One of the most interesting things in the world of finance and publishing that I've seen over the past 20 years was David Bowie's decision to issue Bowie Bonds. Basically, what David Bowie did was borrow 55 million USD from investors to be paid back over approximately 10 years at an annual interest rate of 7.9%. Collateral for the bonds was royalties from Bowie's 25 albums; meaning if Bowie was unable to pay back the borrowed funds, the creditors who lent the money would gain his royalty rights.

For Bowie, this ended up being a great financial deal. For the suckers I mean investors who bought Bowie Bonds, well, not so much. Consider:

1. Since Bowie Bonds were issued in 1990, the value of the US dollar has gone in one direction: down. So creditors are being paid back with a currency that is worth less (i.e. 55 million USD in 1990 bought you more than 55 million USD now). That's good for Bowie, not so good for those who bought the bonds he issued.

2. The value of the collateral asset, Bowie's royalty rights, has fallen sharply in value over this time, due to piracy and the fact that royalties are not worth as much as they once were. This decreases the penalty on Bowie if he chooses not to repay, and also makes it harder for bond owners to sell their bonds to others. Unsurprisingly, the bonds have been downgraded to just about junk status.

Finance deals are supposed to be win-win, which this deal clearly is not. But it is a step in the right direction. Here's some thoughts on where we go from here:

1. As has been noted by others, such as TechCrunch, the future of publishing rights is in 360 deals; in other words, allowing marketers/publishing firms to get a piece of all revenue, rather than just a piece of royalties from sales of copyrighted goods. (While TechCrunch did get this right they are still supremely lame and a prime example of irresponsible journalism. For more on this, see my song for TechCrunch founder Mikey Arrington, which I co-wrote with John Lennon).

2. With 360 deals, though, the underlying asset -- the publisher's brand -- is not really transferable. For instance, an esteemed author like Stephen King cannot sell his name to someone else and expect that the loyalty, credibility, and passionate fan base he has earned will be transferred as well. As a result, debt-based securities -- i.e. bonds -- are needed, as debt can be bought and sold in financial markets.

3. But if publishing rights are becoming worthless and brand identity is not really transferable, what is the underlying asset for these proposed debt securities? As radical as it may sound, I think one option is that publishers build their own community, complete with their own virtual currency, and issue bonds denominated in this virtual currency (and just like there is a free market that establishes an exchange rate for Linden dollars and US dollars, there will be virtual financial markets that establish exchange rates for virtual currencies and legal tender). This would be akin to Treasury bonds. There is no risk of default in Treasury bonds, as the Federal Reserve can simply print more money if they are ever unable to pay back the money they have borrowed (and the Fed recently has begun printing money and will likely continue to do so -- something we've discussed quite regularly and which I expect to have enormous, world-changing consequences as it will devalue the US dollar substantially). Likewise, in the future, when publishers have their own virtual world/virtual game, complete with their own virtual currency, I think they will be able to raise money by selling bonds denominated in their own virtual currency; there will be no risk of default as more virtual currency can always be created, but there will be a risk of inflation/currency devaluation if the publisher is forced to continually print more virtual currency.

I'm sure to many these ideas seem obtuse, unrealistic, and stupid. Perhaps they are. In any event, we will likely try something like this on my trading site. I think it is where we see the intersection of all the major revolutions we're in the midst of: publishing, finance, and economics. Once you change those three, you'll end up changing just about everything else.

The song for the post is "Change the World," which was popularized by Eric Clapton, though it was written and recorded by others first. Because this is how we change the world!