David Bowie, a lyrical genius and pop icon sensation, passed away in January at the age of 69 from cancer. His sudden death left the music community and his fans shocked and devastated. In a global outpouring of tributes and grief, Bowie will be remembered as a music visionary and artistic revolutionary…but what about a financial pioneer?
While many remember Bowie for his evolving style and sing along worthy music, he was also at the forefront of music royalty investment.
In 1997 Bowie had an estimate worth of $917 million with much of this money coming from his high volume of work, household name and endless royalties. This same year, Bowie struck a licensing deal with record company EMI for the 25 albums he recorded between 1969 and 1990. With a strong repertoire and a large amount of work yet to be released, Bowie became the first artist to package and securitise the rights of his future royalties. As EMI agreed to release the music over 10 years, Bowie decided to sell the royalties for this decade and cash in early instead of wait for the slower trickle in of cash with each release.
Bowie bonds, issued in 1997, had a life of 10 years and an interest rate of 7.9%. The bonds were purchased by Prudential Insurance for $55 million. The deal stuck was viewed to suit both the investor and Bowie. Bowie gained the greater present value of the royalty payments for investment purposes by receiving the cash before the period payments would have been made. This allowed him to buy out his former manager Tony DeFries who owned 50% of his music rights, and diversify his investment portfolio. The Bowie bond represented one of the first instances of a bond that used intellectual property for collateral.
At the time the deal seemed fool proof, with investor services giving it a high “A3” rating; however Bowie’s sense of timing was uncanny. Some claim that Bowie foresaw the impending hardship of the music industry resulting from the advent of digital recording. In 2002 Bowie made the landmark interview with The New York Times which included his quote:
“I’m fully confident that copyright, for instance, will no longer exist in 10 years, and authorship and intellectual property is in for such a bashing”
Only a few years later streaming services became available and the music industry and royalties took a strong hit. As a result the bonds were downgraded to “junk” level and later liquefied.
Despite this downfall, the idea had paved the way for many other artists seeking upfront cash including James Brown, Iron Maiden and Rod Stewart.
Lately the performance based stock has also translated into professional sports with alternative trading platform Fantex allowing consumers to invest in athletes future earnings.
Should you have any legal issues surrounding intellectual property you would like to discuss, please don’t hesitate to contact Lynn & Brown Lawyers.
About the authors:
This article has been co-authored by Haley Graydon, law clerk, and Jacqueline Brown, director at Lynn & Brown Lawyers. Haley is currently in her final year of study at UWA and her keen interest lies within family law and estates. Jacqui has over 20 years’ experience in legal practice and practices in family law, mediation and estate planning. Jacqui is also a Nationally Accredited Mediator and a Notary Public.
