When You Wish Upon A Star: Explaining the Cautious Growth of Royalty-Backed Securitization

Friday, January 1st, 1999 at 12:00 am by Lisa M. Fairfax
Lisa M. Fairfax, When You Wish Upon A Star: Explaining the Cautious Growth of Royalty-Backed Securitization, 1999 Colum. Bus. L. Rev. 441

In February of 1997, rock singer David Bowie introduced a new form of “securitization” when he converted his future royalties to be received from certain record sales into securities and sold those securities in a private offering for $55 million. While the securitization of David Bowie’s music royalties represented the first such transaction in the entertainment industry, it was only the latest form of assets being used in the field of securitization. Indeed, since its advent in the early 1970s, the practice of securitizing mortgages and other assets has been one of the fastest growing financing techniques. Although the modern form of securitization began with “mortgage-backed securities,” securitized transactions have expanded to include a variety of different assets. Mr. Bowie’s security offering not only illustrates this expansion, but suggests that other singers and copyright holders can take advantage of securitization. Securitization of music royalties can offer a variety of financing and economic opportunities to people in the music industry. The essential advantage of such a process is that it allows the company or individual issuing the security to raise money at a lower cost than conventional financing techniques. Securitization also increases the liquidity of a company while diversifying its funding options. Applying securitization to music royalties allows the entertainment industry to take advantage of these benefits. Unfortunately, replicating Mr. Bowie’s success throughout the music and entertainment world may prove more difficult than anticipated. This Article explores the benefits of royalty-based securitizations and identifies the potential drawbacks of such financing, particularly drawbacks caused by copyright concerns. The Article concludes by arguing that, while securitization of royalty payments from music can be beneficial, there are some impediments, particularly with respect to copyright issues, that must be overcome before this form of securitization can be utilized extensively throughout the music industry.

Author Information

A.B. 1992; J.D. 1995, Harvard University