David Bowie, a rock-n-roll icon and groundbreaking artist, passed away on Sunday at the age of 69. In a global outpouring of grief, mourners are remembering Bowie as a musical visionary, someone who was once hailed as "music's most exquisite artifact," and an artist who made a real difference to the lives of his fans.
He was also, as it happens, a financial pioneer.
In 1997, Bowie -- then the world's most valuable musician, worth an estimated $917 million -- became the first artist to package and securitize the rights to his future royalties.
That year, Bowie struck a licensing deal with record company EMI for the 25 albums he recorded between 1969 and 1990. The deal allowed EMI to release these records and any related unreleased live or studio recordings over the following 15 years. But rather than slowly earn the royalties to these records-- which contained 287 songs and included smash-hits like "Space Oddity" and "Ziggy Stardust" -- over the ensuing 15 years, Bowie decided to take the rights to those royalties and sell them.
With the help of banker David Pullman, Bowie securitized the royalty rights and sold them, in a private transaction, to
At the time, the deal was viewed a win 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. "In addition to the tax advantages, Bowie gained the greater present value of the royalty payments for investment purposes by receiving the cash before the periodic royalty payments would have been made to him," Sylva added, noting that getting a lump sum meant Bowie could diversify his income by making revenue-generating investments outside of the music industry.
And on the investment side, the deal seemed rock-solid. In February of 1997,
''This was a very good deal, offering a superior return compared to the risk,'' Rick Matthews, then a spokesman for Prudential, told the New York Times in 1997.
"Bowie’s sense of timing was uncanny here: 1997 was the ideal moment to issue these securities," notes Chris O'Leary, a writer and operator of the site BowieSongs. "Wall Street and the music industry were fat and happy. The 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: Super Audio CD? Blu-Ray?"
But the tide quickly turned. Napster launched in 1999, and music sales would never be the same.
By May of 2003, Moody's placed the Bowie notes under review for possible downgrade, saying, "The rating review was prompted by lower than expected revenues generated by the assets due to weakness in sales for recorded music as well as the recent downgrade of an entity that provides credit support to the transaction."
Within less than a year, the notes were downgraded to Baa3; in 2007, they were liquidated. A spokesperson for Prudential Financial declined to comment on any returns that Prudential Securities (which merged into a division of Wachovia in 2003) may or may not have received.
Though the value of Bowie Bonds fizzled, the idea paved the way for similar transactions -- including James Brown, Rod Stewart, and the Isley Brothers -- and, incidentally, served as a precursor to Fantex, the alternative trading platform that lets consumers invest in athletes' future earnings.
"David’s ability to embrace new ideas is a testament to his position as a living rock legend," facilitating banker Pullman told Bloomberg News in 1997. "I wish all our clients were as innovative as David Bowie."
