Intellectual Property in the creative enterprises
(The interview can be also found under the Interviews>Intellectual Property page)
Following the previous publishing of an article about MyCreative Ventures in Malaysia, “a government investment arm for Malaysian creative industry”, as CEO Johan Ishak mentions on his LinkedIn profile, I had the opportunity to have a brief interview with him.
I first wanted to know why the Malaysian government decided in 2012 to allocate RM200 million to the Malaysian creative industry via MyCreative Ventures. J. Ishak explained that “the creative industry in Malaysia only contributes about 1.3% of the gross domestic product. It is very low” he said. “Malaysia traditionally relies on oil & gas, electronics and plantation for its economy. However, in the efforts to reduce that dependency, a secondary level of economic commodity should be nourished to cushion any economic downturn that affects the primary economic dependencies mentioned earlier.”
Since the economic crisis hit many countries, several governments have started paying ‘attention’ to the creative economy. I asked him, how did the Malaysian government conclude that the country’s creative industry was significant to the national economy.
He explained that “Malaysia has thousands of years of culture and art and this is not being monetized as well as some other countries like Korea, Indonesia, Canada, Japan. These other countries have at least 5% to 7% of creative industry contribution to their overall economy.”
In my first article about MyCreative in this blog, what had caught my attention was the notion of recognizing Intellectual Property (IP) as loan collateral for funding creative entrepreneurs. So I asked J. Ishak to explain in simple non-finance words what is “strategic and innovative funding in a form of equity or debt investments”. “We do not give out grants” he said. “We only give business loans in term loan format or revolving credits. We also invest via equity in preference shares format. Our investee companies or our clients who borrow money from us need to meet key criteria.” These criteria he said are
– Malaysian incorporated company
– At least 51% owned by Malaysians and
– Running business in the areas of creative elements such as visual arts, performing arts, music, literature, content creation (TV, film, games), fashion & design and traditional & cultural arts.
I further asked for some examples of companies having received MyCreative’s support. J. Ishak mentioned
1. Fashion designer “Melinda Looi”
2. Games developer “Accurve”
3. Art gallery “Art Cube”
4. Film producer “Dragon Slate”
5. Theatre production management “Mypaa” and
6. Fashion designer “Khoon Hooi”.
Finally, my questions were towards the Intellectual Property (IP) issue which, to many creative professionals seems difficult to deal with. Very often, artists fail to understand its value, let alone its commercial attributes. I asked Johan Ishak how does MyCreative recognize IP as loan collateral? He said that “we require them [creative companies] to register their IP with the relevant authorities (in Malaysia it is MYIPO).”
At this point, it is valuable to mention that in 2006, the World Intellectual Property Organisation (WIPO), a UN Agency, published a very interesting Booklet entitled “Managing Creative Enterprises”. It is a very useful guide when talking about IP and the value of creative works. The document can be found here and it gives great insight in managing IP in Creative Enterprises.
In trying to understand better the role of IP Valuers, I asked J. Ishak what is their role for the creative industries in placing a monetary value to the IP assets concerned? He said that “at this juncture for MyCreative, we do not need valuers for IP as we will look at the business as a whole to see whether the cash flow model is adequate to sustain recoveries of our loans or investments. The Valuers are mainly for the existing commercial banks to work out how much the IP value is so that they can figure out how much of the loans to be given can be secured with the collateralisation of those IP.”
That made very clear the distinction between a traditional bank lending money and MyCreative’s overall assessment of the financial status of a creative enterprise. So, I asked for some examples of an artist’s IP that has been valued as loan collateral in Malaysia or elsewhere. J. Ishak explained that “so far, no valuation has been done for creative industry IP in Malaysia yet. It had just begun.” He said that “[…] this is still progressing because the only financiers in Malaysia that take IP as collateral are MyCreative and Malaysian Debt Ventures under their IP financing fund.” He didn’t know of any other example other than in Malaysia and he said that “perhaps the most famous one that is close to this concept of IP collateralisation, would be the singer David Bowie who issued bonds to raise money from the public. The bond is back to back to his IP assets.”
Looking into this case, I found out that “the Bowie Bonds, as they were named, are asset-backed securities of current and future revenues of the first 25 albums (287 songs) of David Bowie’s collection recorded before 1990. The bonds were issued by David Bowie in 1997, and were bought for $55 million by the Prudential Insurance Company. The 287 included songs also acted as collateral to insure the bond. The Bonds were a ten-year issue, after which the royalties of the songs would return to David Bowie.
By forfeiting ten years worth of royalties, Bowie was able to receive $55 million up front, which allowed him to buy out the rights to the David Bowie songs owned by a former manager. David Bowie now owns the rights to every one of his songs.
The Bowie Bond issuance was perhaps the first instance of intellectual property rights securitization. The securitization of the collections of other artists, such as James Brown, Ashford & Simpson and the Isley Brothers, later followed.” (Source)