David Bowie hailed as a financial innovator

The death of David Bowie at the age of 69 has inspired many tributes from people who were profoundly affected by his music and his role as a musical pioneer. But it shouldn't be forgotten that music wasn't the only area where he broke new ground: Bowie was a financial pioneer to.

In 1997, Bowie wanted to put his back catalogue to good use, and make a lump sum from it rather than waiting for the royalties to roll in. However, instead of joining the many legends to have sold their back catalogue off, he came up with the idea of the Bowie Bond.

This was a bond, backed by future royalties from his songs. Investors received income of 7.9% for ten years, backed by the fact that if the bonds defaulted, the investors would own his back-catalogue. After ten years, the bonds self-liquidated, so Bowie would not have to repay the cash lump sum. It was a move known as securitisation.

He signed a deal with EMI for them to release 25 Bowie albums that had originally been released between 1969 and 1990. As part of the deal he was guaranteed a portion of the royalties from sales in the US. He then secured a loan against these future royalties, by selling £35 million of Bowie Bonds. All the bonds were bought by US company Prudential Insurance.
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Bowie established a new kind of market - which was adopted by the likes of Rod Stewart, Marvin Gaye and Iron Maiden.

Impact

The trend for music bonds was short-lived, because changes in the way we consume music all but killed off royalties as an income stream. By the time the bonds finally liquidated in 2007 they were downgraded to just one notch above junk status - although they never defaulted.

There are those who argue that Bowie issued the bonds precisely because he could see this coming. Certainly by the time he was interviewed in 2002 he was convinced royalties and copyright were set to become a thing of the past.

What he may not have foreseen is that the financial world would go on to embrace the idea of asset backed securities more broadly. He didn't invent the idea, because the first asset backed securities emerged in 1985. However, Bowie Bonds expanded their universe, and opened the market up for assets that would previously never have been considered. After Bowie Bonds came deals for movie back-catalogues, fast food franchise income, and future medicine sales.

In 2009 Evan Davies even floated the idea that the boom in asset backed securities - as epitomised by the Bowie Bonds - could be blamed for the securitisation of the US mortgage industry that played such a key role in the financial crisis.

However, as Davies has since pointed out, how the financial community took Bowie's innovation and ran with it cannot be laid at his door. The Bowie Bonds remain a brilliant move, and yet more evidence of the artist's willingness to go where nobody had been before.