For the better part of his life, David Bowie played the part of an alien who knew more about the future than did the inhabitants of this planet.
The singer's music and constant reinvention of his persona were precursors to societal transformations such as the fall of Berlin wall and the emergence of Black artists on the global stage. It was as if Bowie anticipated seismic events and social upheavals before they happened. Within the context of financial innovation, he was the first artist to pioneer the securitization of esoteric assets such as intellectual property.
Bowie bonds were first offered for sale in 1997 and set a precedent in the entertainment industry. They offered a generous 7.9% interest rate per annum (the current 10-year Treasury rate at the time was 6.37%) over 10 years and were backed by royalties from 25 years of songs until 1990 by the singer. Other popular acts followed suit, and the rest of the entertainment industry, including major studios, secured and monetized intellectual property on their work. (See also: David Bowie: The Man Who Sold The World..Bowie Bonds).
But the bonds were not really bonds. As with everything else he did, Bowie's bonds helped the consummate alien in our midst forecast the future of the music industry and, indeed, of the world economy.
An Alien Predicts the Future
As popular lore goes, the Bowie bonds owe their genesis to David's realization in the 1970s that he did not own copyright to his songs. Fifty percent of the copyright to his songs was owned by his manager in perpetuity. The discovery came as a shock to Bowie and seemed to precipitate an emotional crisis. In 1997, when he was approached to securitize the copyright to his songs by David Pullman, an entertainment lawyer, Bowie immediately agreed.
To understand why this was such as revolutionary act at that time, consider the prevailing set of circumstances during the 1990s.
Things were looking good for artistes then. With rising sales of physical albums through most of the 1990s, their future looked secure. In fact, CD sales for 1997, the year in which Bowie bonds were released, were 504.6 million, and total sales for physical albums were 651.8 million. They were to peak at 730 million and 785 million respectively in 2000, a year after Napster, the file-sharing service that changed the game for the music industry, debuted in 1999.
What's more, during another interview with the New York Times in 2002, Bowie predicted that copyright would eventually no longer exist and that music would be commoditized, much like electricity and water. While copyright laws have not faded away, music certainly has become plentiful. The music industry's revenues have hemorrhaged over the years, and the industry is indeed struggling under the onslaught of technological forces beyond its control. (See also: Facing The Music: The Recording Industry's Power Struggle)
One could say that Bowie's genius lay in anticipating the music industry's fall before it actually came. However, Bowie bonds were simply the precursor for a much bigger trend that was to emerge in the U.S. economy later. According to Barclays, bonds backed by esoteric collateral such as intellectual copyright or future earnings from entertainment products are expected to generate $45 billion in sales in 2016.
Here is the the New York Times take on Bowie Bonds when they were offered to investors: "Mr. Bowie has opened what is envisioned as a market for asset-backed bonds, which derive value from payments on such things as home mortgages or car loans." Indeed, loans backed by home mortgages were a principal cause of the recent housing crisis, which would tip the U.S. economy into severe recession in the latter part of the previous decade.
Bowie's bonds, however, did no such thing.
When they were issued, the bonds helped Bowie earn $55 million immediately (as opposed to waiting for future royalties). That money helped the singer buy out his former manager's copyright on his songs and also to produce his next album and start a couple of new ventures related to technology. In doing so, Bowie turned out to be another precursor of sorts, heralding the advent both of technology and of the technology entrepreneur at the same time. Even though the bonds were relegated to near junk status in 2003 by Moody's Investor Service (which had initially assigned them an investment grade rating), the timelessness and popularity of Bowie's music helped sales, and the bonds did not default before their due date.
The Bottom Line
David Bowie was a musician, artist, performer, and creative force par excellence. However, he was also an excellent businessman who did not shy away from risks. Perhaps his greatest achievement lies in predicting a complex future, one which is being shaped by multiple technologies and entities that are rapidly changing and transforming themselves. It would have been difficult for other musicians to navigate or anticipate all these turns of events. But, then, David Bowie was not one of us.