David Pullman: 55 Million Dollar Man

DAVID PULLMAN: 55 MILLION DOLLAR MAN

Hot from a new seven-figure royalties deal --- this time for a single song, the Joan Jett hit I Love Rock 'n' Roll --- David Pullman hit England in September, spreading the gospel of securitisation with all the unshakable confidence of a true believer. "It's good for everyone," he told m﹎. "If you give $55 million to Bowie, there's more money in the coffers of record companies and publishers to pay emerging artists. It helps the business."

It was the David Bowie deal that brought Pullman to the industry's attention. Rolling together further income from writing, publishing and recording masters (all of which Bowie owned), Pullman raised some skeptical eyebrows: was there really that much income to come in a mature artist?

"The deal's actually performing well," argues Pullman, "and I know what the offers were from the majors for that catalogue and they offered a lot more, a lot more. The numbers were audited, the writers' share was, the record deal was, and part of the deal was that when we closed the deal of the $55 million dollars we set things up where you have plus or minus 10% reserve. We also structured that deal so it was 15 year self-liquidating and the overage was in the deal, trapped in it so the reserve would build up. It was very conservative, because David Bowie never wants to lose his catalogue --- that's why we were doing this deal. On the record side, we entered into a 30m dollar, 15-0year record license. We took a license over time because we were so confident in the performance because it was averaging a million units a year plus, so we went for a higher royalty rate. And at the same time, we had minimum guarantees from EMI in terms of how much they would pay per year. And everyone knows the publishing is worth more than the record side, because there's so many more sources of income."

But how secure is that income?" You can't make all the DJ's around the world play a Bowie song or an Holland-Dozier-Holland song, it happens naturally. Statistically it's not that much of a difference year to year or week to week, because they tend to pick the same songs. So with Bowie we looked 5, 10, 15, 20 years back, because some of the songs had that long a history. Like with Ziggy Stardust it's nearly 30 years later and we know, if it's still producing income 30 years later --- remember with most artists, 90% of the income comes in the first 6 months after release --- so if this song's producing this 30 years out, that's what it should do going forward."

"One of the things I looked at when I was doing this deal was, 'Why did Bowie do it? Why did he accept it right away?' He got it instantaneously, he didn't have to think about it. I just went over what I went over and he picked it up right away. And these guys got it because they're geniuses, they're brilliant guys, that's why they had all these hits. There's a parallel in terms of the creativities, in being able to pick up these concepts."

The Bowie deal was followed by a securitisation of the writers' share of Holland-Dozier-Holland catalogue. What Pullman is doing, in effect, is giving writers a bird in the hand --- typically 70-80% of their projected writer's royalties, up front. The lump sum is technically a loan, and not taxed. It seems too good to be true, and Pullman remembers a good deal of skepticism when he introduced this idea to Britain last year. Having spoken at In The City this September, he felt things were changing. "The way they've take it is a lot more seriously. A year and a half ago, it was like a deer in headlights --- they didn't know what happened, how to react --- I think in the UK the business is a little more conservative. The reception I had at In The City in Manchester tended to be a little more intellectual as opposed to just about the business side. But it's probably good for me that not a hundred people want to do these deals because I wouldn't be able to do them all."

In fact, he currently claims to be the only one doing authentic securitisation deals at all: "We have a 100% market share. At the time we did the deal, everyone said you're crazy and said it would never work. And then a few months later everyone jumped on the bandwagon and said it was a great idea. And then six months alter it was everyone else's idea. But the reason no one else has been able to do this is that we spent over a year on it, over a million dollars. It's a private placement and no one has access to the documents --- and even if they did there's a thousand pages."

"I started as a mortgage-backed securities trader when they were new, and then I traded home loans when they were new, I traded commercial mortgages when they were new, then asset-backed securitisation like health care receivers, auto loans, and I developed a market for it. If I'd announced it, they might've shot the deal down. I didn't do it that way, I just did the deal and then let people look at it. People said they had had the idea, but no one had the background in terms of trading and securitisation --- I also had done some film library work in the last couple of years so I combined all those disciplines."

"One of the reasons I also wanted to do it was that people said that publishing is a bankable business --- so if it's a bankable business I should be doing it, because Wall Street money is cheaper than publisher's money --- because a publisher, for example EMI or Polygram, is supposed to make 15-20% on its equity. So of course inherently that money is more expensive."

In an industry used to gloom and doom predictions, such optimism is unusual, even unsettling. "The benefits of music as opposed to other assets, like TV and film," Pullman explains, "is that in most cases 99% of those copyrights are owned by studios, whereas in music a lot of them are owned by independent publishers; at least half of it is owned by writers, because they at least get the writers share. And they still get record royalties if they don't own the record masters ---- so because you're actually getting use of the copyright you're getting an intangible that's actually increasing in value."

But doesn't all this depend on the increasingly threatened infrastructure of copyright and collection? "The collecting societies are getting better --- and the technology's only going to make it easier to get better, even if they're not better. Even if they're doing a horrible job, they're only going to get better by default because the technology'll there to help them. We want the royalties to go up and up, so anything which can be done to improve that mechanism to collect is better. And as the world gets more technological, it's going to be easier to collect. And also you have the big upside for publishing --- you have half the world's population doesn't pay for music yet. So it's only upside --- you have the former Soviet republics, you have India and you have China that don't pay, and they have half the world's population. It might take 5 years, 10 years, 20 years --- it doesn't matter, you're talking about copyrights which are life plus 70!"

The most crucial element to making these deals work is accurate valuation of the catalogues. Pullman agrees: "We use game theory when we price these deals ... we have our own funds, but we place our bonds with 250 investors and on any given day it's a different investor, so that works to our advantage. Basically the idea of game theory is that if you have a choice of 20 different publishers to administrate you get the best possible administration at the lowest possible fee. Based on game theory, you're going to find the best publisher --- it's natural selection." Classical free-market economics: but does it always work like that? Pullman thinks it does: "The most amazing example in the US of game theory is the difference between ASCAP and BMI. These guys are so hotly competitive, being only two ---- except for SESAC being one-tenth in size --- that you would think these guys would co-operate. But because there's two they're always hotly competing and that actually benefits the members." After a moment, he adds, "To a degree."

But Pullman maintains he is not always after big numbers. What he's interested in is steady sellers with a future --- catalogue. "The economics have changed. The society we're living in is a block-buster society: people want a block-bluster movie, they want a block-buster record --- look at Alanis Morissette, 25 million units of the first album, look at the Spice Girls. That hurts people that are consistent sellers, that don't do the heavy volumes. So if you walk in there and you're only selling 100,000 units a year consistently then you're not going to be a big seller going forward, there's no incentive for them to give you the big advance. It's not that they don't like you, it's not an artistic decision, is just that they're shooting for a different kind of economics."

Then why not finance deals for newer artists, too? "Yes, that's where I was going with some of the artists that have had success in the last 5 years who are renegotiating their contracts. We're looking at deals where we're actually going to finance the record contract and the publishing contract so that they can get a higher royalty rate and not take an advance from the record company. The whole industry is permeated with a conflict of interest, because what happens is in many cases you have transaction attorneys that will receive a percentage of the advance, and because of that all they do is go back every few years for an advance and the economics behind the deals don't work, because the artists never see any more money, they never recoup. Now we have artists that are six albums out so they become like an indentured serf, because of the fact that got all the money up front, they paid 50% taxes on it --- on my deals, they don't pay tax --- and they've already spent the money and now they see themselves so tied up in this deal they won't be able to come out, and then it hurts them artistically."

This has been the last of fifteen meetings in one day; Pullman is ready for his evening run round Hyde Park. "What I'm doing in securisations is a penny business," he says, as we say goodbye. "It's pennies from a radio station, pennies from a TV station in Australia, and it all adds up." So far, anyway, it seems to.