David Bowie Bonds Reinvented on Blockchain
“Tomorrow belongs to those who can hear it coming”
― David Bowie
The music industry will forever be grateful for having David Bowie — cultural phenomenon, icon, and pioneer. While he is known as a cult icon of pop and rock and roll, the investing world also recognizes Bowie as an innovator in the field of finance and technology.
No, we’re not referring to his film role as Tesla, nor his internet/marketing company UltraStar that accounted for 300,000 downloads of his singles. We’re talking about his other legacy, the David Bowie Bonds, which has made a mark on how people can create a revenue stream by investing in music.
The Music Industry: Under Pressure
David Bowie sold 140 million albums since his first release and his net worth at the time of his death is about $230 million. However, it doesn’t mean that this millionaire celebrity is immune from the woes of most musicians who have little influence on where their music would be played and how much revenue they can make out of their songs.
Here’s how Bowie’s career is like in the 90s — he has 25 years’ worth of music in his catalogue, but some of his records have 50% of the royalties locked in with his former manager, Tony DeFries, whom he had split with in 1975. DeFries is to own half of his back catalogue’s revenue in perpetuity. This means losing half of every royalty to an entity that no longer contributes to his career.
While most artists would hope to depend on their royalties in order to make a living, confusing legal jargon coupled with desperate measures tend to leave musicians with the smaller share on their own creations. For example, artists may assign copyright in the sound recordings to a recording company in exchange for “leasing” their services for recording and distribution of their music. In rare instances, an artist can obtain a reversion of this copyright clause, which will allow him or her to own the masters of their own songs in the future.
How rare is it that an artist can have a positive release commitment? For a person that is David Bowie, he needed to pay his former manager more than $27 million in order to have sole ownership of his masters.
Bowie Bonds: a Moonage Daydream?
David Bowie, together with the Pullman Group and Bill Zysblat, had a revolutionary solution for his copyright dilemma: in order to win back his masters, he issued bonds using his future royalties as a collateral, with a 7.9% fixed annual return. He struck a deal with EMI records that allowed him to package his back catalogue and sell bonds that will be backed by his royalties for 25 albums that he released from 1969 to 1990. Those albums would include his best hits of the previous two decades Heroes, Ziggy Stardust, and Heroes. Bowie Bonds managed to raise $55 million for his 10-year bond, which was bought by Prudential Insurance Company.
Moody’s gave the Bowie Bonds the investment grade rating (AAA), which also means that this type of investment has almost zero chance of default. It is also very attractive to investors as the bonds were 132 basis points better than the 1997 10 Year Treasury Yield of 6.58%. Bowie’s 25 records also have the ability to sell 1 million units in a year during the time, and with the record sales hitting their all-time high in 1999, the timing for the bonds was perfect.
All investments have risks, and what the Bowie Bonds was not able to foresee is the coming of the digital era wherein the record sales would plummet due to copyright infringement and low payouts for digital music consumption. Bowie managed to cash out in 2003, just in time before the streaming industry started becoming mainstream and start cannibalizing revenues. By 2004, records are no longer profitable and soon Moody’s would change its mood and label Bowie Bonds as a notch above junk.
Does this mean that the Bowie Bonds is a flawed concept? It is what it is — it made room for the future while considering the current dilemmas of a musical artist during that time. While the music format is different today, the use of this concept is still very applicable.
The Birth of the New Sound Money
Aptly made popular as the Bowie Bonds, this deal was laid out in 1997 and gave a new meaning to the term sound money, which is used to refer to anything that has an intrinsic value and is usually backed by a physical commodity (such as gold or platinum), but has a volatile value compared to fiat money. The Bowie Bonds made it possible for something intangible to back an investor’s money — something that was completely unheard of during that time.
The possible volatility did not stop other musical giants from launching their own “bonds” with the Pullman Group or a different entity. James Brown, Iggy Pop, Iron Maiden, Marvin Gaye are only some of the artists that chose to issue bonds backed by their future royalties, allowing them to enjoy upfront profit while providing incentives to their investors.
This type of investment has laid out the groundwork and the testing ground for making copyright a security. David Bowie, more than a decade before the birth of blockchain, has created a form of tokenization for his works and allowed his fans, curators, agents, and collectors to invest in his art and get something in return. This also shows that music listeners know that there is great value in owning a piece of Bowie, and that’s not necessarily a memorabilia to hang on the wall. With a bond that has a face value of $1000, this means a lot — people believe in the value that Bowie has as an artist, and that value is reflected in his bonded catalogue.
Taking a closer look, the Bowie Bonds have the same volatility as crypto assets of this time. As they are backed by audience reception of Bowie’s records, the success of the Bowie Bonds all depended on Bowie’s track record as an artist, as evidenced in his music catalogue. However, since this runs on the traditional investment system, volatility and depreciation would force the entire model to cannibalize itself. Should the sales plummet, investors would have to absorb the risk and the debtor would have to risk offering higher interest rates in order to attract additional investors. Once deflation hits, the entire model falls apart with no winners in the end.
The current landscape in the business makes it challenging to invest because of relatively low payouts from streaming platforms, intermediary costs, and unaccounted revenue streams. Since the birth of P2P file sharing that gave rise to piracy, tracking consumption has become an accounting nightmare, which turned copyright into an unreliable source of income for musicians. However, blockchain technology can provide a solution for these transparency and inefficiency issues.
Inmusik: Bowie Bonds ver. 2.0
Tokenizing music in order to allow musicians to have better control of their content and their revenue is one of the major reasons why several music blockchain projects have emerged. This solves one problem that Bowie experienced: lack of ownership of copyright or lack of metadata, which leads to the inability to monitor and control where royalties should be coming from.
Blockchain allows musicians to have a transparent record of which songs are uploaded online, where their songs are played, how much money their tracks have earned, and where the royalty payments go. This is very crucial to all musicians where song usage and performance is key to earning their royalties.
Blockchain also proves to be the perfect platform for musicians to create their own type of security-backed asset based on future revenues due to its ability to record all transactions that happen within an application that runs on it. A hit song nowadays can turn into multiple sources of revenue for an artist, and once they are accounted for, it becomes a worthy asset ripe for investment. As blockchain is a tamper-proof technology, everyone that expects a payout (whether they are investors, musicians, or labels) enjoys inherent trust.
Inmusik is one of the upcoming streaming platforms that leverages smart contracts on a blockchain in order to provide two key services:
• Create a transparent, automatic, and fair payout service for artists and labels that upload their recordings on the platform.
• Allow its users to earn as investors and marketers and have a share of the revenues created by their supported tracks.
However, the economic system on Inmusik doesn’t entail a huge buy-in for a single artist, compared to celebrity bonds like Bowie’s. Inmusik subscribers can invest as little or as huge as they want using their $ound token, which they can purchase from the Inmusik site, get from their monthly subscription, or from the outside market. Investor earnings are based on the size and time of their investment, which provides a bigger ROI for those who invest early or bet more tokens.
A single $ound is priced at $0.10 (as of this writing) as a pre-crowdsale offering, but its value can increase as the demand for it improves in the future.
To prevent payout amounts from fluctuating due to the volatility of cryptocurrencies, Inmusik issues a different token, pegged to the US dollar, for cashing out. Called the Inmusik Cash (IC) token, its value will always be $0.01.
Loving The Alien: A Place for Bowie Bonds in the Future?
It is a concept that has space for continuous improvement in order to work with the changing landscapes of the music industry. In the digital age, we have the streaming technology now, when before we have downloads and P2P sharing. It is not impossible for the scene to start changing again.
Blockchain paves the way for a community-centric economy where musicians can thrive as listeners put value in the tracks that they listen to. We might just see a Bowie Bond comeback — not as an expensive bond, but in a token economy that will thrive in the Inmusik project.
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