Industry Vets James Diener and Howard Lipson Launch Alignment Artists Capital, Backed By BlackRock

Courtesy of Alignment Artist Capital
James Diener and Howard Lipson

Alignment Artist Capital, a newly launched company created by music industry veterans and backed by the Alternative Investors arm of blue chip firm BlackRock, has announced its launch. The new concern aims to provide artists and songwriters with an alternative option for significant career financing.

James Diener, founder of Octone Records, and Howard Lipson -- who helped him finance that label and remained involved right up to the label's sale to Universal Music Group -- have launched AAC, which plans to make available funding of $5 million to 20 million for to artists and songwriters seeking sources of money apart from the typical advances provided by record labels, publishers or merchandising companies -- or loans from banks. In exchange, Alignment Artist Capital will be paid back a percentage of the artist's income streams.

Diener and Lipson say they are sensitive to the fact that artists and songwriters have a rapidly growing interest in owning their publishing and recorded masters. In response, Diener and Lipson looked to create a vehicle that would not use artists' assets as a semi-perpetual collateral which can be seized if the funds provided to the artist are not paid back in time and in full. To that end, Alignment Artist Capital will come in the form a structured investment vehicle that has some characteristics of a loan, however if the lender is not meeting the payback schedule, the length of the loan is protracted, rather than any assets being seized.

As mentioned, Alignment Artist Capital has secured backing from BlackRock Alternative Investors, a firm with $120 billion in assets which looks seeks to invest in properties which behave differently -- such as wind farms and solar energy, hedge funds, derivative contracts, oil and gas royalties, private equity, precious metals -- than the stock and bond markets, something that Alignment Artist Capital appears to offer the blue chip firm. This is the first entertainment move that the Alternative Investors arm of BlackRock has taken.

"With Alignment, we wanted to reduce the friction in the process and provide financing that takes a holistic view of an artist’s career and the overall music business," Lipson said in a statement. "We’ll be investing in artists we believe in within a time horizon that provides a good runway for the creative process and a philosophy that will reap solid returns.”

In addition to his involvement in Octone, Lipson was also a partner and member of the investment committee at Blackstone, served as managing director at the Pilot Group, a media-oriented private equity firm started by iHeartMedia chairman and CEO Bob Pittman, and helped advise and raise financing for the Sony-led consortium that acquired EMI Music Publishing for $2.2 billion. In addition, Katherine Chen has joined Alignment Artist Capital as Chief Investment Officer from The Pilot Group, with previous positions at Moelis & Company and Bank of America Merrill Lynch. Diener and former Octone executive vp Ben Berkman also recently started Freesolo, a hybrid label, publishing and management company.

Looking ahead to its first two years, Alignment Artist Capital will aim to make an initial outlay of $80 million to $100 million in financing to artists, according to sources. The two principals say they expect to be able to handle three to four deals a quarter. The Alignment Artists Capital principles say they have designed their vehicle, so it will have a quick turnaround for artists seeking funding.

A key concern that artist managers and business managers will have with these arrangements is at what price the funding will be provided; in today's low-interest environment, bank loans may provide a lower long-term cost, but those also come with a collateral kicker, meaning artists can potentially lose their assets if their loans don't perform. Since Alignment Artist Capital funding won't be collateralized, it will come with pricing expected to carry percentage interest payments of 10-15 percent, say executives familiar with the offering.

One prominent artist manager says that the funding Alignment Artist Capital will provide could be attractive to artists and songwriters, with a caveat that the cost could a deciding factor on whether to do a deal. Alignment Artist Capital will use stringent underwriting measures to determine whether an artist can pay back the money the company would loan. What the artist chooses to use the funding for is entirely up to them.

"The funding can be used to finance a new business they may choose to invest in, or artists could use it to fund their own lifestyle needs," Lipson tells Billboard. "Even artists get hit with surprises or extraordinary circumstances where this type of funding could prove handy."

Alignment Artist Capital imposes no conditions on the funding. "There is no obligation to tour or issue records," Lipson says. "Eventually the artist will do what's in their own best interest -- which will be in our best interests."

Diener says he foresees three categories of artist who may want to apply for funding from Alignment Artist Capital. It could be an artist that suddenly connects big, like Lorde; an established artist with a strong handful of albums under their belt and a successful touring business; or heritage and legacy artists.

"If an heir [of a legacy artist] wants to run the estate but the other wants to sell and leave, this is a way for both to get what they want," Diener says; AAC could provide a means for one heir to buy out the stake of another.

If an artist decides that being with a label is no longer the way to go, Alignment Artist Capital can provide funding for the artist to strike out on their own. Conversely, if artists want to stay with their labels, but want be unentangled in label required deal add-ons when seeking an advance, Alignment Artist Capital is also an option to consider.

"This type of financing could be useful for artists looking to do things on their own or considering branching out into other areas,” say Ken Levitan,  the founder and co-president of Vector Management, which manages artists like Kings Of Leon and T-Bone Burnett.  “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.”

 Ultimately, "this financing product is designed for the artist and songwriter and is meant to democratize and emancipate the artist," Diener says.