Bowie bonds fail to be hits

Investors who put money into "Bowie bonds" six years ago may not earn the fabulous returns they had hoped for.

In a groundbreaking £33million deal in 1997 the 56-year-old rock star effectively gave up future royalties on hits such as Jean Genie and Let's Dance in return for a huge advance payment.

Investors could buy and sell the bonds which promised an annual 7.9per cent return. It was thought other stars such as Elton John, George Michael and Sting might follow.

Now, as music sales have slumped worldwide, analysts at Moody's Investors Service in the US have warned that Bowie bonds could lose their A3 investment-grade credit rating. The main problem has been free downloading over the internet which has led to a sharp decline in recorded music sales. There have also been problems at the record company, EMI Group, which has a £18million deal to distribute Bowie.

When David Bowie's bonds went on sale it was the first time future pop music revenues had been secured in a financial deal and some bankers predicted a whole new market with big returns.

However, only James Brown and the Isley Brothers decided to follow suit. Part of the problem was that a relatively small number of artists own their copyright. Unusually for a pop star David Bowie already had a history of making wise investments when the bond issue was made.

The singer, whose albums include The Man Who Sold The World and Hunky Dory, has not recorded a hit since Let's Dance 20 years ago. But he was worth £70 million before the bond deal and possibly twice that now.

The key to the success of his bonds was his "back catalogue" of hits. Investors bought into the idea of a steady income from songs recorded decades ago.