“We believe this is the single largest amount of money raised and earmarked directly for the content creators,” says James Diener, who set up Alignment Artist Capital with cofounder Howard Lipson after the duo formed Octone Records in 2000. The label launched the careers of multi-platinum rockers Maroon 5 and rapper K’naan, working on an “upstream” model where they secured their artists further major label marketing and promotion.
“We have access to an amount of capital that is not only outside what the average person in the industry may have access to but is an amount that could scale well beyond that,” said Howard Lipson, cofounder of Alignment Artist Capital, who worked at Blackstone for 17 years prior to helping fund Octone Records, which eventually sold its stake to Universal Music Group in 2013.
James Diener, cofounder of Alignment Artist Capital
Alignment will not dictate what the money be put towards, but foresees the cash being used to grow existing artist’s income, like a country star looking to expand his brand into his own liquor (as Toby Kieth did with mezcal). Lipson and Diener emphasize the money from BlackRock’s Alternative Investors accounts is not a loan but a mezzanine-like investment that will see a return of, say, 10-15% in three to six years. The incentive for BlackRock and their clients is that these investments are entirely uncorrelated to the stock market. It is the investment company’s first move in the entertainment industry.
“[BlackRock] is the world’s largest asset manager with over $110 billion in managed accounts in the alternative space,” Lipson noted. “The holy grail is looking for investments where returns do not correspond to the stock market.”
Alignment is seeking established artists who have an ability to generate sizeable revenue and have projectable revenue streams based on their track record. One example would be an artist who has been around for four years but just had his breakthrough platinum album – say, Kendrick Lamar post-Good Kid, M.A.A.D City. Such an artist has predictable revenue from their recent hits which will be played on the radio and used in commercials, but more importantly they will be touring off that, Lipson notes.
“The holy grail is looking for investments where returns do not correspond to the stock market,” says Alignment Artist Capital cofounder Howard Lipson.
Alignment anticipate target artists to be acts with five or six albums who may have already reached their peak but maintain a solid fanbase – a band like Kings of Leon, for example. “They have a large number of copyrights and will still book touring dates again even if they go on to a gradual decline,” Diener said, referring to a hypothetical group.
Indeed, a surprising number of the artists on Forbes’ Highest-Paid Musicians list are in their career’s twilight years but make bank on the road: The Eagles clocked $100 million in our scoring time frame last year from touring, while Bon Jovi notched $82 million and Bruce Springsteen tallied $81 million.
Lipson and Diener could even provide investments for artist estates of those who have since died but whose masters are still valuable. Our macabre ranking of the Top-Earning Dead Celebrities includes musicians like Michael Jackson, Elvis Presley and Bob Marley, who all bring in multi-million dollar annual hauls beyond the grave because their records continue to sell and be played worldwide.
“Plenty of people come along and buy assets and others do conventional loans,” notes Lipson. “But there’s no one looking at it as a business underwriting the risks and give you a structured investment, saying the better you do, the better we do.”
To think of musicians in financial terms, an emerging artist with a local following but no hits who is likely operating at a loss requires venture capital to buy into her early-stage, high-growth potential. At the other end of the spectrum are superstar artists who have no need for capital and are already financed by several successful deals. Alignment is targeting the middle ground.
“It’s not venture capital and it’s not a U.S. treasury bond,” Lipson explained. “There’s no interest rate being charged, and the rate of return is dependent on performance to projection.”
Unlike a label, Alignment are not giving artists money in return for creative say in their output, nor are they giving money and requiring the artist to eventually pay them back, as some record deals dictate. Their company name comes from Alignment’s overwrought emphasis that it is not trying to replace labels but rather can be complementary to the existing industry structure.
“This type of financing could be useful for artists looking to do things on their own or considering branching out into other areas,” Ken Levitan, the founder and co-president of Vector Management, which manages artists like Kings Of Leon and T-Bone Burnett, told Billboard. “It can also be attractive to artists signed to labels. As labels have gotten tighter with their spending, you may want to tap into outside recourses to build and diversify your brand.”
The company has yet to make any investments, but there is no limit to how many artists they can finance, says Lipson: “We can fund as many investments as we can source, as long as it makes sense.”