The bonds that fell to earth – The financial magic of David Bowie

The passing of David Bowie is a reminder that he was an innovator in finance and intellectual property, as well as music and fashion. 

Much has been written about the passing of David Bowie in New York at 69. It’s important to remember that he was a pioneer in music royalty securitization in 1997 with so-called”Bowie Bonds.”

00DavidBowieEsquireRussia1The bonds were a smart move for Bowie, who raised $55 million without giving up ownership of his prized catalog. He had gambled wisely on the future, and while the bonds traded poorly for investors —  a reflection of weakening demand in the music industry at the time — they never defaulted, paying holders in full at ten-year maturity.

First Mover

Bowie was a first mover, parlaying the future cash flow from his copyrighted song catalogue into an early payday just when the music industry was changing. The idea of royalty securitization remains viable today, if somewhat more sobering. As long as the financial modeling is right, and the appetite for risk sufficient, leading artists and innovators will continue to score with royalty deals.

In my 2001 book, From Ideas to Assets, Doug Elliott writes, “What Bowie sold was the present value of his personal intellectual property (song copyrights) – that is, the future expectation of future royalty income, less a discount (p. 462).”

“From 1991 to 1998 nearly $3.5 billion in Bowie-like royalty instruments were sold by other musicians (Rod Stewart), media conglomerates (Disney, Dreamworks, Universal), and branded marketers (Calvin Klein, Borden and GE Capital).”

The cash flows that comprised these securitizations were on a a whole far more reliable than the infamous mortgage-backed issues and CDOs that blew-up en masse and facilitated the 2008 bank melt-down. (See The Big Short, both the book and movie.)

Bowie told The New York Times in 2002 interview that copyright would no longer be viable in ten years and that music was likely to become a commodity “like running water or electricity.” He was not far off.

For a good Bloomberg story about Bowie’s foray into finance, go here. For the Wall Street Journal piece, go here.

Image source: gossipblog.it; vam.ac.uk

About Bruce Berman

Independent IP observer, adviser and author.

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