Markets In Action

The Man Who Sold the World: Bowie Bonds

When legendary musician David Bowie died from cancer on January 10, his fans and admirers devoted days to celebrating his body of work.

But if you happened to look to the business pages that same week, you’d have seen a different sort of appreciation for a less familiar form of innovation the rock chameleon pioneered-royalty-backed “Bowie Bonds.”

Here’s what happened: in 1997, Bowie worked with New York investment firm Pullman & Co. to package a significant chunk of the singer’s back catalog into an investment security (the aforementioned “Bowie Bond,” a term Pullman trademarked).

In exchange for a multimillion-dollar upfront payment, Bowie signed away royalty rights for his music for the next decade. The royalty income from his work was steered into a new financial vehicle that would make regular payments to investors, who would receive 7.9% interest on their investment. After 10 years, the rights would revert to the artist.

In this case, the entire $55 million issue of Bowie Bonds were bought up by Prudential Insurance Co., which held the bonds until maturity. Since the transaction was private, financial details on the deal are hard to come by, the Wall Street Journal notes, but most observers appear to agree that both Bowie and his investors benefited.


Video courtesy of the Wall Street Journal


Chris O’Leary, a financial journalist and Bowie fan, provides a detailed account of the Bowie Bonds package on his blog. O’Leary notes that while other artists attempted to follow Bowie’s lead, looming changes in the music industry made future deals of this type less likely:

Bowie’s sense of timing was uncanny here: 1997 was the ideal moment to issue these securities… The [music] labels were making billions by selling $17 CDs via armies of Tower Records and Sam Goody’s. Every few years a catalog artist like Bowie reissued his old albums in boxed sets or in remastered special editions. It was a never-ending stream of revenue, and already the industry was imagining how to get people to buy their old records yet again: SACD? Blu-Ray? The next year, Shawn Fanning started Napster.

The Bowie securitizations did kick off a small wave of similar deals in the late Nineties: James Brown, Holland-Dozier-Holland, Ashford and Simpson. But the implosion of the music industry post-Napster, coupled with the lack of prospects for future top-name securitizations (the likes of the Beatles and the Stones couldn’t do it, as their catalogs were tied up with the likes of Michael Jackson and Allen Klein),… meant that the deals dried up.

Indeed, a few years later, ratings agencies downgraded the Bowie bond’s credit rating when the music industry faced a major downturn with the rise of downloadable tracks. But this was an outcome Bowie may have foreseen, the BBC notes:

Mr. Bowie had himself predicted the decline in traditional music sales, telling the New York Times in 2002 that music would become “like running water or electricity”.
However, the bonds “worked out well for everyone”, according to music industry finance expert Cliff Dane.

“Due to the particular nature of the security – the quality of the relevant Bowie songs and recordings – and the time and the place, it made very good economic sense for the investors, and for the company organizing it.”
Bowie Bonds stand as an illustration of how securitization can work to provide benefits for both an asset holder (in this case, the musician owning a significant and valuable body of work) and investors.

“It was an innovation,” said Rob Ford, a London-based Bowie fan who manages portfolios of asset-backed securities. “Ultimately it put the template in place for securitizations linked to all kinds of assets.”


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