BMI transitions to for-profit: what it means for songwriters and publishers

BMI, one of the world’s largest performing rights organisations (PROs), has sparked a major industry debate with its recent announcement.

The organisation BMI, known for collecting and distributing royalties to songwriters and publishers, has decided to transition to a for-profit business model. This shift has left its members, often referred to as affiliates, pondering how it will impact their earnings.

In BMI’s latest annual report, CEO Michael O’Neill unveiled the key change: a plan to increase the margin of annual collected revenue retained by BMI from 10% to 15%. This means that BMI intends to allocate a smaller portion of its revenues to its songwriters and publishers, keeping more for operating costs and profit. O’Neill justifies this move by comparing it to the margins of other for-profit entities in the industry, asserting that it falls below their standards.

One significant concern among songwriters was the potential that BMI might borrow capital and use revenue meant for distribution to repay it. O’Neill reassured the community, stating that any repayments resulting from capital borrowing would be sourced from retained profits and not from distributions to affiliates. Furthermore, BMI has been the subject of acquisition rumors, with New York-based private equity firm Blue Mountain Capital (BMC) reportedly showing interest in purchasing the organisation for a staggering $1.7 billion. O’Neill acknowledged these discussions but emphasised that BMI’s plan to maintain a 15% margin would apply regardless of whether the sale proceeds.

BMI’s decision to increase its margin is not without risk. The primary concern is that songwriters and publishers will notice a negative impact on their earnings and may choose to leave the PRO. BMI, in its effort to reassure members, has highlighted the potential benefits of this margin increase. They argue that retaining more profit will enable them to invest in enhanced services and acquisitions, ultimately boosting songwriter revenues.

BMI has already taken steps in this direction by forming partnerships, such as the one with Music Nation, a music rights organization in the United Arab Emirates. These partnerships are aimed at increasing revenues and, hopefully, mitigating the concerns of songwriters regarding the margin increase. While BMI has not disclosed its exact revenue figures for 2023, O’Neill did provide some clues. He mentioned that projected payouts to members for the full calendar year of 2023, under the new for-profit model, are expected to increase by 11% compared to the previous year. In the previous fiscal year, BMI’s annual distributions amounted to $1.47 billion, and an 11% increase would put them above $1.63 billion. In addition, BMI is forecasting a quarterly distribution of royalties exceeding $400 million for November, marking the first time any PRO worldwide has achieved this milestone in a single quarter. This suggests that a payout exceeding $1.6 billion annually may be on the horizon.

A lingering question is whether BMI will stop at a 15% margin or seek to increase it further, especially under the ownership of a private equity firm. O’Neill has stated that if BMI achieves incremental growth, such as through better technology or acquisitions, they may consider retaining a higher margin on the additional revenue generated, always with the goal of sharing that growth with affiliates. The transition to a for-profit model opens up numerous possibilities for BMI. They could venture into new areas of business, following in the footsteps of rival SESAC, which has expanded into recorded music distribution and other music services. However, competing with organizations like SESAC in mergers and acquisitions may be challenging without access to outside capital.

Another intriguing angle to consider is whether BMI will limit its membership or shed some of its existing affiliates. In an industry dominated by streaming platforms, many amateur artists generate minimal performance revenue, potentially costing more to administer than the membership fees they pay. O’Neill has emphasised that BMI will continue its open-door policy, welcoming songwriters of all genres, which is reflected in its growing affiliate numbers.

The big question remains: what will happen when BMI is sold? While O’Neill has addressed some concerns, the fate of the rumored $1.7 billion sales price and its distribution among the songwriter community remains a mystery. As BMI’s current owners are primarily radio networks, the distribution of this windfall may stir controversy, particularly given the radio industry’s reluctance to pay performance royalties for recorded music. The discussion also includes the possibility of BMI allocating a portion of the sales proceeds to its members, a move that would break with industry tradition. The outcome will undoubtedly have far-reaching implications for the future of BMI and the music industry as a whole.

Credits: BMI (https://www.bmi.com/)