Securitizing Music: From “David Bowie” to the recent “The Who” and “Tim McGraw”

We know much about securitizing debt. But securitizing music? Yes! That’s not a new concept. Like securitizing debt is a mechanism of converting a bundle of debts into a marketable security that are backed by the original debt, securitizing music falls under the umbrella of celebrity bonds which is associated with intellectual property rights based on fame gained through some form of artistry.

These securitized instruments are usually called as music bonds that are backed by royalty streams, album sales and live music concerts of the celebrated musicians.

How does these music bonds work?

The music artist uses the proceeds from the bond sale to purchase old recordings of his/her music work that is already sold to someone, be it an individual or a music publishing company. The rights to royalties from the sales are securitized into bonds. By creating such bonds, the artist can forfeit royalties for the life of the bond. These bonds also undergo a credit rating to assure the safety of the bond buyer’s investment.

David pullman, a well-known investment banker, is the pioneer who created such music bond for the artist David Bowie in the year 1997 for the artist’s works recorded prior to 1990. Hence the name “The Bowie Bonds”.

Since then, there have been number of such bond creation for celebrity musicians, like Iron Maiden, rocker Rod Stewart, songstress Dusty Springfield, and songwriter Duane Hitchings, by other bankers as well.

Though, music bond seems to be an interesting concept, such type of artist-backed debt instrument has lost its charm with the rise of online music sharing and streaming. Due to the gaining popularity of online music file sharing and streaming, the value of bonds started sliding down. By the beginning of 21st century, the music business faced a slump as the music fans moved from record stores to online music sharing platform. As a result, the bowie bond was downgraded by credit rating firm Moody’s in 2004, to a mark just above the junk status.

However, arrival of legal online music publishers has improved interest in such instruments. The Bowie bonds matured in 2007 and were redeemed as scheduled, without default, and the rights to the income from the songs were given back to Bowie.

2021 also appears to be witnessing one of such bond issues backed by the music catalogues of major of pop music, country and classic rock acts including The Who and Tim McGraw.

Northleaf Capital, a private equity and credit firm, intends to sell such securities backed by The Who’s and Tim McGraw’s works.

The deal is estimated to be worth US$303.8 million supported by publishing and sound recording rights of a total of 52,729 songs, as well as the income generated by the music. According to Kroll Bond Rating Agency’s presale report. Guggenheim Securities is leading the offering, and Kroll anticipates the deal to receive a good credit rating.

Prof.Smithashree
Assistant Professor
DSCE-MBA

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