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In late August, Billboard reported that BMI is in serious discussions to sell itself to New Mountain Capital for $1.7 billion, less than a year after the organization announced it was switching for a for-profit model. No deal has been signed, but talks are serious enough that the two sides have entered into exclusive negotiations, and the change in the way BMI operates — especially after the industry became aware of how much profit it has generated in its most recent fiscal year — has triggered an avalanche of questions from songwriters and music publishers. The most important: Will BMI’s future profits come at the expense of  royalty payouts to its more than a million affiliated songwriters and publishers. 

BMI had $147 million in earnings before interest, taxes, depreciation and amortization in its most recent — but as yet unannounced — fiscal results, according to Reuters. The question is where this money came from. 

“Where does profit come from for a performance rights organization?” asks one veteran music publishing executive. “It can come from only two buckets — the cost bucket or the royalty distribution bucket.” And that executive, like several others, believes that BMI “definitely didn’t cut $147 million in expenses.”

Although BMI made news in October 2022 when it announced it would begin to operate on a for-profit basis, all four U.S. performance rights organizations are actually set-up as for-profit corporations – BMI and ASCAP both file form 1120 with the I.R.S., as SESAC and GMR likely do as well. For decades, though, the first two have operated as not-for-profit companies, which likely means that since they pay out all the royalties they collect, minus expenses, they have no profit on which to pay tax. ASCAP’s Articles of Association states that “all royalties and license fees collected by the society shall be…distributed among its members,” except for expenses and contributions to a reserve fund.

BMI has always operated the same way, even though it has always been a private company owned by radio and television companies. In July 2022, though, rumors started spreading about BMI’s plans to change its operations, and the company hired Goldman Sachs to shop the company, preferably to a company which can fill the role of a strategic, but non-industry, partner. That effort didn’t result in a sale, either because the not-for-profit model BMI operated under at the time left it without any profit to show potential buyers, according to some sources; or, as other sources say, because BMI didn’t find a partner at that time that shared its vision of prioritizing the interests of songwriters.

Last October, when BMI announced it would switch to operating on a for-profit basis, the initial reaction in the industry was muted. This summer, however, when Reuters reported that BMI was once again up for sale — and that it had generated $147 million in earnings before interest, taxes, depreciation and amortization — creators expressed alarm, especially at the idea that those earnings might have been taken out of their royalties.

On Aug. 17, five creators groups sent an open letter to BMI CEO Mike O’Neill that asked 17 questions about BMI’s new business model, including whether songwriters and publishers would receive any of the proceeds from a potential sale, how the organization generated so much profit, and how it could continue to do so without reducing payouts to songwriters and publishers, the last of which is an especially significant worry, according to sources. The letter came from the Black Music Action Coalition, the Music Artists Coalition, the Songwriters of North America, SAG-AFTRA, and the Artists Rights Alliance.

So far, the only music publisher to comment on the changes at BMI is Universal Music Publishing Group chairman and CEO Jody Gerson, who said in a statement that, “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.” Other publishers would not comment on the record but expressed concerns. 

On Aug. 18, O’Neill responded in a letter to the creators groups and acknowledged that they raised “some important questions” about BMI’s evolution. (His letter was shared with Billboard, and published in full along with a story on it.) He said that the change would allow BMI to invest in its business in order to grow, plus increase payouts. Most important, O’Neill wrote, in the event of a sale, BMI “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.” 

(BMI executives declined to be interviewed for this article but they responded to questions with emailed statements, issues other statements for two other stories on the issue, and provided Billboard with the letters O’Neill wrote in response to the creators groups.)

“Relying on the past never sustained a business for the future,” BMI said in an Aug. 29 statement to Billboard. “Our goal is to stay ahead of the changing industry and invest in our business to grow the value of our affiliates’ music.”

O’Neill’s initial letter didn’t satisfy the groups behind the letter, which followed up with another letter to BMI on Aug. 25, which was also obtained by Billboard. “While we appreciated you responding to our letter,” it read, “all of our questions went unanswered.” So far, sources involved with the music creators groups argue. BMI has still not responded to most of the questions in the original letter. 

SLICING A FOR-PROFIT PIE

The other big question hanging over a potential sale of BMI is what it would mean for its competition against and its relationships with the other collective management organizations that it competes with but also collects money for and in turn receives royalties from under reciprocal agreements. Because of BMI’s change in governance, it has gone from being a member of CISAC, the international organization of CMOs, to a client, so it is no longer bound by the organization’s transparency rules but will still have access to its data systems.

ASCAP, BMI’s main competitor in the U.S. for more than eight decades, had a pointed take, which it shared in a social media campaign clearly aimed at BMI, though it did not mention the company by name. Its tweets included “We pay songwriters, not shareholders;” “growth without greed;” “Not for profit since 1914 and still growing;” and “There is no I in ASCAP.” Asked to respond, BMI issued a statement: “Our focus is not on how our competitors position themselves, our focus is on delivering for our affiliates.”

So far, BMI has made record payments to affiliates under its for-profit model, the company claims. In a Sept. 5 letter, posted on BMI’s website, O’Neill points out that the company has made three distributions under the new model, each higher than the corresponding one from the previous year. BMI said in an emailed statement that the three combined payments are 9% higher than they were in the previous year. Two of those payouts, according to O’Neill’s Sept. 5 letter, “are the “largest in [the] company’s history.” BMI also set a record in 2022, when it collected $1.573 billion, a 15.58% increase over the previous year, and distributed what it called an “unprecedented” $1.471 billion, a 10.2% increase.  

If BMI’s core business keeps growing, it would be relatively easy for the company to continue to increase annual payouts, while keeping healthy profits for itself, industry financial executives point out. From now on, though, songwriters and publishers will have to take BMI’s word for its financial success because, according to sources, its 2022 results are the last ones it will make public. The kind of financial information BMI has traditionally shared would allow publishing executives to see where BMI’s EBITDA is coming from – which could potentially fuel further debate about how much of that money ought to have gone to rightsholders, but didn’t. 

Going forward, BMI will instead emphasize and expand the financial information it provides to individual songwriters and their publishers to allow them to compare its payouts with previous years – and potentially, if BMH songwriters so choose, with those going to their co-songwriters who are affiliated with other PROs. That information would show affiliates that it takes its obligations to pay creators competitively, say sources familiar with BMI’s thinking. 

BMI’s reluctance to share information is not unique. Both SESAC and Global Music Rights (GMR) operate under a for-profit model, and neither shares information about its overall financial results. Sources speculate that GMR, a boutique U.S. performance rights organization that represents top-tier writers for performance rights licensing, collects more than $150 million. Less is known about SESAC’s financials, which it guards closely, but in 2013 when investment firm Rizvi Traverse acquired a 75% interest in the company, Billboard obtained the financial information used to shop the company which showed that in 2011 SESAC took in $128 million in collections, and paid out $60 million in distributions, leaving itself with $68 million in net publisher’s share. After $27 million in expenses, the company realized $41 million in EBITDA, an EBITDA margin of 32%, according to Billboard calculations. (Rizvi Traverse subsequently sold SESAC to Blackstone for about $1 billion in 2017.) For the year ended June 30, 2023, Billboard estimates that BMI has an EBITDA margin of 8.1%, although BMI is unlikely to make public these financial results. In other words, SESAC’s 2011 EBIDTA margin was four times larger than BMI’s, Billboard estimates.

SESAC and GMR declined to comment or could not be reached to comment on their profitability. But an executive familiar with SESAC’s strategy noted, “everyone who’s affiliated with SESAC has known SESAC is a for-profit” company. The implication is that it didn’t switch models, as BMI did.

The same goes for GMR, and some industry sources find it ironic that Irving Azoff, who founded the for-profit GMR, is on the board of two of the creators groups leading the charge in criticizing BMI. Like SESAC, GMR has always made clear to songwriters that it operates as a for-profit business, and it shows its affiliates a rate card with the amounts of money it collects from different licensees, sources say, so they can compare that to other PROs. It sticks to those rates, unlike BMI and ASCAP, which have bonus plans, explained on their respective web sites, which pay out more money per play to songwriters who accumulate a certain number of plays.

At BMI and ASCAP, for example, a pop song might generate a payout of about a dollar a play on a popular big-city radio station, but a composition that qualifies for a bonus could generate three times that much, to use a simplified example. These bifurcated rate structures apply to most big genres, and to subscription streaming and satellite radio play, as well as terrestrial radio. While some songwriters and executives argue that it’s not fair to pay top songwriters and their publishers at a higher rate, since their songs accumulate more plays anyway, these plans allow BMI and ASCAP to compete for top writers with SESAC and GMR, which are not bound by antitrust consent decrees the way BMI and ASCAP are. For BMI and ASCAP, having those top writers helps them get better rates from licensees. “A rising tide lifts all boats,” as one PRO executive says.

Even so, these plans show how the two big PROs structure their businesses in order to pay different rates to songwriters, which sources suggest BMI had to do even more in order to generate a profit.

Sources familiar with BMI’s thinking dismiss as inaccurate the idea that it will change the way it pays songwriters and publishers and BMI in an email to Billboard called this unfounded speculation. But other industry sources suggest that BMI’s switch to a for-profit model gives it an incentive to grow that would make such a switch worth considering. And there are plenty of ways it could do so. “There are a lot of rule changes they can make there and in other places to get dribs and drabs that would impact people equally but not so noticeably,” says an executive at a competing PRO. As another executive notes, paraphrasing a music publishing saying, “If you get a crumb here and a crumb there, eventually you have a loaf of bread.”

If BMI does decide to alter its payout structure, changes are likely to come at the expense of less popular songwriters on the so-called long tail, argue other sources, or smaller publishers who are less likely to push back. “The people with no representation are at the biggest risk in the for-profit model,” the music publishing executive says. “For sure, [BMI’s profit] will come out of the pocket of many, many people who are currently paid little amounts of dollars.”

Another executive familiar with BMI’s plans says that this kind of speculation is nonsense, and O’Neill said in the Sept. 5 letter that there is no truth to these rumors. “The industry’s most successful music creators didn’t start out that way,” he said in the Sept. 5 letter, “and we pride ourselves on our work helping to guide, develop, and support your talent to ensure your passion can also be a profession.”

Not everyone is convinced, though. “In the music industry,” says another veteran executive, “we usually oil the squeaky wheels with money.”

OTHER QUESTIONS

Even after these two big questions are addressed, others remain. One: Will BMI loosen its rules on songwriter departures, since its switch to a for-profit model represents such a dramatic change in how it operates?

More immediately, will BMI’s balancing act – operating for-profit while continuing to make sure its affiliates are paid fairly – appeal to a private equity player? The company already operates under a consent decree, and its first attempt at a sale, in the summer of 2022, didn’t succeed.

It’s also hard to predict what effects a potential BMI sale to a private equity fund would have on its regulatory environment, from the possibility of more antitrust scrutiny from the U.S. Dept. of Justice to the chance of a renewed look at a compulsory license for public performances.

And the big question driving all of the arguments still remain unanswered. If BMI does make a deal to sell itself, will songwriters and publishers share in what sources suggest is a $1.7 billion valuation price? Will some of that money be earmarked for infrastructure improvements? Or will all of it go to the radio and TV stations that own BMI? Since BMI has taken in an average of about $238 million a year in annual licensing fees from terrestrial radio and broadcast television over the last half-decade, that means that a price of about $1.7 billion would fund about a seven-year licensing rebate for BMI’s owners.