MBW Magazine is where we point our microscope at some of the biggest recent events in the music business. This time around, we predict the next giant leap for the great financialization of music rights in 2021. The MBW Review is supported by Instrumental.
David Bowie. Which guy.
As well as all his music pushing the zeitgeist – and lucid philosophical forecasts – Bowie was also somewhat of a pioneer in finance.
Work with David Pullman, famous Bowie launched the highly innovative “Bowie bonds” in 1997.
These saw Bowie’s royalty rights in the United States securitized into bonds.
Put simply, bonds act like loans, but investors “lend” money to a business / entity rather than a bank.
Buying these bonds – as long as the underlying asset doesn’t default – offers these investors a way to get a guaranteed return on their investment, over a set period of years.
Bowie bonds, for example, offered a fixed annual yield of 7.9%, over a period of 10 years, all based on royalties from the Thin White Duke.
Why are we re-reading the story here?
Because MBW has learned from several senior sources that “Bowie bonds” – that is, bonds backed by musical assets – are about to make a big comeback, with a transformational effect on the value of this. industry.
Again, it appears Mr. Bowie was way ahead of his time.
What is often assumed about Bowie Bonds, given that they disappeared in 2007, is that they somehow failed. It’s wrong.
As explained in the last episode of the MBW podcast Talking trends, what really happened was that the buyers who spent $ 55 million on Bowie’s bonds got their money back, plus the agreed interest rate.
Bowie (because he was and is, you know, a genius) used the money these bond buyers ‘loaned’ him to buy out his own catalog of records, which is now probably worth as much as $ 1 billion. of dollars.
So everyone was happy, right? Bowie, his bond investors and the financial community in general?
Things got wobbly, as the decade-long period in which Bowie Bonds matured (1997 to 2007) was not exactly the most stable era in the history of the industry. music. * Waves at Napster and Limewire *
This instability, in turn, has had a problematic domino effect on Big Finance.
This is the critical part of this story – the key element that has changed from 2007 to today.
And that is precisely why Music Affiliate Bonds, according to senior MBW sources, are poised to become one of the industry’s stories in 2021.
So… before a company offers investors / the market the opportunity to buy bonds, those bonds must be rated by one of the few venerable institutions.
These institutions, certainly in the United States, are generally one of Moody’s, Standard & Poor’s and Fitch.
What these companies ultimately note is the quality of the underlying asset / activity behind the bonds. that is, the thing that generates money to reimburse investors for their original money (the principal), plus the agreed interest rate.
Sometimes bonds get good grades, sometimes they get extremely good grades, and sometimes they get really bad grades… what you’ve no doubt heard of “junk bonds”.
These ratings ultimately determine the level of investor confidence that each bond set attracts.
In the case of Bowie’s bonds, the underlying asset – that is, Bowie’s music and the money it generated – suddenly seemed rather vulnerable as the era of hacking took hold. was collapsing in the era of CD sales.
Initially, in 1997, companies like Moody’s gave Bowie Bonds a investment grade Evaluation; a.k.a. platinum plated, bet-the-house-on-it, super solid stuff.
But then, as the whole music rights industry started to dive, things changed.
Bowie investors would probably have panicked. And Wall Street would have detected a stench from musical assets that wouldn’t go away… ooh, for about 17 years.
Because today – as you MBW readers know – musical assets are all the rage again in the Big Finance community.
Whether Blackstone, KKR, Apollo Global Management or others, the status of music rights as an attractive ‘asset class’ – an investment destination with a high likelihood of return for investors – n has never looked so good.
This is in part thanks to the stock market innovation of the Hipgnosis Songs Fund et al, and in large part thanks to streaming: not only does the “pie” of music revenue grow every time Spotify’s subscriber base increases. et al increases, but the predictability of music royalties has never been so robust.
Case in point: in the days of the Bowie bonds, Mariah Carey’s financial performance All i want for christmas Is you – via CD and download sales – would have been much less predictable each year than it is today, when it soars to the top of the streaming charts each December (and brings in millions of dollars).
This is literally why Hipgnosis bought it.
Now that we’ve covered the background … here, buried right at the bottom of the proceedings, is the big news.
MBW sources tell us that at least one major music rights portfolio owner is currently looking for a nice rating (perhaps a platinum-plated, bet-the-house-on-it, super strong rating) for securitized bonds against. musical assets.
Yes: Bowie Bonds are back!
Ultimately, if said bonds are rated well by Moody’s and then, crucially, perform at or beyond investors’ expectations, it will significantly increase the value of music rights today. .
As it has been said on the Talking trends podcast last week: “Mark my words, we’re going to see a big financial entity buying a huge catalog of rights, then they’re going to break that catalog into a bunch of bonds and sell those bonds to investors – and most importantly, they’re gonna be able to get a good grade for them.
“Don’t just watch these masses of billions pouring into the music industry right now to get a sense of the value of music rights and how they’re going to continue to bounce back.
“Think about the genius of David Bowie – and understand that financial engineering could be the next big story in music and further enrich an already flourishing industry.
MBW journal is supported by Instrumental, one of the music industry’s leading growth teams for independent artists. Instrumental uses data science to identify the fastest growing independent artists on the planet, then offers funding, premium distribution and marketing support to take them to the next level, without taking their rights.Music trade around the world