The world is mourning the passing this week of one of the most influential and talented rock artists in history, David Bowie. Bowie, who was famous for a stunning catalogue of music that morphed and evolved regularly into ground-breaking areas, changed an entire industry. Perhaps less well known was the fact that he also created history in financial markets.
In 1997 Bowie raised USD$55 million by selling the 10-year future royalties from his 25 album catalogue recorded prior to 1990. The “Bowie Bonds”, as they were known, were issued at a yield of 7.9% and were purchased by Prudential Insurance (USA). This was a ground-breaking financial transaction that saw intellectual property used as collateral for a financial bond for possibly the first time. The bonds were rated investment grade by Moody’s that said they had a low risk of default. Other artists followed suit by issuing bonds including James Brown and Marvin Gaye.
Bowie for his part foresaw a shake-up of the music industry with the advent of digital recording and the internet. In a 2002 interview with the New York Times he nailed it when he said, “The absolute transformation of everything that we ever thought about music will take place within 10 years, and nothing is going to be able to stop it. I see absolutely no point in pretending that it’s not going to happen.”
The shake-up in the music industry caused by the internet, illegal downloading, file-sharing and copyright issues saw the bonds weaken over time as album sales plummeted. Moody’s at one point downgraded the bonds to junk status and bond investors had a wild ride. But the bonds paid out in 2007 and were ultimately seen as a success.
In any case it secured Bowie’s legacy as an innovator and a pioneer. He will be sadly missed.