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Securitization May Work Beyond Music Royalty Income Stream

By Sean F. Kane

A securitization is a process whereby an individual or entity pools the right to future payments that it is owed, and sells this right as a security. The first individual to capitalize on the concept of securitization of intellectual property (IP) assets was musician David Bowie. He issued a bond offering backed by his copyright royalties in 25 of his albums comprising approximately 250 songs. Although industry experts expected a flood of music rights securitizations following the launch of the “Bowie Bonds” in 1997, this did not come to pass. However, securitization as a concept is not limited to just music copyright royalties. Any IP right with a proven revenue stream could be used as the underlying asset in a securitization. Therefore, there is a huge potential for extending the concept of IP securitizations to other areas of the entertainment industry.

Securitization of IP rights can offer a variety of financing and economic opportunities. One of the major advantages is that it allows the issuer of the security to raise money at a much lower cost than that of other conventional means of financing. There are several other benefits of securitization of IP rights as well. Among these are an immediate tax-free infusion of capital, diversification of assets and the fact that the issuer regains ultimate control over the asset following expiration of the term of the issuance. In addition, a New York court recently ruled that how the Bowie Bonds were accomplished was not a protectible trade secret. (See Bowie Bonds Formula Not Protectible).

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