MBW Explains is a series of analytical features in which we explore the context behind major music industry talking points – and suggest what might happen next.
What’s happened?
The on-again, off-again sale of US-headquartered performing rights organization BMI appears to be on again, and this time around, songwriters are asking pointed questions about what BMI’s sale could mean for their royalties.
BMI, the largest music rights collection organization in the US by turnover, has put itself up for sale for the second time in less than a year, and just 10 months after it announced it was switching from operating as a non-profit to being a for-profit business.
MBW has heard rumors from senior music biz figures that BMI has explored talks with a number of potential backers/suitors, with the latest name on the lips of the business being New Mountain Capital, an NYC-headquartered private equity firm with aggregate assets under management of over USD $40 billion.
One senior music publishing source told MBW that New Mountain Capital had recently begun a due diligence process on BMI. (MBW has contacted spokespeople for both NMC and BMI for comment.)
New Mountain Capital has one existing link to music: the firm is an investor in Citrin Cooperman, which last year acquired Massarsky Consulting, one of the predominant valuation companies working in music rights.
BMI’s recent moves have some songwriters’ groups wondering what these changes – arguably the largest in the 84-year history of the org – could mean for the royalties that the body pays songwriters and publishers.
In a letter to BMI CEO Mike O’Neill sent last Thursday (August 17), obtained by MBW, the Artist Rights Alliance, the Black Music Action Coalition, the Music Artists Coalition, Songwriters of North America and SAG-AFTRA stated:
“Songwriters have a vested interest in changes at BMI and in any proposed transaction which is wholly dependent on songs they have written… BMI does not own copyrights or other assets; it is a licensing entity for copyrights owned by songwriters and, by extension, publishers.
“Songwriters have a right to understand these decisions and how it impacts us.”
“BMI does not own copyrights or other assets; it is a licensing entity for copyrights owned by songwriters and, by extension, publishers.”
Songwriter group’s letter to BMI, August 17
BMI is currently owned by a consortium of radio and TV broadcasters; that, in itself, makes for a complex dynamic, as BMI’s owners are often the very same broadcasters who pay the royalties collected by BMI.
However, the company’s conversion to a for-profit model, and reports that it is looking to sell itself to a private equity company, make this dynamic even more complex.
“If BMI sells, will writers or composers receive part of the sale proceeds?” the songwriters groups’ letter asks.
“Will the broadcasters on BMI’s Board receive the sale proceeds? If so, why should broadcasters be the biggest beneficiary from a sale of a company whose only asset is songs that belong to songwriters?”
The letter goes on to ask: “If broadcasters benefit from the sale of BMI, aren’t they essentially receiving a rebate on the licensing fees they’ve paid? In other words, they got to play songs for free?”
The impact of a change to BMI’s business model could be profound for the US music business.
For the fiscal year ending June 30, 2022, BMI reported that it had 1.3 million affiliates – that is, it collected royalties on behalf of that many rightsholders.
The company distributed a record USD $1.471 billion in royalties that fiscal year, a10% YoY increase, on revenues of $1.573 billion, which were up 16% YoY.
By comparison, BMI’s principal rival, ASCAP, collected $1.335 billion in calendar 2021. Between the two of them, BMI and ASCAP account for some 90% of the US music licensing market.
The songwriters’ letter (which you can read in full at the end of this report) goes on to pose a number of tough questions about the impact of BMI’s potential sale to PE – and whether it will end up reducing the potential earnings of composers.
One such question from the letter:
Private equity companies have aggressive return-on-investment goals. Since BMI is for-profit, private equity owners will demand increased profits to meet their expectations. How can writers and composers be assured that private equity owners of BMI won’t drive more profits for themselves at the expense of songwriters?
It’s a query that music publishers may also be asking out loud.
“Why should broadcasters be the biggest beneficiary from a sale of a company whose only asset is songs that belong to songwriters?… If broadcasters benefit from the sale of BMI, aren’t they essentially receiving a rebate on the licensing fees they’ve paid? In other words, they got to play songs for free?”
Songwriters’ advocacy groups, in a letter to BMI
In a specific response to news of BMI’s plans to go private, and rumors of its impending sale, Jody Gerson, CEO & Chair of Universal Music Publishing Group, told MBW in the past few days:“We don’t comment on rumor or speculation, but to be very clear, we will only support changes that increase value for songwriters and will not stand for any that result in our songwriters being paid less than what they deserve.
“We have a long history of successfully fighting for our songwriters and will continue to do so.”
Gerson clearly isn’t saying the quiet part out loud; indeed, she’s been careful not to even mention BMI by name.
But there’s no mistaking the meaning behind this phrasing from Gerson in the context of BMI’s for-profit move, and potential sale: “[UMPG] will not stand for any that result in our songwriters being paid less than what they deserve.”
“[To] be very clear, we will only support changes that increase value for songwriters and will not stand for any that result in our songwriters being paid less than what they deserve. We have a long history of successfully fighting for our songwriters and will continue to do so.”
Jody Gerson, Universal Music Publishing Group
In this instance, the interests of songwriters and music publishers appear perfectly aligned… and it seems that both groups are growing uncertain about aspects of BMI’s moves.
Other pertinent questions raised in the songwriters’ letter to BMI are based on the suggestion that the org recently booked a USD $135 million annual profit.
(Such an annual profit, obviously enough, would be prospectively helpful to BMI’s owners during an acquisition process, as would-be buyers could apply a multiple to this figure in order to calculate a bid price.)
Here are a selected few other powerful questions asked of BMI in the songwriter group’s letter:
If BMI sells, will publishers receive part of the sale proceeds?
If BMI were to sell who else would receive a share of the sale proceeds?
[W]hy should broadcasters be the biggest beneficiary from a sale of a company whose only asset is songs that belong to songwriters?
Can BMI assure writers and composers that BMI’s profit margin will not exceed what BMI currently charges writers and composers as overhead?
We have concerns that increased profits for a private equity owner could come from lowering distribution rates or decreasing distributions by driving writers away from BMI. Can you assure songwriters that neither of these things will happen?
BMI CEO Mike O’Neill has in the past week penned his own letter in response to the songwriters’ questions, which BMI has shared with MBW.
O’Neill seeks to reassure songwriters that his company’s move to a for-profit model, and any potential sale, would ultimately be to the benefit of music rightsholders.
“There is no BMI without songwriters, and no one knows this better than us,” O’Neill writes. “Our mission has been, and always will be, to support our songwriters, composers and publishers and grow the value of their music.
“[O]ur move to for-profit was so we could invest in our company to ensure our continued success and growth for the future, while also increasing our distributions. And the first three distributions under our new model all exceeded previous years, with two being the largest in our company’s history. Our responsibility is to continue that trajectory on behalf of our affiliates.”
O’Neill adds that BMI needs to “continue to invest in our business and explore new avenues for revenue generation so we can continue to expand our distribution sources.”
In the case of a sale, BMI “would ensure that any partner embraces our mission of prioritizing the interests of songwriters, including their financial success,” O’Neill comments.
(You can read the songwriters’ letter to BMI, and O’Neill’s full response, at the bottom of this article.)
What’s the context?
BMI’s executive board first attempted a sale of the company in mid-2022, enlisting Goldman Sachs as an adviser, but news reports indicated they resigned from the effort after failing to secure bids in the price range they were looking for.
According to Bloomberg, BMI execs had hoped to sell the company for at least $1.5 billion, with some potential buyers being quoted a price tag of $2 billion or even $3 billion.
Two months after the unsuccessful sale attempt, BMI’s O’Neill announced the company was switching to a for-profit model, marking the first time since the company’s founding in 1939 that it would be operating for the sake of a net income.
The move “will open up new and important opportunities for us to invest in our business”, O’Neill said in a note published to BMI’s website last October.
“Simply put, growth for BMI means growth for our affiliates. And most importantly, our goal is to continue to increase our royalty distributions at an even greater rate than we have before.”
“In your letter, you raise a series of questions should a sale of BMI occur. In such a situation, we would ensure that any partner embraces our mission of prioritizing the interests of songwriters, including their financial success.”
Mike O’Neill, BMI
In July 2023, nine months after BMI’s shift to a for-profit model, Reuters reported that the company was once again for sale, and once again with Goldman Sachs as adviser.
Citing “people familiar with the matter”, the Reuters story appeared to confirm what some observers had suspected – that BMI’s non-profit business model “made it difficult for interested parties to justify the price tag of more than $2 billion that the company was seeking.”
O’Neill himself appeared to confirm that view in a memo to staff sent shortly after the Reuters story broke.
“Not surprisingly, interest in BMI has continued since we announced a year ago that we were no longer considering a sale of our company,” he wrote.
“Since then, the success of our business model change and our commitment to investing in BMI to grow the value of our affiliates’ music has only intensified that outside interest.”
Reuters also reported that BMI generates “about $145 million” in 12-month EBITDA, an assertion that BMI would not confirm or deny to MBW.
What happens next?
A sale of BMI is hardly guaranteed. A business with a steady, predictable stream of royalties may be attractive to private equity firms, but price can often be a sticking point.
Take, for instance, the fate of the attempted acquisition of Concord, whose primary business is music publishing. The company, majority-owned by the Michigan Retirement Systems pension fund, turned down a $5-billion offer last year; management had reportedly been looking for a bid closer to $6 billion.
It may be that the prices sellers are looking for are too ambitious in the current financial environment. With interest rates sitting at multi-decade highs, the cost of financing a buyout can be daunting for many potential suitors.
BMI will have to convince any prospective buyer that its future profit potential is high enough to justify the multi-billion-dollar price tag it has reportedly hung on the company.
“Can BMI assure writers and composers that BMI’s profit margin will not exceed what BMI currently charges writers and composers as overhead?”
Question posed by songwriters’ group to BMI – unanswered directly by Mike O’Neill in his response
However, until (and unless) a concrete deal is announced, it’s practically impossible to tell whether the songwriters’ groups’ fears of a decline in payments are a legitimate concern.
What we do know is that it doesn’t have to turn out that way.
While many PROs operate as non-profits – including ASCAP, BMI’s principal rival in the US, and PRS For Music in the UK – there are those that successfully operate as private, for-profit entities.
One example is US-based SESAC, a for-profit PRO owned by investment management company Blackstone. SESAC’s affiliates include Bob Dylan, the estate of Robert Johnson, Rush and Adele, who left BMI to join SESAC in 2017.
Another example: Irving Azoff‘s Global Music Rights (GMR), which launched in 2013 to deliberately disrupt the dominance of ASCAP and BMI in the performance rights collection space.
That being said, both SESAC (with approx 30,000 affiliates) and GMR both have a fraction of the number of songwriter/publisher clients that BMI does today (1.3 million+).
That’s largely because both SESAC and GMR have the privilege, as private companies, of handpicking their clients – which means working exclusively with writers whose earnings ensure that dedicating administrative resources to the collection of their royalties will be a profitable endeavor.
This explains the following question from the songwriters’ group in that letter last week pitched at the now-for-profit BMI:
BMI is required to provide a home to any writer who wants to join. Can BMI confirm that they will not seek to drive writers away from BMI or discourage writers from joining BMI?
A final thought…
A major sticking point for the songwriters’ groups who signed on to the letter to BMI revolves around private equity firms, and the often negative connotations their arrival in various industries brings with it.
For some insight into just why songwriters’ advocacy groups may fear a sale of BMI to private equity, one need only take a look at a recent opinion piece that ran in the New York Times.
Titled “Private Equity is Gutting America – And Getting Away With It,” the piece asserts that “companies bought by private equity firms are far more likely to go bankrupt than companies that aren’t. Over the last decade, private equity firms were responsible for nearly 600,000 job losses in the retail sector alone.
“In nursing homes, where the firms have been particularly active, private equity ownership is responsible for an estimated — and astounding — 20,000 premature deaths over a 12-year period.”
“The investor community’s standards for what it seeks in private equity partners have evolved, and PE firms must evolve accordingly.”
Edelman
And it’s not just the New York Times. Public relations firm Edelman asserted in 2021 that “until recently, private equity (PE) firms’ reputational standing with limited partners (LPs) — the pensions, endowments, and other investors whose capital fuels PE — turned almost entirely on the returns they delivered. These times are coming to an end.”
Edelman went on: “With higher standards for transparency and ESG factors along with increased scrutiny from politicians, private equity firms must do more to defend and build their brands… The investor community’s standards for what it seeks in private equity partners have evolved, and PE firms must evolve accordingly.”
So for BMI, a sale of the company may mean not only convincing a potential buyer that the company’s financials are strong enough to make it a good investment – it may also mean convincing songwriters that whoever that buyer is will continue to prioritize payments to rightsholders over other considerations.
This could prove to be a tricky tightrope to walk for Mike O’Neill and his team.
The full text of the letter sent by songwriters’ advocacy groups to BMI:
August 17, 2023
Mr. Mike O’Neill Broadcast Music, Inc.
Re: BMI Proposed Transaction
Dear Mike:
As you know, there is no BMI without songwriters. Songwriters have a vested interest in changes at BMI and in any proposed transaction which is wholly dependent on songs they have written. BMI has been very active: BMI announced a shift to a “for-profit” model and engaged Goldman Sachs to explore a transaction where a private equity company would purchase BMI. BMI does not own copyrights or other assets; it is a licensing entity for copyrights owned by songwriters and, by extension, publishers. Songwriters have a right to understand these decisions and how it impacts us.
As advocacy organizations representing songwriters, we have questions about the impact of a proposed transaction on our songwriter members. In the spirit of transparency, we hope that you will answer the following questions:
BMI Profits
We heard that BMI has reported $135m in profits since it shifted to a “for profit” model. Is that accurate?
If so, how did BMI increase its profits so dramatically?
Will songwriters benefit from this increase in profits?
What does BMI project its future profits to be?
We all know that the way to become more profitable involves increasing revenue and/or decreasing expenses. If revenue increases, shouldn’t that money go to songwriters? Will BMI need to reduce its distributions in order to drive future profits?
Proceeds from a BMI Sale
If BMI sells, will writers or composers receive part of the sale proceeds?
If BMI sells, will the broadcasters on BMI’s Board receive the sale proceeds?
If so, why should broadcasters be the biggest beneficiary from a sale of a company whose only asset is songs that belong to songwriters?
If broadcasters benefit from the sale of BMI, aren’t they essentially receiving a rebate on the licensing fees they’ve paid? In other words, they got to play songs for free?
If BMI sells, will publishers receive part of the sale proceeds?
If BMI were to sell who else would receive a share of the sale proceeds?
BMI Operations after a Sale
If BMI is sold, will any writers receive a benefit that is not extended to all writers (e.g., equity or profit participation)?
If BMI is sold, will any publisher receive a benefit that is not extended to all publishers and writers?
Private equity companies have aggressive return on investment goals. Since BMI is for profit, private equity owners will demand increased profits to meet their expectations. How can writers and composers be assured that private equity owners of BMI won’t drive more profits for themselves at the expense of songwriters?
Can BMI assure writers and composers that BMI’s profit margin will not exceed what BMI currently charges writers and composers as overhead?
We have concerns that increased profits for a private equity owner could come from lowering distribution rates or decreasing distributions by driving writers away from BMI. Can you assure songwriters that neither of these things will happen?
BMI is required to provide a home to any writer who wants to join. Can BMI confirm that they will not seek to drive writers away from BMI or discourage writers from joining BMI?
We appreciate your attention. We will make ourselves available so that we can better understand this process and explain it to our members. We look forward to hearing from you prior to the completion of any proposed transaction.
Sincerely, Black Music Action Coalition Music Artists Coalition Songwriters of North America SAG-AFTRA Artist Rights Alliance
The full text of Mike O’Neill’s response to the songwriters’ letter:
August 18, 2023
Dear Coalition and Association members:
Thank you for your letter this afternoon. You raise some important questions about BMI and our successful move last October to a for-profit business model. As you stated, there is no BMI without songwriters, and no one knows this better than us. Our mission has been, and always will be, to support our songwriters, composers and publishers and grow the value of their music. It is what we have done since launching our company with an open-door policy in 1939.
As we shared with many of you in October, our move to for-profit was so we could invest in our company to ensure our continued success and growth for the future, while also increasing our distributions. And the first three distributions under our new model all exceeded previous years, with two being the largest in our company’s history. Our responsibility is to continue that trajectory on behalf of our affiliates.
As you know, the music industry has undergone dramatic change and continues to evolve rapidly. We need to continue to invest in our business and explore new avenues for revenue generation so we can continue to expand our distribution sources. We share a common goal with you in that we believe music creators should be appropriately compensated for the critical contributions they make to this industry. We’ve proven this time and time again.
In just under a year, our move to for-profit has already enabled us to invest more in BMI. We have:
Announced a partnership with Music Nation to establish a music licensing and royalty infrastructure based in the UAE, an endeavor intended to protect the rights of music creators and compensate them for the public performances of their work within that region.
Undertaken an extensive customer service initiative to enhance the service we provide to our affiliates around the high number of royalty and administrative questions that we receive.
Planned an upgrade of our online services portal, including new dashboards to better track performances and royalty information, among several other initiatives.
In your letter, you raise a series of questions should a sale of BMI occur. In such a situation, we would ensure that any partner embraces our mission of prioritizing the interests of songwriters, including their financial success. This is especially important as we navigate this rapidly changing industry together.
Mike O’Neill President & CEO BMIMusic Business Worldwide
