they're interested in AI." Social punishment was a real deterrent.

The artists who said yes were motivated by passive income, curiosity about AI, and a pragmatic desire to offload repetitive commission work—wedding placards, gift tags, wine labels—so they could focus on more meaningful projects.

“I’ve always been passionate about staying at the forefront of technology and embracing the innovations it offers,” one participating artist wrote. “I see AI as increasingly essential in every aspect of our lives, and joining Tess seemed like the ideal way to integrate AI into my profession. 

The Numbers

Tess ran for 20 months and generated $12,172.33 in gross revenue. We paid out $18,000 in advanced royalties to artists and spent roughly $100/month on infrastructure (subsidized initially by Azure credits). So, Tess was a net loss: approximately $7,000 in direct costs—not counting the engineering, design, marketing, and product time invested.

No artists earned enough from usage to receive additional royalties beyond their advance. The pre-generation economics never reached a meaningful scale. 

We came close to an Enterprise contract. A major US media outlet evaluated Tess as a compliant alternative to banning AI generation outright. Ultimately, however, their legal team blocked the CTO from moving forward with Tess as the unresolved court cases around AI copyright made any AI licensing product too risky to touch. 

Finally, we lost some trust from our team as well, which always happens when you invest in a product that doesn't work out. One engineer who left Kapwing in fall of 2025 said that the short-lived Tess investment contributed to burnout.

Why we shut it down

Three factors converged, leading us to shut down Tess: 

1. The legal argument was not proven out. Despite our legal argument about copyright protection, the ongoing litigation kept the question open.  Organizations like Forbes and the SF Standard who had shown interest in our model couldn’t afford to bet on an unresolved legal argument. Without regulation clarity, Tess couldn’t compete with models like NanoBanana, DALLE, and Midjourney.  
2. The timing wasn’t right. We depended on artists helping us to promote the platform, and they didn’t. When we launched, Creative Bloq covered the story, but the Twitter reaction was largely negative. The cultural moment in 2024 was one of deep distrust toward AI among the creative community. 

3. We needed to focus on Kapwing. Unfortunately, given our current resources, we can no longer run Tess sustainably, especially as our startup credits have now run out. We moved the most useful Tess functionality into Kapwing’s AI Assistant, which enables artists to set up private Custom Kais to emulate their own style with reference images. With focused resources, Tess might have grown. But with split attention, it could not. 

What This Means for Entrepreneurs Building AI Licensing Models

The underlying model—paying human creators a royalty to license their style, voice, likeness, or training data to fine-tune AI—is not dead. It's early. Here's what I'd tell founders exploring this space:

• Creator adoption is a two-sided marketplace problem, and supply is harder than it looks. Unlike music or stock photography, illustration has no dominant intermediaries. You have to recruit one artist at a time. Factor in that a meaningful fraction of your target creators will refuse on principle, regardless of the compensation.
• Brand dilution is a real product problem. Creators with valuable styles need meaningful controls over how those styles are deployed and appreciate visibility. Build custom moderation guardrails into your product to differentiate. 
• Timing matters. We launched Tess into a cultural moment of maximum hostility toward AI among artists. That's changing. As the legal framework solidifies and creator attitudes shift, the same business model will face less friction.
• Focus on one thing at a time to move faster. We chose to explore a pivot, not realizing the investment that it required. And the result was that we slowed down on Kapwing. Although we’ve recovered with the launch of Kapwing AI, I regret that we did not put all of our eggs in one basket. 

Closing Thoughts

I’m proud of Tess and what we built. We genuinely attempted to move the industry toward a more equitable AI licensing model where human creators get a cut of the value that they generate, and where brand/publishers have an easier time defining the output they want. If Tess had succeeded, it would have created a more beautiful world with more accessible art for all. 

When I got married in 2025, I used Tess to generate all of the artwork: the invitation, the table placards, and the textures for the table chart. We also put up art made by our artist friends like Baffour Kyerematen, Gloria Ford, and Abby Cali. Tess will always remind me of my wedding day and the beautiful coexistence of AI art and human-made art. 

Thank you to each of the 142 customers who took a bet on Tess and to the artists who trusted us with their work. We’re sorry we couldn't build the thing large enough to sustain it. I hope that an entrepreneur takes another shot at this in the future. 

If you’re building in this space, reach out. I’m happy to share more of what we learned. We'd also be open to selling the Tess.Design domain and concept so that the idea can live on.