Invest in the Thin White Duke

Mar 15, 2016

In 1997, the modern era of music royalty investing was born with the introduction of Bowie Bonds.

The idea was to create a bond secured by the future music royalties on an artist's music catalog or song. Investors seeking regular income would buy the bonds; the artists would receive the proceeds of the sale.

As explained by Brian Lund¹ in Daily Finance:

The first of these bonds was offered in 1997 and was backed by the future royalty monies from 287 songs recorded by David Bowie before 1990. The entire offering was bought for $55 million by Prudential Insurance Company of America; they're now known as Bowie Bonds.

When we first did it, everyone thought it was crazy€¦six months later, it was everyone else's idea, recalled banker David Pullman², who pioneered the bonds, in the New York Times.

Subsequent celebrity bonds were sold based on music royalties from James Brown, the Isley Brothers and others.

The musicians received a large upfront sum, providing immediate financial security, allowing for new artistic endeavors. Investors who bought the bonds got a steady income at unpredictable, but generally above-market rates.

Up until recently, celebrity bonds have only been sold to large financial institutions, meaning that even as the market in music royalty investing has grown, individual investors haven't participated.

That's changing, as innovative new platforms have sought to bring intellectual property and music royalty investing mainstream.

At Royalty Exchange LLC, for example, the Bowie Bonds structure has been simplified. Instead of issuing bonds based on an entire catalog's future royalties, musicians, including songwriters and producers, now directly offer any portion of their royalties to the higher competitive bidder.

As opposed to selling their entire catalog, artists can now specify exactly what songs, and even what portion of royalties, they're interested in monetizing.

For artists and songwriters who are interested in determining the price they could receive for monetizing a portion of their royalties, the Royalty Exchange offers free use of ARIA, a simple to use on-line tool, for calculating the potential auction value of a royalty stream.

Royalty Exchange auctions collage image

Recent sales on RoyaltyExchange.com

Unlike Bowie Bonds, individual accredited investors are actually able to purchase these royalty streams. Recent sales range from the Dave Gibson collection of 5 top ten Billboard country songs (Sold for $12,800) to legendary R&B artist's KoolMoeDee's hits (sold for $41,000).

Investors receive regular income, artists receive a lump sum.

What a difference 17 years makes. Monetizing music royalties started with the Bowie Bond, but they're finally coming into the mainstream today. For artists and investors, there's never been a lower-cost means by which to directly sell or invest in music royalties.

Turns out the Thin White Duke never left.


Notes:

¹ Lund, B.; Inside the Finances of a Hit Pop Song: Gold Records and Bowie Bonds

² Williams, A.; Fantasy Football, Stock-Market Edition

Disclosure: Jonathan Hoenig is the author of Royalty Review. The opinions expressed here belong to Jonathan Hoenig. Mr. Hoenig runs the Capitalistpig Hedge fund, is a regular contributor to FoxNews, and is a private music royalty investor. He is also an investor in and paid advisor of Royalty Exchange, Inc., the parent company of Royalty Insider. The Royalty Review column is presented for information purposes only and should not be construed as a recommendation, solicitation or advice. Follow @TheRoyaltyMkt to receive on-going music royalty news and analysis written by Jonathan Hoenig.
Image courtesy of Child-Of-Neglect