There’s a significant change afoot at US-based performance rights company BMI (Broadcast Music Inc.).
BMI revealed on Wednesday (October 12) that its not-for-profit business model, under which it has operated since the PRO was founded in 1939, is changing to a for-profit model.
The news was announced by the company in a post published to its website, which includes a note sent by BMI President & CEO Mike O’Neill to the organization’s affiliates.
Within his note, O’Neill writes that the decision to change BMI’s business model comes “after a comprehensive and careful assessment on how best to position our company for the future”.
He argues that the move “will open up new and important opportunities for us to invest in our business”.
Added O’Neill: “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.”
Last month, BMI revealed that it had distributed a record $1.471 billion to its songwriters, composers and publishers in the year ended June 30, 2022, which was up 10%.
For comparison, its close rival ASCAP, which operates a not-for-profit licensing and collection society, reported annual collections of $1.335 billion for the calendar year 2021.
The move to a for-profit model follows the news from August that BMI had scrapped plans for a multi-billion dollar company sale following underwhelming offers.
Citing sources, Bloomberg reported at the time that the music rights collection firm set a price tag of up to $2 billion or $3 billion for certain potential buyers and that BMI executives had hoped to sell for at least $1.5 billion.
BMI enlisted Goldman Sachs as an advisor in March to help review strategic opportunities.
Commenting on that strategic review process, O’Neill stated in his note to BMI affiliates this week that, “BMI began a strategic review earlier this year to evaluate opportunities to grow our company and make the most of our evolving industry for our affiliates”.
He added: “The one thing we continually heard throughout that process reinforced what we have been thinking for some time: the need for us to invest in BMI and operate in a more commercial and forward-thinking way. Growth requires investment.
“And in this new model, we can now structure, fund and operate new strategic opportunities, adopt new technologies and enhance and expand our services and products in a way that under our old model would have come at the expense of distributions.”
Elsewhere in the note to BMI affiliates, O’Neil argues that while the business model shift “is a big change”, the former model “held [BMI] back and limited [its] ability to invest in the future in a meaningful way”.
He added: “Our move to for-profit gives us more financial flexibility and makes us nimbler to do what we need to do”.
O’Neill cites a need to upgrade BMI’s distribution technologies and the org’s ambitions to “buy a company that has emerging services for songwriters”, or to “create a tool that presents affiliates with a digital record that tracks royalties across the full spectrum of their earnings”.
“To make these types of investments in our old model, we would have had to choose just one option and focus on that at the expense of anything else,” said O’Neill.
Billboard reports that BMI’s business model change won’t affect its consent decree with the US Department of Justice.
You can read O’Neill’s full note below:
Greetings,
I’m writing today with some exciting and transformational news about the future of BMI.
After a comprehensive and careful assessment on how best to position our company for the future, we will be changing our business model, moving from operating on a not-for-profit making basis to for-profit. This will open up new and important opportunities for us to invest in our business and ensure we can continue to deliver on BMI’s mission to support our songwriters, composers and publishers and grow the value of your music. 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.
As you may know, BMI began a strategic review earlier this year to evaluate opportunities to grow our company and make the most of our evolving industry for our affiliates. The one thing we continually heard throughout that process reinforced what we have been thinking for some time: the need for us to invest in BMI and operate in a more commercial and forward-thinking way.
Growth requires investment. And in this new model, we can now structure, fund and operate new strategic opportunities, adopt new technologies and enhance and expand our services and products in a way that under our old model would have come at the expense of distributions.
We recognize that this is a big change. There is no question that the old model served BMI well. But it also held us back and limited our ability to invest in the future in a meaningful way. Our move to for-profit gives us more financial flexibility and makes us nimbler to do what we need to do.
For example, we can explore a needed upgrade to distribution technologies to potentially allow affiliates to draw against their upcoming digital earnings; we can invest in, partner with, or buy a company that has emerging services for songwriters; or we can create a tool that presents affiliates with a digital record that tracks royalties across the full spectrum of their earnings—all things we have an interest in pursuing.
To make these types of investments in our old model, we would have had to choose just one option and focus on that at the expense of anything else. An IT upgrade, for example, meant investing in other areas of the company would have to wait, in order to minimize impact on that year’s distribution. Purchasing a company meant we’d have to operate it on a not-for-profit making basis and couldn’t drive any of the profits of that new company either back into BMI or use those profits to fund other opportunities.
In short, this new model will enable us to approach our business in ways we were never able to do before to stay ahead of the industry and the needs of our affiliates. It unleashes so many more options.
We’re excited about all the opportunities ahead of us, especially because we’re proactively doing this now from a position of strength rather than risk being forced to change in years to come. We are the number one PRO and just reported our highest distributions ever and expect this move will help reinforce our leadership.
But this is a long-term plan and not everything will happen overnight. It will take time because we are committed to getting it right. We fully recognize that this new path forward is only successful if our affiliates see the benefits. And we will continue to manage our costs and apply financial discipline to any investment decisions we make.
We have prided ourselves on being a trusted guide and champion of the music creator for the past 80-plus years, and this new chapter will only strengthen that commitment as we look forward to the next 80.
As always, thank you for the privilege of representing your unparalleled music.Music Business Worldwide
