PROs
BERLIN — GEMA, the German performing rights organization (PRO), today sued OpenAI for copyright infringement in Munich regional court, alleging that the technology company used without permission lyrics from songs to which GEMA licenses rights. This makes GEMA the first PRO to file such a lawsuit, although it controls some rights that U.S. societies do not. This also seems to be the first case involving only lyrics; the case does not involve recordings. In its announcement, GEMA described the suit as a “model action,” aimed at clarifying copyright law in Germany, and potentially all of Europe.
Since OpenAI offers copyrighted song lyrics in response to prompts, GEMA is alleging that the company trained its software on song lyrics that it has the rights to license, so it is suing the company for violations of the making available and reproduction right. (Making available is a right under European law that in this case is roughly analogous to the right of public performance, or in this case public display. It’s also alleging two infringing reproductions – one to ingest the lyrics for training purposes and another when they are output.) In the U.S., PROs do not control mechanical rights, so they would not have the standing to file such a lawsuit.
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So far, most of the music business lawsuits involving AI companies have been over the ingestion of recordings, although that by definition would also involve the underlying compositions. But OpenAI is already facing a considerable amount of litigation, including a putative class action from authors, a lawsuit from The New York Times, and one each from online publishers and other newspapers. The issue in the U.S. is whether or not copying to train an AI qualifies as a “fair use” exception to copyright law. The record label cases against Suno and Udio will involve the same principle.
European copyright law provides “exceptions and limitations” to copyright, rather than fair use, and the 2019 Copyright Directive allows text and data mining unless rightsholders opt-out. In this case, however, GEMA has opted out for all of the works it licenses. (GEMA does not license the lyrics for all the songs in its repertoire, but the lawsuit involves ones for which it does.) This lawsuit aims to clarify the law, and it has the support of some big German songwriters, as well as their publishers.
“Our members’ songs are not free raw material for generative AI systems providers’ business models,” said GEMA CEO Tobias Holzmüller in a statement. “Anyone who wants to use these songs must acquire a license and remunerate the authors fairly. We have developed a license model for this. We are taking and will always take legal action against unlicensed use.”
The lawsuit comes as rightsholders around the world are becoming more concerned about how AI will affect the value of their works, as well as how they should be compensated for how it is trained. At the end of September, GEMA presented a licensing model for generative AI software that would compensate songwriters and publishers. It has also sent letters to AI companies stating they must license GEMA works in order to use them.
Since OpenAI both operates servers and makes content available in Germany, it will presumably have to operate according to German law. This seems clearer than the U.S. system, where fair use often involves considerable uncertainty. However, European countries do not offer rightsholders the opportunity to collect damages as high as they can get in the U.S.
A representative for OpenAI did not immediately return a request for comment.
Global Music Rights (GMR), the boutique U.S. performance rights organization that represents Bruce Springsteen, Drake, the John Lennon estate and among others, is in advanced talks to sell a majority stake to the private equity firm Hellman & Friedman, sources tell Billboard.
Co-founded by Irving Azoff and Randy Grimmett in 2013, GMR’s majority owner, Texas Pacific Group (TPG), has signed a letter of intent to sell its undisclosed majority stake to Hellman & Friedman (HF), according to sources close to the talks. Other sources described the status of the talks as having reached an “understanding” to sell. The Azoff Company, which manages GMR among other companies in its portfolio, will retain its stake and continue daily management of GMR if the deal proceeds, sources say, although some say it, too, has earned a payout by selling a portion of its minority stake in the deal. Music Business Worldwide reported news of the sale on Thursday.
Institutional investors and private equity funds like New Mountain Capital and Blackstone have bought significant stakes in competing U.S. performance rights organizations in recent years, attracted by the key role that PROs play for businesses looking to access music in a commercial context.
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Multiple reports put the price for GMR at $3.3 billion. Sources tell Billboard that is the company’s valuation, and that GMR generates between $450 million and $500 million annually; other informed sources say the valuation is lower than that and dispute that revenue figure. With the Azoff Group retaining part of its stake in GMR, the price TPG fetches for its stake will be less than the headline $3.3 billion figure, those sources point out. GMR is being advised by the investment bank Moelis.
Representatives for TPG, HF and The Azoff Company declined to comment.
Hellman & Friedman is a San Francisco-based private equity firm that specializes in traditional buyouts in the technology and financial services sectors. Among media and entertainment companies, HF previously invested in the German media company Axel Springer and Getty Images. It has since sold its stakes in both companies.
The deal, which is expected to close this year, will not change anything “for the writers or the GMR management team,” a source familiar with the matter says. “GMR’s goal will remain the same: to transform the industry and bring more value to songwriters and their publishers. This is just a deal where one private equity firm investing in a company will be replaced by another. TPG’s exit from GMR is simply an exercise in realizing return on investment.”
Knowledgeable financial sources suggest the complex deal could involve TPG stakes in The Azoff Company, the umbrella holding company that oversees not only GMR but the artist management company Full Stop Management; the private equity-funded investment arm Iconic Artists Group, which buys artist and songwriter music rights; and Giant Music, an independent record label. Other sources say that even though TPG is exiting its GMR investment, it still retains a small minority equity stake in Giant Music.
GMR has built a reputation for being highly selective when it comes to signing songwriters, even more so than rival boutique performance rights organization SESAC.
Founded in 1930, the Blackstone-owned SESAC currently represents only songwriters it has invited to join for representation, an approach that has resulted in a carefully-curated song roster that allows it to command market rates commensurate with its catalog.
In contrast, the two largest U.S. PROs, ASCAP and BMI, operate under DOJ-mandated consent decrees and must accept any songwriter who wants to join. They are also subject to government mandated rates, set through rates courts in the federal Southern District of New York, if negotiations with licensees fail.
GMR has built a reputation for only signing superstar writers. Its limited catalog of about 150-200 artists and songwriters across a number of genres includes Bad Bunny, Billie Eilish, Drake, Eddie Vedder, Harry Styles, Jon Bon Jovi, Prince and others.
While sources say that GMR often pays the highest rates among PROs, those rates are not disclosed. However, in 2016, in a since-settled Radio Music Licensing Committee (RMLC) lawsuit against GMR alleging GMR engaged in monopolistic practices, the RMLC complaint quantified how large GMR is by citing that its share of radio performances sat between 5% and 7.5%, but it was charging as though it represented 15%. The complaint also said GMR lured songwriters to sign there by promising to pay out 30% more than its competitors.
If the GMR deal closes, it will mark the second time in a year that a U.S. PRO has changed hands. In February, New Mountain Capital acquired BMI in a deal believed to be valued at $1.2 billion, with sources saying that the PRO had about $145 million in earnings before interest, taxes, depreciation and amortization (EBITDA). That implies about an 8.25 times multiple. Sources say the constraints of the DOJ’s consent decree weighed down BMI’s valuation. When Blackstone acquired SESAC in 2017, Billboard estimated the PRO’s lucrative business model helped it fetch a nearly 12 times multiple of $85 million in EBITDA for a $1 billion valuation.
Like SESAC and now BMI, GMR is secretive about its financials and none of its data is public. Depending on what GMR’s specific financials are, it could go for at least a 12 times multiple, if not higher, with some financial sources suggesting it could maybe even reach a 17 times EBITDA multiple.
One GMR characteristic that songwriters find attractive is its use of a rate card, a unique feature among U.S. PROs that is considered more transparent and easier to understand than the rate formulas employed by ASCAP and BMI, numerous sources say.
Sources say GMR’s affiliation with Azoff and his portfolio of companies that employ powerful industry executives is one of the keys to its success. In fact, some big-name artists and songwriters handled by Azoff management companies are signed with GMR. Consequently, with Azoff and Grimmett and other top Azoff executives still calling the shots, the company is expected to retain its thus-far unique status as the home of superstar and mega-hit songwriters.
The House Judiciary Committee has sent a letter to the Register of Copyrights, Shira Perlmutter, requesting an examination of “concerns” and “emerging issues” related to performing rights organizations (PROs).
In the letter, signed by the committee’s chairmen Rep. Jim Jordan and Rep. Darrell Issa as well as member Rep. Scott Fitzgerald, two particular areas of concern are addressed: the “proliferation” of new PROs and the lack of transparency about the distribution of general licensing revenue.
The letter, obtained by Billboard, notes the latter issue is of particular importance to independent artists and smaller publishers. “It is difficult to assess how efficiently PROs are distributing general licensing revenue based on publicly available data,” the letter reads. “For example, it is difficult to determine how accurately lesser known and independent artists as well as smaller publishers are being compensated compared to widely popular artists and major publishers.”
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Concerns around transparency at the PROs are not new. The National Music Publishers’ Association, the trade organization representing music publishers, has spoken publicly about it, as have a number of individual songwriters and publishers over the years. These concerns grew last year after BMI, one of the largest PROs in the country, switched its business model from non-profit to for-profit and was acquired by private equity firm New Mountain Capital.
At the end of BMI’s fiscal year 2022, Billboard reported that “for the first time ever, it hardly contains any financial information.”
“I believe that you have a fundamental right to know what it costs you to use a particular collection society now I will tell you that ASCAP gives you a pretty close look at what it costs not exactly, but they give you a pretty close ballpark,” said NMPA CEO and president David Israelite at an Association of Independent Music Publishers’ Meeting in February. “BMI at the end of the last fiscal year we didn’t get that information.”
The letter states that it “request[s] that the Office examine how the various PROs currently gather information from live music venues, music services, and other general licensees about public performance; the level of information currently provided by PROs to the public; whether any gaps or discrepancies occur in royalty distribution; what technological and business practices exist or could be developed to improve the current system; the extent to which the current distribution practices are the result of existing legal and regulatory constraints; and potential recommendations for policymakers.”
The “proliferation” of PROs is a newer concern. Around the world, most countries typically have one PRO for local writers and publishers to join. In the U.S., it works differently. For over a hundred years, ASCAP and BMI have been the primary choices for a songwriter or publisher looking to collect performance royalties in the United States, but there is also the option to go with SESAC instead, a smaller but still important player in the U.S. PRO landscape, which has been around for almost as long.
Since its founding in 2013, Global Music Rights (GMR), a for-profit PRO founded by industry veteran Irving Azoff, has become a heavyweight in the space as well. GMR business model is to focus on a smaller roster of only the top tier of songwriters and then charging a premium to the bars, venues, shops and theaters that wanted to play them. Because their roster includes major artists including Bruce Springsteen, Billie Eilish, Drake, and more, the GMR blanket license became immediately important for licensees to have, no matter the cost.
In 2017, a fifth U.S.-based PRO emerged. AllTrack was founded by media investor and former SESAC-board member Hayden Bower and is designed to focus on indie creators with a tech-forward approach. This year, AllTrack became the fourth U.S. PRO to be accepted by the International Confederation of Socities of Authors and Composers (CISAC), along with ASCAP, BMI and SESAC.
“Licensees [like bars, restaurants and small businesses] have reported receiving demands for royalties from new entities claiming to represent songwriters… Licensees are concerned that the proliferation of PROs represents an ever-present danger of infringement allegations and potential litigation risk from new and unknown sources,” the letter states.
“We request that the USCO examine the increased costs and burdens imposed on licensees for paying an ever-increasing number of PROs, factors that may be contributing to the proliferation of new PROs, and recommendations on how to improve clarity and certainty for licensees,” it continues.
Perlmutter and the Copyright Office cannot make any specific changes to the way PROs work today, but often letters like this are sent in hopes that it will draw attention to particular issues or become the predicate for a hearing or draft bill.
If U.S. gymnastics superstar Simone Biles were to perform her triple-twisting double backflip to Taylor Swift’s “…Ready For It?” at the Paris Olympics, as she did at the trials in late June, NBC almost certainly won’t need a costly special license to air the track live. NBC pays performing rights organizations ASCAP, BMI and SESAC for blanket public-performance licenses, and the PROs distribute the royalty payments to their hundreds of thousands of members, such as songwriters, publishers and composers, from Paul McCartney to Dua Lipa to Swift herself.
These payments can add up to big money: The 2020 Olympics drew more than 3 billion viewers, a key factor in determining performance-royalty payments. “The larger the audience for the broadcast will generally result in a higher royalty,” says an ASCAP spokesperson.
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For the live TV broadcast, or online live-streaming, the blanket licenses cover all the necessary song rights — foreign PROs pay for the foreign TV broadcast rights and U.S. PROs pay for the U.S. rights. It gets trickier if NBC decides to use the song later, in a delayed broadcast, highlight video or some kind of YouTube-style on-demand streaming. In such cases, says Joy Butler, a Washington, D.C., entertainment and digital-technology attorney and author of The Permission Seeker’s Guide Through the Legal Jungle, NBC might need a separate synch license, negotiated with a publisher.
“But NBC might have reasons to not obtain that sync,” Butler adds. “They’re reporting on the Olympics, which is a newsworthy event. That gives them excellent reasons to rely on fair use.”
Fair use refers to a U.S. copyright doctrine in which a journalist can air snippets of a recorded song in the context of reporting a news story, or quote lyrics while reviewing a record. If an NBC news report on Biles’ Olympic performance picks up a bit of “…Ready For It?,” that may qualify, but NBC would have to tread carefully. “Fair use is very fickle,” Butler says. “The cases kind of go both ways. So you have to do risk assessment if you’ve got music in the background, and you’ve got a taped version which is delayed or on demand.”
TV producers tend to be disinclined to contact rightsholders and negotiate new (and perhaps costly) new licenses when using a song in the background of a recorded video, Butler says: “It absolutely happens that producers will err on the side of caution, and not have the music playing, just have the video run without the audio.” An NBC spokesperson declined to comment for this story.
This royalty-paying system can be cumbersome, but public venues such as the Bercy Arena in Paris and broadcasters such as NBC are used to it. “This is the same system that is in place for all audio-visual programming, including other sports events,” says the ASCAP rep.
NASHVILLE — In a keynote interview on the last day of the Music Business Association annual conference, SESAC CEO John Josephson easily sidestepped an early question on what he thought about the seemingly hip-hop-like feud that had recently evolved between ASCAP and BMI, over the latter’s decision to switch to a for-profit model and its subsequent acquisition by a private equity firm. But he wasn’t shy in touting the advantages his company offers songwriters and publishers over the competing U.S. performance rights organizations.
When BMI announced it was switching to a for-profit model and was acquired by New Mountain Capital, ASCAP took to social media reaffirming its commitment to pay out out all revenue it collects — minus overhead — and unlike BMI, not taking any profit.
“I have nothing to add to that conversation,” Josephson said in response to the feud characterization put forth by interviewer, Billboard editor at large Robert Levine.
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Josephson nevertheless acknowledged that it will be interesting to watch BMI’s evolution of its business model, saying it may cause indigestion but he doesn’t think it will have a big impact. Beyond that, he said it will also be notable to see “what will happen to the beef between some of the large publishers and BMI.”
When Levine observed that some rights holders say it is tricky to leave some U.S. PROs, Josephson responded, “The great thing about the U.S. market is people can choose” a PRO.
But when Levine pointed out that it isn’t always easy to leave some PROs, Josephson agreed, pointing that there has been friction in moving from one PRO to another that has even resulted in arbitration. However, at SESAC, “we don’t view our writers and publishers as captives,” he said. “If they want to leave, they are free to go. We win by delivering better service and more money. If you do that, then you don’t have to make it difficult to leave.”
In focusing on SESAC’s future, Josephson said that the company has an infrastructure that serves as an intermediary between rights holders and businesses that want to exploit music and it has been looking for ways to leverage that capability. “We think we can double or triple our market share,” Josephson said.
It has already grown considerably through the acquisitions of 11 different companies, including the Harry Fox Agency, Audiam and Audio Network, within the last decade, he said. It also has a joint venture in Mint Digital Services with the Swiss collective management organization SUISA. All in all, its multi-pronged approach has made SESAC a global company, he added.
Furthermore, he added SESAC currently has a “backlog of 7 or 8 companies” it is talking to now about acquiring. If deals are made, Josephson said SESAC can help such companies “grow at a faster rate than they already have been organically growing,” all of which will deliver “compound growth.
Beyond its PRO, SESAC divides its company into three segments, church music resourses, audio-visual licensing and music services for publishers and labels. Of the latter segment, which includes the aforementioned HFA, MINT, and Audiam, he said. “We are not interested in the long tail. We are interested in small publishers and small labels. Over time we want to broaden services that we offer to those customer groups.”
In turning to church music resources, he said Christian Copyright Licensing International (CCLI) has been “a great business for us.” In fact, he said, it was the “first extension of our business to be global,” with more than 50% of the church licensing occurring outside the U.S. He conceded that licensing to that segment is not without challenges, noting that churches tend to operate on a non-profit business and may expect to pay lower rates, “even though they are multi-million dollar commercial enterprises.”
As for SESAC’s audio-visual segment, he said it is a much bigger” business for the company that it is for ASCAP or BMI.
For the last seven years, SESAC has been majority owned by the giant private equity firm Blackstone, which he says has been a great relationship and a phenomenal capital source.
“They give us a lot of latitude to pursue our vision of where we want to take our business,” Josephson said. “It’s’ not like they tell us what we can do and can’t do. They think about what’s best for the longterm business.”
When interviewer Levine observed that most private equity often invest with the goal of cashing out within five years, Josephson said that the Blackstone fund that invested in SESAC has an investment goal of holding a company for “10-15 years, which is why we were interested in selling to them. They don’t think about what we can do to goose earnings this year,” and instead focus on the long-term.
When Levine expanded to the overall impact that private equity has had on the music business in recent years, Josephson observed that in the past private equity had sometimes disappeared from the music industry equation. But going forward, “as long as interest rates don’t go up further dramatically…private equity’s involvement in the music industry may wax and wane but I don’t think it will disappear.”
Composer Ramin Djawadi is set to receive the BMI Icon Award at the 40th annual BMI Film, TV and Visual Media Awards on June 5 in Beverly Hills, Calif. The Emmy-winning composer will receive the accolade for his body of work across film, television and video games. The ceremony will also salute the composers of the previous year’s top-grossing films, top-rated primetime network television series, and highest-ranking cable and streamed media programs.
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The event will be hosted by BMI president and CEO Mike O’Neill and BMI vice president of creative, film, TV & visual media, Tracy McKnight.
Previous BMI Icon Award recipients include Terence Blanchard, Mychael Danna, Alexandre Desplat, Harry Gregson-Williams, James Newton Howard, Christopher Lennertz, Thomas Newman, Rachel Portman (PRS), Mike Post, Alan Silvestri, Brian Tyler and John Williams.
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Djawadi has received 15 BMI Awards for outstanding scores for films, cable TV programs and streamed media. He won back-to-back Primetime Emmy Awards in 2018-19 for outstanding music composition for a series (original dramatic score) for Game of Thrones. He has received five other Primetime Emmy nods for Game of Thrones, Prison Break, FlashForward and Westworld. In addition, Djawadi has received three Grammy nods.
“We’re excited to honor Ramin Djawadi and celebrate his outstanding musical achievements,” McKnight in a statement. “Ramin’s innovative compositions for films, TV shows, and video games have captivated audiences worldwide, exemplifying his remarkable range and talent.”
Djawadi collaborated with Jonathan Nolan and Lisa Joy on Amazon Prime’s Fallout and partnered with David Benioff and D.B. Weiss on the Netflix series 3 Body Problem.
Djawadi, 49, got his start by collaborating with Hans Zimmer on such films as Pirates of the Caribbean: The Curse of the Black Pearl and Batman Begins. (Both composers were born in what was then known as West Germany.) Djawadi went on to score such films as Iron Man, Eternals, A Wrinkle in Time, Clash of the Titans, Pacific Rim and Blade:Trinity.
In addition, Djawadi, has composed music for several video games including “Medal of Honor,” “Gears of War 4” and “Gears 5.”
SESAC Music Group today (March 5) announced a deal with the Korean Society of Composers, Authors and Publishers (KOSCAP) that calls for KOSCAP to represent SESAC’s repertoire in Korea and for SESAC-owned Audiam to administer KOSCAP’s publishing rights in the U.S.
The deal makes SESAC one of the first big collective management organizations (CMOs) to move its rights out of the established Korea Music Copyright Association (KOMCA) to KOSCAP, a competitor that the government approved in 2014 to increase competition in the market. KOSCAP will represent SESAC’s online and offline performing rights in Korea, and the catalog of the Harry Fox Agency, the SESAC Music Group’s mechanical rights entity, will follow next year.
The Audiam deal calls for that company, which the SESAC Music Group bought in 2021, to collect performing, mechanical and other audiovisual rights in the U.S. on behalf of KOSCAP.
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Charles Park
Although this might seem like just another deal in the alphabet soup world of collective rights management, it highlights the growing competition among CMOs – and how that is leading to different kinds of international deals. In October, SESAC made a deal to have its offline performing rights in Italy managed by Soundreef, a private company just over a decade old, instead of the traditional society Italian collecting society, SIAE.
“Why did we switch?” Alex Wolf, president of international of the SESAC Music Group, told Billboard about the KOSCAP deal. “We’re convinced about the competence and the responsiveness of the management and we’re convinced that we will increase our revenues. This is a bet on the future.”
Just a decade ago, only a few markets had competition among CMOs, which didn’t compete with one another across borders. Since 2014, though, when the European Union passed the Directive on collective management of copyright and related rights and multi-territorial licensing, European societies have had to compete for online rights in the EU, and many other countries have opened up as well. This has led to competition among established organizations, as well as new companies like Soundreef – both to represent writers and publishers and to make deals with foreign CMOs.
“It’s a great honor to partner with SESAC, a global leader with a world-class catalog and one of the premier Performing Rights Management organizations in the world, along with Audiam’s innovative technology to administer our catalog in the US,” KOSCAP COO Charles Park said in the press release announcing the deal.
ASCAP collections grew 14.1% to $1.737 billion in 2023 and payouts to songwriters and publishers increased 14.7% to $1.592 billion, the performance rights organization reported Wednesday (Feb. 28). Those figures represent a record year for ASCAP in both revenue buckets, as well as all-time highs for any U.S. performance rights organization ever, ASCAP claimed.
The last time BMI revealed its annual financials — for the year ended June 30, 2022 — the PRO reported collections of $1.573 billion and pay outs of $1.471 billion. BMI did not disclose any full-year financial information in its most recent annual report for its fiscal year ended June 30, 2023, and is not likely to disclose any financial information going forward, since it’s now owned by institutional investor New Mountain Capital and will be operating on a for-profit basis. ASCAP now stands as the only U.S. PRO operating on a not-for-profit basis.
ASCAP’s collections break down to $1.327 billion domestically (up 12.7% from the year prior), and $410 million internationally (up 19.2%). For distributions, ASCAP paid out $1.217 billion domestically (up 16.1%), and $375 million internationally (up 10.3%).
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“ASCAP’s mission and not-for-profit business model are more important now than ever before, as artificial intelligence transforms the music landscape, and the need for legislative advocacy to protect creators in DC has never been more important,” ASCAP chairman and president Paul Williams said in a statement. “ASCAP will always be a champion for the humans who create music and demand transparency and fair payment from those who exploit our work. ASCAP makes it possible for our songwriter and composer members to write the next song, to earn a living and to support their families. No one else in the industry has the backs of songwriters like ASCAP.”
In announcing its financial results, the organization pointed out that unlike its competitors, ASCAP has no debt, no shareholders, no private owners and no private equity investors. In other words, ASCAP’s music creator and publisher members are the sole beneficiaries of ASCAP’s financial success.
Moreover, it noted that a democratically elected Board of Directors composed of music publishers and music creators sets the royalty distribution rules and cost allocations based on follow-the-dollar principles. It is the only U.S. PRO that makes those distribution rules publicly available on its website providing transparency to its membership.
“We are delivering industry-leading technical innovation, legislative advocacy and revenue growth that solely benefits our members, not outside investors or shareholders,” ASCAP CEO Elizabeth Matthews said in a statement. “As we like to say, private equity never wrote an iconic love song which is why we fight purely for songwriters, composers and publishers, not for those who use creators and their works of art for their own profits or to secure their own debt. ASCAP differs from others because our mission and purpose is clear and unique.”
In looking at new technology, the PRO reported that in 2023 its board of directors adopted six principles to guide its response to the technology and later submitted them on behalf of members to a U.S. Copyright Office study on generative artificial intelligence. And it reported it had held some AI symposiums for members.
During the year, ASCAP membership grew by 66,000 new members bringing total membership to 960,000 members. Some of those new members included PinkPantheress, Jack Antonoff, Tyla, and Jared Leto and Shannon Leto of 30 Seconds to Mars, as well as art-pop singer-songwriter Caroline Polachek, alt-rocker d4vd, jazz vocalist Samara Joy, country genre bender Jessie Murph, dark balladeer Chappell Roan, post-punker ThxSoMuch and writer-producer Alexander 23, among others
Moreover, the organization says its song catalog now includes 19 million copyrights that consists of music from the likes of Beyoncé, Billy Joel, Cardi B, Dua Lipa, Garth Brooks, Jay-Z, Katy Perry, Lil Baby, Lin-Manuel Miranda, Mariah Carey, Olivia Rodrigo, Paul McCartney, Stevie Wonder and Usher, among others.
Getting back to the financial numbers, ASCAP notes that since the launch of its strategic growth plan in 2015, its compound annual growth rate (CAGR) for total revenue through 2023 has increased to 7%, and the CAGR for total distributions over the same time period rose to 8%.
Moreover, ASCAP reported that in 2023, audio streaming revenue rose 21%, general licensing revenue rose 23%, radio revenue rose 10% and audio-visual revenue rose 3% as compared to 2022. However, ASCAP didn’t break out the specific revenue numbers like it used to in the years preceding 2015, the last year that ASCAP provided extensive insight into its financials.
As a percentage of revenue, overall ASCAP paid out 91.7% of collections in 2023, which implies expenses accounting for 8.3% of revenue. Yet, ASCAP executives also say the organization’s pays out nearly 90% of collections, which means overhead amounts to a little bit more than 10% of revenue.
In any event, ASCAP claims its 90 cents payouts on every dollar of collections yield “the highest value exchange applied to the lowest overhead rate provided to creators and publishers of any U.S. PRO.”
SESAC Performing Rights has chosen the private company Soundreef to manage its offline performing rights in Italy, withdrawing them from SIAE, the Italian collective management organization. Although the EU rights collections market has been open for a decade – the national societies are no longer national monopolies, especially when it comes to online rights – this is one of the larger moves so far. SIAE was founded in 1882 – Soundreef in 2012.
“It’s very rational,” Alex Wolf, president of international of the SESAC Music Group, tells Billboard. “What made us change is, we were very convinced about their IT, their administration and their management.”
This is the first time one of the ten biggest performing rights organizations (PROs) has withdrawn its repertoire from one of the major European societies in favor of a relatively young, private company. Italy is the sixth largest rights collections market in the world, according to CISAC’s data from 2021, the last year for which information is available.
This shows how competitive the rights market is becoming – especially, but not only, in Europe. SESAC is the third-biggest rights collection entity in the U.S., and it is building an international operation – much of it international. Some of this is through MINT, a joint venture with the Swiss society SUISA that manages Soundreef repertoire online in much of the world. Although that deal is completely separate, Wolf says he respected how Soundreef operated.
“You get a good insight into how a company works,” he says.
Soundreef is a Rome-based private company that initially focused on background music, then raised investment money to expand in 2016. It now has 40,000 affiliates, 26,000 of whom are Italian.
“We thought we could create a different system where technology was at the center of the operation,” said Soundreef CEO Davide d’Atri. “That means three things: analytical distribution, where what is played is paid; transparency, and quick payment.”
Analytical distribution essentially means reducing the amount of royalties that are distributed statistically, as opposed to tracked directly. D’Atri says that Soundreef distributes 85% of its payments this way, while some societies pay out as much as 60% based on statistics – extrapolating which songs are played in bars and restaurants by tracking which are played on radio or television, for example.
“Some of the bigger societies are very efficient,” d’Atri says, “but others sit on a lot of money” that can’t be directly attributed to specific rightsholders. Soundreef, he added, is now trying to attract other Anglo-American companies.
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.