Rudi Kidd – consultant solicitor in our Entertainment, Media, Sports and Intellectual Property team: The Bowie Bond and Owning Your Masters

The passing of David Bowie has brought about untold outpouring of grief from his fans, admirers and observers alike. During his lifetime, David Bowie was always pushing the boundaries, taking things to the edge, in his music, personal fashion style, his personal relationships and his business dealings. He was a true trailblazer, which is what made him so unique and well-loved person.

One of the trailblazing things he did, which is not widely known, unless you are a nerd such as myself, is that, he along with Wall Street financier David Pullman invented the ‘Celebrity Bond’ also known as the ‘Bowie Bond’.

In the world of finance, this is a music catalogue-tied financial instrument, attached to the income generated from the exploitation of Bowie’s musical back-catalogue of songs. These were asset-backed securities, which awarded investors a share in his future royalties for 10 years for a fixed annual interest rate return of 7.9%.

The Bowie Bonds were first issued in 1997 as a stock of $55 million (£38m) in $1,000-denominated bonds and were underwritten by Pullman’s firm, Fahnestock & Co. Bowie was soon joined by other well established artists such as James Brown, the Isley Brothers, Iron Maiden, Ashford & Simpson, and the Holland-Dozier-Holland publishing catalogues, underwritten by a firm Pullman started for the venture.

Bowie had a grand plan, he used the £38m he received from the sale of the Bonds to buy back his master recordings from RCA Records (something most recording artist wish they could do) and he also bought-out the interest of his former manager, who co-owned a number of his masters. The Bonds gave Bowie freedom and financial security.

The Bowie Bonds were credited at the time with allowing fans to own a piece of their favourite rock stars, bringing together Wall Street financing techniques and rock and roll music. These were strange bedfellows indeed. Bearing in mind that rock and roll is meant to be anti-establishment and Wall Street, the epitome and cornerstone of the establishment. Money makes the world-go-round, in the rich man’s world (according to Abba)so it’s not surprising that the two would meet and work together.

Wall Street and the world of finance is very pragmatic, to get the Bowie Bonds deal off the ground Pullman had the bonds rated by the three credit agencies at the time, Moody’s, Standard & Poor’s and Fitch, which gave them a great deal of credibility. Hence, Wall Street fell in love with the Bowie Bonds. However, as with any cycle there was a downturn in the music industry. So by 2004 the rating agency Moody’s Investors Services downgraded the Bowie bonds to only one level above “junk”, the lowest rating, after a downturn in the music industry.

The music industry is built upon specific assets and one of those assets is the master recordings the artist’s creates under contract with their record companies. The contract will provide in most cases that the record company will pay the artists ‘recording costs’, namely, the costs of creating the master recordings, which usually amounts to a huge expense. It would be logical in accepting that because the record company covered the expense of the recording costs, they will also own the master recordings.However, the contract will also state that the recording costs, incurred by the record company, must be repaid by the artist to the recording company. So, the record company will always own the master recordings although they have recouped the expense of the recordings costs from the artist. This is what many recordings artist find to be unfair and inequitable, but this is standard practice in the music industry.

In developing the Bowie Bond, I believe that Bowie was trying to redress the unfair and inequitable imbalance of power between artist and record company. Having purchased his masters and extricated himself from his former manager David Bowie was in a good place and the bonds probably helped to get him there.According to the latest estimate of Bowie’s net worth by the Sunday Times Rich List is £135m. So the Bowie Bond worked out well for the Thin White Duke and his investors.

For more information on Rudi and his work, please click here.

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