Why This New Form of Funding Has the Music Industry Amped Up

As CEO and president of A&M/Octone Records -- home to such acts as Maroon 5 and Flyleaf -- James Diener had a front-row seat to the habits of music creators, specifically the monetary shenanigans and squeezes that could derail their careers. After selling Octone two years ago, Diener decided to do something about those problems, coming up with a financing idea that would offer minimal risk to artists.

Diener and his partner, financier Howard Lipson, launched New York-based Alignment Artist Capital in April. Backed by investment colossus BlackRock, AAC provides structured capital (from $5 million to $20 million) to music artists, songwriters and producers. In return, it takes 15 to 20 percent of adjusted gross income from the artist's core revenue streams: record sales, touring, publishing and licensing -- over a four- to five-year period. "We earn when they earn, and we don't earn when they don't earn," Diener says. "We take a calculated risk that during the four- to five-year period, they're going to earn enough that our negotiated percentage will not only pay back our principal, but there will be enough profit in there for us."