Tag Archives: David Bowie

“Turn and face the strange” – Patent values fall to earth; PIPCOs, too

Changes, or should we say “ch-ch-changes,” channeling David Bowie, who reinvented himself repeatedly, have decimated the performance of most publicly held patent licensing companies.

Public IP licensing companies (PIPCOs) are changing their names and restructuring in an attempt to reframe themselves. The move appears part of an effort to shed the past, given that many of these businesses have significantly under-performed the S&P 500 Index.

With patent values at historic lows, a fresh perspective is welcome. But can PIPCOs turn the corner and successfully adapt to changing times (and valuations) in the patent space? Only some are likely to succeed.

A fuller discussion of public IP companies, “PIPCOs adapt to ch-changing times,” can be found in my “Intangible Investor” column in the September IAM magazine, out today. Subscribers can find the piece here. It includes companies that have changed their name or issued reverse splits of their stock. or otherwise reinvented themselves as operating companies with product sales.

A Closer Look

A closer look at the IP CloseUp 30 reveals several significant developments. One trend which financial analysts tend to question is rebranding; another is a reverse split, where a $0.50 stock can suddenly become a $4 one when investors are provided with fewer shares at a higher price.

To casual observers, it can appear that performance has taken off, when in fact the weak stock price is merely being obscured by a diminished public float. Many PIPCOs were formed by a merging a private enterprise into a public shell, which while not disreputable, often comes with baggage.

While one can appreciate different patent strategies – the need to monetize good assets through different business models – the perils of public ownership are ill-suited for the majority of companies whose primary focus is licensing.

Still, there are public and private patent licensing company successes, including Finjan, which has successfully fended off multiple IPRs, Network-1, inventor-owned PMC (Personalized Media Communications), which continues to license, and colleges like Northwestern and NYU, which have scored big on pharmaceutical licensing.  

Stanford University’s patent licensing take in shares of Google are said to be worth more than $300 million.

Image source: wikipedia.org

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


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