performing rights organization

For years, ASCAP and BMI were seen as the Coke and Pepsi of the performing rights management business — two giant entities with complicated formulas that seemed the same from a distance but quite different if you examined them closer. The November agreement to sell BMI to a group of investors led by New Mountain Capital, which was completed Feb. 8., has changed that — and the songwriters for whom they compete have already seen it in the marketing. BMI is making the case that a for-profit model will let it invest more aggressively in technology, among other things, while ASCAP pointed out on social media that “private equity never wrote an iconic love song.” The Pepsi Challenge seems quaint by comparison.

There were always differences between the two — ASCAP is governed by members, BMI was owned by its licensees; ASCAP charged a onetime $50 fee to join, while BMI was free, though that changed and now ASCAP is free to join and BMI charges $75. And although it’s hard to know for certain, this could end up being more of an evolution than a revolution: Nonprofits invest in technology and operations all the time, although it can be tricky, and the music business wasn’t exactly unsullied by greed before the days of private equity.

BMI and ASCAP collect and distribute more money than any other rights organizations in the world, though. So any changes in the way BMI operates — let alone whatever changes ASCAP makes in response — will reverberate through the entire competitive ecosystem to their less regulated U.S. rivals SESAC and GMR (which invite only the songwriters they want to join); to performing rights societies around the world; and ultimately to everyone who writes, owns or publishes songs.

New Mountain Capital wants a return on its investment, so BMI will need to make a profit — plus grow. Some of this will presumably come from higher-margin new businesses, including international venture — think cooperations or partnerships with societies in India, Africa or the Middle East. (BMI and ASCAP are subject to consent decrees that limit what other businesses they could get into in the U.S.) There’s already some competition in some of those places from European organizations, though.

Presumably, some of the profit is going to have to come from BMI’s traditional U.S. performing rights operations — and that won’t be easy, according to about a dozen rights organization and music publishing executives I spoke with for this column. (None has any inside knowledge about BMI’s plans.) Essentially, BMI will need to hold back enough of the money it collects to both cover its operating costs and make a profit on top of that, while paying its songwriters and publishers more than they can get from its rivals.

BMI has said a bit about how it plans to do that. In an Oct. 12 letter to “BMI affiliates and industry partners,” CEO Mike O’Neil said that for the next three years, BMI’s goal would be to retain 15% of its licensing revenue, as opposed to “around 10%,” although it would take a higher margin on “incremental growth we create for the company,” including acquisitions and new services. To make sure that additional 5% doesn’t come at the expense of songwriter and publisher royalties, BMI will need to negotiate deals that are significantly better than ASCAP’s on a consistent basis.

The only way to do that is to have the most in-demand repertoire from top songwriters like Taylor Swift, probably BMI’s biggest songwriter— and getting and retaining it may require offering better terms to top writers. That would almost presumably involve attractive advances (which all four U.S. performing rights organizations sometimes offer) and some form of bonus structure for top performers (which ASCAP and BMI offer, although their methodology differs). BMI said that advances have always been part of its strategy and it has no plans to change its general approach to this or its bonus structure, or its distribution policies. But what if BMI’s rivals also offer higher advances and better bonuses? If getting the best deal terms means having the best repertoire, they have every reason to do so.

The question is how those writers will be rewarded for the leverage they provide, and if Swift’s popularity helps her fellow songwriters, it’s only fair that she should benefit. But this can also create a temptation to pay out even more to the most successful writers — to give a bit more to Peter and a bit less to Paul and Mary. It’s good for everyone — until at some point it starts to feel unfair. And everyone who writes songs or manages those who do is either deeply concerned about this issue or simply eager to make sure they end up on the right side of it. Competition is all well and good, and it will be interesting to see which creators look for better deals and which stick with their current rights organization. (It can be harder than it should be to switch in some cases, which will be the subject of another column.) Ultimately, though, all these creators may find themselves fighting for bigger slices of the same pie.