Bowie on Wall Street – star’s bond legacy
The late David Bowie was one of rock’s groundbreaking figures, but he was also a pioneer of financial innovation.
David Bowie, who died last week aged 69, changed the face and sound of popular music as few other people did.
But his inventive and enquiring nature was not confined to the world of music and the arts. In the 1990s, ‘The Man Who Sold the World’ also helped Wall Street find a new way to finance performers based on their intellectual property rights.
The “Bowie bond” was created in 1997, by David Bowie with his financial manager Bill Zysblat and the so-called “rock and roll investment banker”, David Pullman of Fahnestock & Co.
The $1,000-denominated bonds were issued for $55m, underwritten by Fahnestock, at 7.9 per cent interest, which was significantly more than US Treasury bonds at the time. Their lifespan was 10 years.
Upfront debt funding
Bowie bonds secured upfront debt funding for Bowie in exchange, effectively, for the rights to royalty income from some of his biggest hits. Unusually for an artist at the time, he had negotiated contracts that ensured he had the rights to master recordings as well as the songs themselves.
As David Pullman told Billboard magazine recently: “Bowie was savvy from the beginning.”
The bonds were a new kind of financial instrument, taking the concept of securitisation – which had been developed in the 1990s to fund the mortgage industry – and applying it to intellectual property.
Although the issue was touted as a chance to “own a piece of David Bowie”, the bonds were bought not by fans but by the Prudential Company of America.
The deal meant Bowie was able to buy back the rights to many of his earlier songs, of which a significant share had been in the hands of his former manager, Tony DeVries.
Bowie bonds were soon followed by similar issues for artists such as James Brown and the Isley Brothers.
Now generically known as “celebrity bonds”, they are an established financial instrument on Wall Street and have been used to raise short-term money for cash-strapped artists, as well as more long-term finance (as with the Bowie bonds).
David Bowie was well aware of the way in which technology was changing music’s business model – he had launched his own internet service provider in the 1990s and produced one of the first digital-only single releases – and this may have influenced the timing for the bonds’ issue.
Bowie told the New York Times in 2002 that he could foresee a time when music would be a commodity “like electricity or running water”.
Certainly, with the growth of pirated music online and file sharing, Moody’s downgraded the bonds to near-junk status in 2004. Since then, however, legitimate online music retailers have entered the scene, and the Bowie bonds matured in 2007 without default.
Meanwhile, securitising intellectual property has become an accepted practice in financial markets. And by going down the bond route rather than selling the royalty rights, Bowie guaranteed a legacy for his wife, Iman, and two children.