Reclaiming Music: An Exploration of Music Securitization
The music industry has long been dominated by major labels acting as gatekeepers to success, often leaving artists with little control over their earnings and master recordings.[1] Some artists have turned to securitization to reclaim their music and gain financial independence. In this financial process, assets, such as music, are sold to a third party in exchange for cash, with the third party issuing bonds that are then sold to investors.[2]
One of the most notable examples is the sale of "Bowie Bonds" in 1997 by David Bowie. Bowie sold the royalty rights to his songs for $55 million, forfeiting ten years’ worth of royalties in exchange for a fixed annual return of 7.9%.[3] The bonds were backed by the recording royalties and publishing revenues from Bowie's pre-1990 catalog[4] and were purchased by Prudential Insurance Group.[5] As the transaction did not involve a public offering and since Prudential is an "accredited investor “and a "qualified institutional buyer," the security did not have to be registered with the SEC pursuant to section 4(2) of the 1933 Act nor did the transaction fall under both the Reg. D and Rule 144A exemptions to registration as well.[6] This allowed Bowie to raise money without giving up ownership of his music.[7]
Securities similar to Bowie Bonds have sprung up, and companies worldwide have set up marketplaces dedicated to creating Bowie Bond-like products. For example, ‘Royalty Exchange,’ a US based company, has sold bundled “packages” of royalty assets for fans and investors.[8] Outside of the United States, South Korea has also seen a boom in the securitization of music through a service called ‘Music Cow.’[9] In the case of Music Cow, the business buys a portion of the royalty rights from the artist and then sells a right to claim royalty fees (which, under Korean law is a separate right) through an auction and allows the investor to collect a portion of the fees monthly.[10] Recently, the Korean Securities and Futures Commission determined that Music Cow's sale of a right to claim royalty fees “fall under the Capital Markets Act as investment contract securities” and considered sanctioning them for failure to register; however, the government forgave the business for not registering as a security issuer “taking into account the fact that there was no damage to investors, that investors' expectations for business continuation were established, and because there was room to contribute to the cultural contents industry.”[11]
While music securitization raises new legal and business questions, it also presents a potentially promising development in the global music industry. As the market continues to mature and devise new technologies such as NFTs[12], artists can have more control over their work through various means and earn royalties without the constraints of major labels.[13] However, both buyers and artists need to be aware of the risks involved in this new system.[14] Nevertheless, it is a step towards the dream of artists wholly owning their work.
Joon-Sung Choe is a staff member of Fordham International Law Journal Volume XLVI.
[1] See Casey Newton, Is the music industry's future on the blockchain?, The Verge (Nov. 24, 2021), https://www.theverge.com/22800746/music-industry-royalties-blockchain-crypto-royal-paradigm.
[2] See Teresa N. Kerr, Bowie Bonding in the Music Biz: Will Music Royalty Securitization be the Key to the Gold for Music Industry Participants?, 7 UCLA Entertainment L. Rev. 369, 369–70 (2000).
[3] Kristelia García, Royalty Securitization, Jolt Digest (Oct. 23, 2017), https://jolt.law.harvard.edu/digest/royalty-securitization.
[4] See Id.
[5] See Samir Patel, If NFTs Rules The World: A New Wave Of Ownership, 2 Intl. J. Blockchain L. 19 (2022).
[6] See Id.
[7] See Tom Espiner, 'Bowie Bonds' - The Singer's Financial Innovation, BBC News (Jan. 11, 2016), https://www.bbc.com/news/business-35280945.
[8] See Id.
[9] See Frequently Asked Questions, Musicow, https://www.musicow.com/help/faq (last visited Dec. 1X, 20XX).
[10] Id.
[11] See Jiyoung Lee, Music Cow Can Issue Copyright Claims, Newsis (Nov. 30, 2022), https://sports.chosun.com/news/ntype.htm?id=202211300100231630030496&servicedate=20221130 (last visited Dec 13, 2022).
[12] See Jeff Link, How NFT Music is Transforming the Recording Industry, Built In (Aug. 9, 2022), https://builtin.com/blockchain/nft-music (last visited Dec 13, 2022).
[13] See García, supra note 3
[14] Gary Mann, NFTs Hit the Mainstream and Risk Follows, JD Supra (Oct. 28, 2022), https://www.jdsupra.com/legalnews/nfts-hit-the-mainstream-and-risk-follows-9151496/.
This is a student blog post and in no way represents the views of the Fordham International Law Journal.