“Bowie Bonds” – the singer’s legacy as financial pioneer
David Bowie passed away on 10 January 2016 at the age of 69, and will be fondly remembered as a rock-n-roll icon, a musical pioneer, and a groundbreaking artist. In a career that spanned more than 50 years, the singer released some 25 studio albums, 111 singles, and had an estimated net worth of £135m at the time of his death.
Few however, would recall that he was also a financial pioneer.
In 1997, at the height of the music industry’s boom, Bowie became the first artist to package and securitize the rights to future royalties in his music. By relying on the copyright in his extensive back catalogue, Bowie was able to create asset-backed securities – dubbed “Bowie Bonds” – which awarded investors a share in his future royalties for the 25 albums he recorded between 1969 and 1990. The “Bowie Bonds” offered a 7.9% annual coupon over a 10 year period, and were sold in a private transaction to the Prudential Insurance Company. Valued at some $55m, Bowie himself pocketed more than a little spare “ch-ch-change” from the sale.
At the time, the deal was viewed as a rock solid victory for both artist and investor.
“The fact that Bowie retained the copyrights in his musical compositions was key in structuring the Bowie bonds deal, because the royalty income generated by the copyrights and received from music publishing licenses and record sales were the assets that backed the bonds,” wrote Jennifer Sylva in an article in the Santa Clara High Technology Law Journal in 1999.
Rick Matthews, then a spokesman for Prudential, told the New York Times in 1997 that “[this] was a very good deal, offering a superior return compared to the risk”.
Bowie’s timing of the deal was uncannily prescient, as the value of the “Bowie Bonds” fell sharply in the late 90’s, following the popularity of Napster and the rise of online music piracy. In 2004, they were rated at just one level above “junk”; in 2007, they were eventually liquidated by Prudential.
Bowie’s innovation in using intellectual property to back securities, though, lives on. His financial innovation caught the imagination of a number of other musicians and artists – including Iron Maiden, James Brown, and Rod Stewart – and lives on in the wider field of esoteric asset-backed securities.