MBW Explains is a sequence of analytical options wherein we discover the context behind main music trade speaking factors – and recommend what may occur subsequent.
What’s occurred?
The on-again, off-again sale of US-headquartered performing rights group BMI seems to be on once more, and this time round, songwriters are asking pointed questions on what BMI’s sale might imply for his or her royalties.
BMI, the biggest music rights assortment group within the US by turnover, has put itself up on the market for the second time in lower than a yr, and simply 10 months after it introduced it was switching from working as a non-profit to being a for-profit enterprise.
MBW has heard rumors from senior music biz figures that BMI has explored talks with various potential backers/suitors, with the most recent title on the lips of the enterprise being New Mountain Capital, an NYC-headquartered non-public fairness agency with combination property underneath administration of over USD $40 billion.
One senior music publishing supply informed MBW that New Mountain Capital had just lately begun a due diligence course of on BMI. (MBW has contacted spokespeople for each NMC and BMI for remark.)
Replace: Sources now recommend that New Mountain and BMI have agreed a transaction in precept for the previous firm to amass the latter for roughly USD $1.7 billion. Different sources recommend, nevertheless, it’s not but a achieved deal.
New Mountain Capital has one current hyperlink to music: the agency is an investor in Citrin Cooperman, which final yr acquired Massarsky Consulting, one of many predominant valuation corporations working in music rights.
BMI’s current strikes have some songwriters’ teams questioning what these adjustments – arguably the biggest within the 84-year historical past of the org – might imply for the royalties that the physique pays songwriters and publishers.
In a letter to BMI CEO Mike O’Neill despatched final Thursday (August 17), obtained by MBW, the Artist Rights Alliance, the Black Music Motion Coalition, the Music Artists Coalition, Songwriters of North America and SAG-AFTRA said:
“Songwriters have a vested curiosity in adjustments at BMI and in any proposed transaction which is wholly depending on songs they’ve written… BMI doesn’t personal copyrights or different property; it’s a licensing entity for copyrights owned by songwriters and, by extension, publishers.
“Songwriters have a proper to know these choices and the way it impacts us.”
“BMI doesn’t personal copyrights or different property; it’s a licensing entity for copyrights owned by songwriters and, by extension, publishers.”
Songwriter group’s letter to BMI, August 17
BMI is at the moment owned by a consortium of radio and TV broadcasters; that, in itself, makes for a fancy dynamic, as BMI’s house owners are sometimes the exact same broadcasters who pay the royalties collected by BMI.
Nevertheless, the corporate’s conversion to a for-profit mannequin, and reviews that it’s trying to promote itself to a non-public fairness firm, make this dynamic much more complicated.
“If BMI sells, will writers or composers obtain a part of the sale proceeds?” the songwriters teams’ letter asks.
“Will the broadcasters on BMI’s Board obtain the sale proceeds? If that’s the case, why ought to broadcasters be the largest beneficiary from a sale of an organization whose solely asset is songs that belong to songwriters?”
The letter goes on to ask: “If broadcasters profit from the sale of BMI, aren’t they basically receiving a rebate on the licensing charges they’ve paid? In different phrases, they bought to play songs without spending a dime?”
The affect of a change to BMI’s enterprise mannequin might be profound for the US music enterprise.
For the fiscal yr ending June 30, 2022, BMI reported that it had 1.3 million associates – that’s, it collected royalties on behalf of that many rightsholders.
The corporate distributed a report USD $1.471 billion in royalties that fiscal yr, a10% YoY enhance, on revenues of $1.573 billion, which had been up 16% YoY.
By comparability, BMI’s principal rival, ASCAP, collected $1.335 billion in calendar 2021. Between the 2 of them, BMI and ASCAP account for some 90% of the US music licensing market.
The songwriters’ letter (which you’ll learn in full on the finish of this report) goes on to pose various powerful questions concerning the affect of BMI’s potential sale to PE – and whether or not it would find yourself decreasing the potential earnings of composers.
One such query from the letter:
Non-public fairness corporations have aggressive return-on-investment targets. Since BMI is for-profit, non-public fairness house owners will demand elevated income to fulfill their expectations. How can writers and composers be assured that non-public fairness house owners of BMI gained’t drive extra income for themselves on the expense of songwriters?
It’s a question that music publishers can also be asking out loud.
“Why ought to broadcasters be the largest beneficiary from a sale of an organization whose solely asset is songs that belong to songwriters?… If broadcasters profit from the sale of BMI, aren’t they basically receiving a rebate on the licensing charges they’ve paid? In different phrases, they bought to play songs without spending a dime?”
Songwriters’ advocacy teams, in a letter to BMI
In a particular response to information of BMI’s plans to go non-public, and rumors of its impending sale, Jody Gerson, CEO & Chair of Common Music Publishing Group, informed MBW previously few days:“We don’t touch upon rumor or hypothesis, however to be very clear, we’ll solely assist adjustments that enhance worth for songwriters and won’t stand for any that end in our songwriters being paid lower than what they deserve.
“Now we have an extended historical past of efficiently preventing for our songwriters and can proceed to take action.”
Gerson clearly isn’t saying the quiet half out loud; certainly, she’s been cautious to not even point out BMI by title.
However there’s no mistaking the which means behind this phrasing from Gerson within the context of BMI’s for-profit transfer, and potential sale: “[UMPG] won’t stand for any that end in our songwriters being paid lower than what they deserve.”
“[To] be very clear, we’ll solely assist adjustments that enhance worth for songwriters and won’t stand for any that end in our songwriters being paid lower than what they deserve. Now we have an extended historical past of efficiently preventing for our songwriters and can proceed to take action.”
Jody Gerson, Common Music Publishing Group
On this occasion, the pursuits of songwriters and music publishers seem completely aligned… and plainly each teams are rising unsure about points of BMI’s strikes.
Different pertinent questions raised within the songwriters’ letter to BMI are primarily based on the suggestion that the org just lately booked a USD $135 million annual revenue.
(Such an annual revenue, clearly sufficient, can be prospectively useful to BMI’s house owners throughout an acquisition course of, as would-be consumers might apply a a number of to this determine with the intention to calculate a bid value.)
Listed below are a particular few different highly effective questions requested of BMI within the songwriter group’s letter:
If BMI sells, will publishers obtain a part of the sale proceeds?
If BMI had been to promote who else would obtain a share of the sale proceeds?
[W]hy ought to broadcasters be the largest beneficiary from a sale of an organization whose solely asset is songs that belong to songwriters?
Can BMI guarantee writers and composers that BMI’s revenue margin won’t exceed what BMI at the moment prices writers and composers as overhead?
Now we have issues that elevated income for a non-public fairness proprietor might come from reducing distribution charges or reducing distributions by driving writers away from BMI. Are you able to guarantee songwriters that neither of this stuff will occur?
BMI CEO Mike O’Neill has previously week penned his personal letter in response to the songwriters’ questions, which BMI has shared with MBW.
O’Neill seeks to reassure songwriters that his firm’s transfer to a for-profit mannequin, and any potential sale, would in the end be to the good thing about music rightsholders.
“There is no such thing as a BMI with out songwriters, and nobody is aware of this higher than us,” O’Neill writes. “Our mission has been, and at all times shall be, to assist our songwriters, composers and publishers and develop the worth of their music.
“[O]ur transfer to for-profit was so we might put money into our firm to make sure our continued success and development for the long run, whereas additionally rising our distributions. And the primary three distributions underneath our new mannequin all exceeded earlier years, with two being the biggest in our firm’s historical past. Our accountability is to proceed that trajectory on behalf of our associates.”
O’Neill provides that BMI must “proceed to put money into our enterprise and discover new avenues for income era so we are able to proceed to increase our distribution sources.”
Within the case of a sale, BMI “would be sure that any companion embraces our mission of prioritizing the pursuits of songwriters, together with their monetary success,” O’Neill feedback.
(You’ll be able to learn the songwriters’ letter to BMI, and O’Neill’s full response, on the backside of this text.)
What’s the context?
BMI’s government board first tried a sale of the corporate in mid-2022, enlisting Goldman Sachs as an adviser, however information reviews indicated they resigned from the hassle after failing to safe bids within the value vary they had been searching for.
In keeping with Bloomberg, BMI execs had hoped to promote the corporate for not less than $1.5 billion, with some potential consumers being quoted a price ticket of $2 billion and even $3 billion.
Two months after the unsuccessful sale try, BMI’s O’Neill introduced the corporate was switching to a for-profit mannequin, marking the primary time because the firm’s founding in 1939 that it will be working for the sake of a web revenue.
The transfer “will open up new and essential alternatives for us to put money into our enterprise”, O’Neill mentioned in a observe revealed to BMI’s web site final October.
“Merely put, development for BMI means development for our associates. And most significantly, our aim is to proceed to extend our royalty distributions at a fair higher price than we now have earlier than.”
“In your letter, you elevate a sequence of questions ought to a sale of BMI happen. In such a scenario, we’d be sure that any companion embraces our mission of prioritizing the pursuits of songwriters, together with their monetary success.”
Mike O’Neill, BMI
In July 2023, 9 months after BMI’s shift to a for-profit mannequin, Reuters reported that the corporate was as soon as once more on the market, and as soon as once more with Goldman Sachs as adviser.
Citing “folks conversant in the matter”, the Reuters story appeared to verify what some observers had suspected – that BMI’s non-profit enterprise mannequin “made it tough for events to justify the worth tag of greater than $2 billion that the corporate was looking for.”
O’Neill himself appeared to verify that view in a memo to employees despatched shortly after the Reuters story broke.
“Not surprisingly, curiosity in BMI has continued since we introduced a yr in the past that we had been not contemplating a sale of our firm,” he wrote.
“Since then, the success of our enterprise mannequin change and our dedication to investing in BMI to develop the worth of our associates’ music has solely intensified that outdoors curiosity.”
Reuters additionally reported that BMI generates “about $145 million” in 12-month EBITDA, an assertion that BMI wouldn’t verify or deny to MBW.
What occurs subsequent?
A sale of BMI is hardly assured. A enterprise with a gradual, predictable stream of royalties could also be engaging to non-public fairness companies, however value can typically be a sticking level.
Take, as an illustration, the destiny of the tried acquisition of Harmony, whose main enterprise is music publishing. The corporate, majority-owned by the Michigan Retirement Programs pension fund, turned down a $5-billion supply final yr; administration had reportedly been searching for a bid nearer to $6 billion.
It could be that the costs sellers are searching for are too formidable within the present monetary surroundings. With rates of interest sitting at multi-decade highs, the price of financing a buyout may be daunting for a lot of potential suitors.
BMI must persuade any potential purchaser that its future revenue potential is excessive sufficient to justify the multi-billion-dollar price ticket it has reportedly held on the corporate.
“Can BMI guarantee writers and composers that BMI’s revenue margin won’t exceed what BMI at the moment prices writers and composers as overhead?”
Query posed by songwriters’ group to BMI – unanswered immediately by Mike O’Neill in his response
Nevertheless, till (and except) a concrete deal is introduced, it’s virtually unimaginable to inform whether or not the songwriters’ teams’ fears of a decline in funds are a authentic concern.
What we do know is that it doesn’t should end up that method.
Whereas many PROs function as non-profits – together with ASCAP, BMI’s principal rival within the US, and PRS For Music within the UK – there are people who efficiently function as non-public, for-profit entities.
One instance is US-based SESAC, a for-profit PRO owned by funding administration firm Blackstone. SESAC’s associates embrace Bob Dylan, the property of Robert Johnson, Rush and Adele, who left BMI to hitch SESAC in 2017.
One other instance: Irving Azoff‘s World Music Rights (GMR), which launched in 2013 to intentionally disrupt the dominance of ASCAP and BMI within the efficiency rights assortment area.
That being mentioned, each SESAC (with approx 30,000 associates) and GMR each have a fraction of the variety of songwriter/writer shoppers that BMI does in the present day (1.3 million+).
That’s largely as a result of each SESAC and GMR have the privilege, as non-public corporations, of handpicking their shoppers – which suggests working completely with writers whose earnings be sure that dedicating administrative sources to the gathering of their royalties shall be a worthwhile endeavor.
This explains the next query from the songwriters’ group in that letter final week pitched on the now-for-profit BMI:
BMI is required to supply a house to any author who needs to hitch. Can BMI verify that they won’t search to drive writers away from BMI or discourage writers from becoming a member of BMI?
A closing thought…
A serious sticking level for the songwriters’ teams who signed on to the letter to BMI revolves round non-public fairness companies, and the usually unfavorable connotations their arrival in numerous industries brings with it.
For some perception into simply why songwriters’ advocacy teams might concern a sale of BMI to non-public fairness, one want solely check out a current opinion piece that ran within the New York Instances.
Titled “Non-public Fairness is Gutting America – And Getting Away With It,” the piece asserts that “corporations purchased by non-public fairness companies are way more prone to go bankrupt than corporations that aren’t. Over the past decade, non-public fairness companies had been accountable for practically 600,000 job losses within the retail sector alone.
“In nursing properties, the place the companies have been notably energetic, non-public fairness possession is accountable for an estimated — and astounding — 20,000 untimely deaths over a 12-year interval.”
“The investor group’s requirements for what it seeks in non-public fairness companions have advanced, and PE companies should evolve accordingly.”
Edelman
And it’s not simply the New York Instances. Public relations agency Edelman asserted in 2021 that “till just lately, non-public fairness (PE) companies’ reputational standing with restricted companions (LPs) — the pensions, endowments, and different traders whose capital fuels PE — turned virtually solely on the returns they delivered. These occasions are coming to an finish.”
Edelman went on: “With larger requirements for transparency and ESG components together with elevated scrutiny from politicians, non-public fairness companies should do extra to defend and construct their manufacturers… The investor group’s requirements for what it seeks in non-public fairness companions have advanced, and PE companies should evolve accordingly.”
So for BMI, a sale of the corporate might imply not solely convincing a possible purchaser that the corporate’s financials are sturdy sufficient to make it a great funding – it could additionally imply convincing songwriters that whoever that purchaser is will proceed to prioritize funds to rightsholders over different issues.
This might show to be a difficult tightrope to stroll for Mike O’Neill and his workforce.
The total textual content of the letter despatched by songwriters’ advocacy teams to BMI:
August 17, 2023
Mr. Mike O’Neill Broadcast Music, Inc.
Re: BMI Proposed Transaction
Expensive Mike:
As you already know, there isn’t any BMI with out songwriters. Songwriters have a vested curiosity in adjustments at BMI and in any proposed transaction which is wholly depending on songs they’ve written. BMI has been very energetic: BMI introduced a shift to a “for-profit” mannequin and engaged Goldman Sachs to discover a transaction the place a non-public fairness firm would buy BMI. BMI doesn’t personal copyrights or different property; it’s a licensing entity for copyrights owned by songwriters and, by extension, publishers. Songwriters have a proper to know these choices and the way it impacts us.
As advocacy organizations representing songwriters, we now have questions concerning the affect of a proposed transaction on our songwriter members. Within the spirit of transparency, we hope that you’ll reply the next questions:
BMI Income
We heard that BMI has reported $135m in income because it shifted to a “for revenue” mannequin. Is that correct?
If that’s the case, how did BMI enhance its income so dramatically?
Will songwriters profit from this enhance in income?
What does BMI mission its future income to be?
Everyone knows that the best way to change into extra worthwhile entails rising income and/or reducing bills. If income will increase, shouldn’t that cash go to songwriters? Will BMI want to cut back its distributions with the intention to drive future income?
Proceeds from a BMI Sale
If BMI sells, will writers or composers obtain a part of the sale proceeds?
If BMI sells, will the broadcasters on BMI’s Board obtain the sale proceeds?
If that’s the case, why ought to broadcasters be the largest beneficiary from a sale of an organization whose solely asset is songs that belong to songwriters?
If broadcasters profit from the sale of BMI, aren’t they basically receiving a rebate on the licensing charges they’ve paid? In different phrases, they bought to play songs without spending a dime?
If BMI sells, will publishers obtain a part of the sale proceeds?
If BMI had been to promote who else would obtain a share of the sale proceeds?
BMI Operations after a Sale
If BMI is offered, will any writers obtain a profit that isn’t prolonged to all writers (e.g., fairness or revenue participation)?
If BMI is offered, will any writer obtain a profit that isn’t prolonged to all publishers and writers?
Non-public fairness corporations have aggressive return on funding targets. Since BMI is for revenue, non-public fairness house owners will demand elevated income to fulfill their expectations. How can writers and composers be assured that non-public fairness house owners of BMI gained’t drive extra income for themselves on the expense of songwriters?
Can BMI guarantee writers and composers that BMI’s revenue margin won’t exceed what BMI at the moment prices writers and composers as overhead?
Now we have issues that elevated income for a non-public fairness proprietor might come from reducing distribution charges or reducing distributions by driving writers away from BMI. Are you able to guarantee songwriters that neither of this stuff will occur?
BMI is required to supply a house to any author who needs to hitch. Can BMI verify that they won’t search to drive writers away from BMI or discourage writers from becoming a member of BMI?
We respect your consideration. We are going to make ourselves accessible in order that we are able to higher perceive this course of and clarify it to our members. We look ahead to listening to from you previous to the completion of any proposed transaction.
Sincerely, Black Music Motion Coalition Music Artists Coalition Songwriters of North America SAG-AFTRA Artist Rights Alliance
The total textual content of Mike O’Neill’s response to the songwriters’ letter:
August 18, 2023
Expensive Coalition and Affiliation members:
Thanks in your letter this afternoon. You elevate some essential questions on BMI and our profitable transfer final October to a for-profit enterprise mannequin. As you said, there isn’t any BMI with out songwriters, and nobody is aware of this higher than us. Our mission has been, and at all times shall be, to assist our songwriters, composers and publishers and develop the worth of their music. It’s what we now have achieved since launching our firm with an open-door coverage in 1939.
As we shared with a lot of you in October, our transfer to for-profit was so we might put money into our firm to make sure our continued success and development for the long run, whereas additionally rising our distributions. And the primary three distributions underneath our new mannequin all exceeded earlier years, with two being the biggest in our firm’s historical past. Our accountability is to proceed that trajectory on behalf of our associates.
As you already know, the music trade has undergone dramatic change and continues to evolve quickly. We have to proceed to put money into our enterprise and discover new avenues for income era so we are able to proceed to increase our distribution sources. We share a typical aim with you in that we imagine music creators must be appropriately compensated for the important contributions they make to this trade. We’ve confirmed this time and time once more.
In slightly below a yr, our transfer to for-profit has already enabled us to take a position extra in BMI. Now we have:
Introduced a partnership with Music Nation to determine a music licensing and royalty infrastructure primarily based within the UAE, an endeavor meant to guard the rights of music creators and compensate them for the general public performances of their work inside that area.
Undertaken an intensive customer support initiative to boost the service we offer to our associates across the excessive variety of royalty and administrative questions that we obtain.
Deliberate an improve of our on-line companies portal, together with new dashboards to higher observe performances and royalty info, amongst a number of different initiatives.
In your letter, you elevate a sequence of questions ought to a sale of BMI happen. In such a scenario, we’d be sure that any companion embraces our mission of prioritizing the pursuits of songwriters, together with their monetary success. That is particularly essential as we navigate this quickly altering trade collectively.
Mike O’Neill President & CEO BMIMusic Enterprise Worldwide
