BMI will pay songwriters and publishers a smaller portion of its revenues as a for-profit company – while upping its own margin from 10% to 15% of collections. Will its members tolerate this change?
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MBW Explains is a sequence of analytical options through which we discover the context behind main music trade speaking factors – and counsel what would possibly occur subsequent. MBW Explains is supported by JKBX, a know-how platform that gives customers entry to music royalties as an asset class.
In recent times, at round this juncture within the calendar, Music Business Worldwide has printed knowledge charts displaying the dimensions of BMI’s yearly income collections and distributions; subsequently, we’ve checked out how these figures match up to ASCAP‘s equal numbers.
For instance: In 2022 (to the top of June final yr), BMI’s annual collections hit USD $1.573 billion; ASCAP’s 2022 collections (to the top of December final yr) weighed in at round $50m much less – $1.522 billion.
Sadly, for 2023, such a comparability has been rendered unattainable – as a result of BMI’s 26-page latest annual report doesn’t embrace any headline income knowledge. BMI has chosen to omit these figures following its announcement, a year ago this month, to modify to a for-profit enterprise mannequin.
There are, nonetheless, different essential numbers included in BMI’s new annual report – with one particularly sure to get the songwriter and publishing communities speaking.
Ever since BMI introduced its change to a for-profit mannequin, questions have been circling amongst its members (‘associates’) as to how this can have an effect on their payouts from BMI, the world’s largest PRO in income phrases.
Now, Michael O’Neill, CEO of BMI, has answered no less than a few of these questions.
Within the new report, O’Neill reveals that BMI is planning to extend the margin of annual collected income it retains (i.e. spends on working prices or banks as revenue) by round a 3rd.
Says O’Neill: “As we take a look at the following three years of our enterprise, our aim is to distribute 85% of licensing income to our songwriters, composers and publishers and retain roughly 15% to cowl our bills/overhead (which have traditionally run round 10%) and a modest revenue margin.”
“As we take a look at the following three years of our enterprise, our aim is to distribute 85% of licensing income to our songwriters, composers and publishers and retain roughly 15% to cowl our bills/overhead (which have traditionally run round 10%) and a modest revenue margin.”
Michael O’Neill, BMI
O’Neill defends the transfer to extend BMI’s retained margin from 10% to 15% by noting that the latter determine “is nicely beneath the margins taken by comparable for-profit companies in our trade”.
O’Neill additionally addresses a beforehand expressed concern of the songwriting neighborhood: the concept that BMI might borrow capital after which, in future, ‘pinch’ from BMI income that will in any other case be distributed to songwriters as a way to pay it down.
That’s not going to occur, says O’Neill.
He clarifies: “[If] BMI decides to hunt outdoors capital or borrow cash to spend money on new providers and alternatives, any repayments will come out of our retained income and never distributions.”
What’s the context?
Simmering away within the background of O’Neill’s new clarification, in fact, is the truth that BMI would possibly (or won’t) be acquired by a non-public fairness firm any time quickly.
In August, MBW broke the news that BMI was in conversations relating to a possible sale to New York-headquartered personal fairness firm, Blue Mountain Capital (BMC).
(Sidenote: BMC is the majority-owner of Citrin Cooperman… who’ve not had the easiest past few days within the music trade).
The price-tag subsequently bandied round that BMC-BMI acquisition deal: USD$1.7 billion.
“Importantly, the technique outlined [to move to a 15% retained annual margin] will maintain true for BMI whether or not or not we transfer ahead with a sale.”
Michael O’Neill
Michael O’Neill addresses the BMC-BMI rumors instantly in his feedback in BMI’s newest report, noting: “[W]e are all conscious of the conversations happening a couple of doable sale ofBMI.
“I can affirm that we’re participating in discussions with a possible new associate, and whereas our conversations are ongoing and have been very productive, no deal has been signed right now.”
O’Neill additional clarifies that BMI’s plan to retain a 15% margin in future “will maintain true for BMI whether or not or not we transfer ahead with a sale”.
WHAT HAPPENS NOW?
The most important hazard for Michael O’Neill and BMI in switching to a 15% margin is easy: Songwriters and writer purchasers discover a detrimental impression on their earnings from this transfer – and stop the PRO.
Since saying its for-profit transfer a yr in the past, BMI has offered the concept to its songwriter members as a trigger for pleasure. O’Neill and his administration group argue that retaining extra revenue in BMI’s enterprise additionally means having additional cash to reinvest into higher providers and acquisitions… which is able to finally develop songwriter revenues.
An early instance of this technique could possibly be seen in Could this yr when BMIpartnered with Music Nation, a music rights org primarily based within the United Arab Emirates (UAE), in a bid to extract higher knowledge – and larger royalties – from the area for BMI members.
Can BMI strike extra offers like this in future to materially improve annual revenues by such a level that songwriters and publishers don’t begrudge the org swallowing an additional 5% of margin?
It’s off to an excellent begin.
As talked about, BMI doesn’t give us a precise determine for its annual FY 2023 income collections (to finish of June this yr) in its new report.
Nonetheless, MichaelO’Neill does give away two associated knowledge factors within the report that paint an image of the org’s present dimension:
O’Neill says that BMI’s payouts to members for the complete calendar yr of 2023 (below the brand new for-profit mannequin) are “projected to be up11%” versus the identical interval a yr earlier than. We don’t know precisely what BMI’s payouts (aka ‘distributions’) had been in calendar 2022, however we do know that within the 12 months to finish of June 2022 (i.e. its FY), this payout determine stood at $1.47 billion. An 11% rise on that will have meant BMI’s annual distributions surpassing $1.63 billion in FY 2023;
As well as, O’Neill notes that BMI’s upcoming quarterly distribution of royalties, in November, is “forecast to be over $400 million” – the primary time, he says, that any PRO worldwide has ever surpassed this milestone in a single quarter. Clearly sufficient, on a run-rate foundation, this $400 million quarterly quantity suggests {that a} $1.6 billion-plus annual payout to members is on the playing cards for BMI sooner or later.
There may be, although, one different large query sparked by Michael O’Neill’s new bulletins: Will BMI cease at a 15% margin? Or will it – particularly below the potential possession of personal fairness – look to crank this quantity additional upwards within the years forward?
It’s value noting that O’Neill’s new announcement on the change from a 10% margin to a 15% margin isn’t definitive: He says, in the event you learn his phrases rigorously, {that a} 15% margin is BMI’s “aim”.
Ought to the corporate fall wanting income/revenue targets in years forward, would possibly the “goalposts” transfer somewhat on that quantity?
“Any incremental development [BMI’s management] create[s] for the corporate (for instance by higher know-how, M&A alternatives, new companies or expanded providers), we are going to look to take the next margin [than 15%] on any income generated, although all the time with the aim of sharing that new development with our associates.”
Michael O’Neill, BMI
Certainly, O’Neill has additionally already confirmed that, sure, in particular circumstances, BMI will transfer the 15% margin determine increased.
In his opening handle within the new report, O’Neill qualifies that “any incremental development [BMI itself] creates for the corporate (for instance by higher know-how, M&A alternatives, new companies or expanded providers), we are going to look to take the next margin [than 15%] on any income generated, although all the time with the aim of sharing that new development with our associates”.
Feels like that 15% margin covers BMI’s present providers. If and when it expands into new areas of enterprise, it might retain the next margin of income from these extra providers.
A last thought…
There are a couple of intriguing angles to suppose by on Michael O’Neill’s new feedback and BMI’s future extra typically.
A type of angles: If, because it says it’s planning to, BMI makes use of its fatter revenue margin to accumulate future corporations, what sort of companies will it look to purchase?
Might we see BMI following the trail set by its for-profit rival SESAC, which has in recent times not solely expanded geographically (see: SESAC’s JV with SUISA in Europe, Mint) but additionally by way of acquisition into ‘music providers’ outdoors of its core enterprise of efficiency royalty assortment?
In the present day, SESAC Music Group’s ‘music providers’ division contains the recorded music distributor and providers supplier, Audio Salad (acquired in March 2023), in addition to the US mechanical rights licensing home, HFA (acquired in September 2015), plus digital royalty assortment platform Audiam (acquired in August 2021).
As well as, SESAC has moved into some extent of music rights possession: below SESAC Music Group lately sits Audio Network, the UK-headquartered manufacturing/audiovisual music rights home which, in accordance with UK Companies House filings, generated GBP £34.6 million in calendar 2022 – with a pre-tax revenue of GBP £11.7 million.
With out outdoors capital, it might show robust for BMI to maintain up with the M&A spending of SESAC, in fact… contemplating that SESAC can name on capital from its father or mother – Blackstone’spersonal fairness enterprise.
One other attention-grabbing narrative to observe: In a earlier column on BMI, I advised that, chasing a meatier revenue margin, the org would possibly consider limiting the number of songwriters who can be part of its membership in years forward – and even jettison a bit of its present member base.
The logic behind this? It runs parallel to the recorded music trade: There are 9 million artists right now on Spotify, however, in accordance with Spotify itself, 95% of the royalties on its platform are generated by simply 200,000 of those acts. i.e. 2.2% of the artists on Spotify generate 95% of the income.
These are the economics of streaming, which have been dramatically modified by DIY distribution and an explosion of newbie artists making data at residence.
Truth is, for an org like BMI, the overwhelming majority of those newbie artists (who’re often additionally songwriters) generate negligible streaming and different efficiency income – including to the chance that their rights may very well value extra to manage than the annual membership payment they pay a given PRO.
Michael O’Neill is adamant, nonetheless, in BMI’s newest report that the PRO, as a for-profit entity, will “preserve our open door coverageof welcoming all songwriters and composers of all genres of music, as now we have executed since our founding.”
That intention performs out within the numbers: In accordance with BMI’s newest report, it counted 1.4 million ‘associates’ on the finish of June 2023, up by “practically 100,000” on the identical interval of the prior yr.
That ~100k+ annual development in membership has remained remarkably constant at BMI in recent times, in accordance with the information (see beneath).
Final thought on all of this (for right now): What occurs when BMI sells?
Inside this new report, Michael O’Neill has answered a couple of of the important thing questions from songwriter teams which have been publicly posed to BMI because it introduced its for-profit plans.
However what O’Neill hasn’t answered – and even hinted at – are these questions that linger over the post-sale course of on the PRO. A colossal instance: The place will the mooted $1.7 billion gross sales value truly go if BMI sells?
As lined in my previous column on this matter, BMI right now is owned by US broadcaster networks – predominantly on the earth of radio.
How will the songwriter neighborhood really feel about this sector netting a ten-figure windfall, basically due to the monetary development of the music publishing trade?
Particularly when the US radio trade isn’t precisely thought of essentially the most beneficiant payer amongst songwriting expertise or music publishers – and continues to refuse to pay a efficiency royalty for recorded music within the US?
To clean over these potential bumps, would possibly BMI take into account paying one thing – maybe a set quantity, maybe a proportion of that ~$1.7 billion sale value – to its members? Would its radio trade homeowners acquiesce to such an end result?
In that case, no matter BMI pays must be significant. In any case, if it went down this route, it will be breaking with latest music trade custom.
When Universal Music Group and Warner Music Group floated on inventory exchanges in 2021, neither their songwriter or artist rosters acquired a direct financial windfall (no less than, those that weren’t shareholders didn’t).
For songwriters (however not performing artists), it was the identical state of affairs when Sony Music Group and Warner Music Group offered stakes in Spotify in 2018, netting huge proceeds.
Sony Music was rightly applauded by the inventive neighborhood for sharing over $250 million of its $768 million in Spotify fairness proceeds with performers – and disregarding their unrecouped balances – in 2018. (Warner additionally shared a portion of its proceeds with artists, however didn’t disregard unrecouped balances.)
Nonetheless, as a result of these fairness stakes had been rooted in recorded music licensing agreementsdating back to Spotify’s beginnings, songwriters (as in, songwriters who aren’t additionally artists) missed out on this money.
In August, a bunch of songwriter advocates wrote to Michael O’Neill with an inventory of questions that included the next pointed queries on the subject of BMI doubtlessly sharing out some or the entire proceeds from its 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?
In that case, why ought to broadcasters be the most important beneficiary from a sale of an organization whose solely asset is songs that belong to songwriters?
If BMI’s most profitable songwriter members are left feeling aggrieved or excluded by the PRO’s sale course of – or, certainly, by BMI’s resolution to extend its margin of collected revenues from 10% or 15% – the likes of ASCAP, SESAC, and World Music Rights will probably be solely too happy to make their acquaintance.
Michael O’Neill’s opening letter from BMI’s newest annual report (FY 2023) in full
October 12, 2023
Expensive BMI Associates and Trade Companions:
We’re happy to difficulty our FY ‘23 annual report, which highlights the superb yr for BMI and our associates. Along with the annual report, which I encourage you to assessment, I want to handle a couple of different subjects.
First, we’re all conscious of the conversations happening a couple of doable sale of BMI. I can affirm that we’re participating in discussions with a possible new associate, and whereas our conversations are ongoing and have been very productive, no deal has been signed right now.
There have additionally been quite a lot of questions just lately about BMI and our enterprise mannequin transition, and I respect that our associates have a proper to grasp how they could be impacted by these selections.
As I’ve shared, we modified our enterprise mannequin final yr to spend money on our firm and place BMI for continued success in our quickly evolving trade. Our mission stays the identical, to serve our songwriters, composers and publishers and proceed to develop our general distributions as BMI has executed annually that I’ve been CEO. So as to proceed this trajectory, we have to suppose extra commercially, discover new sources of income and spend money on our platforms to enhance the standard of service we offer to you. I’m happy to say that now we have already made nice progress on delivering these targets.
Understandably, a lot of the latest dialogue has centered across the degree of revenue that BMI will take below this new mannequin, and I’ve heard your suggestions round the necessity to make clear this difficulty. So let me do exactly that. Importantly, the technique outlined beneath will maintain true for BMI whether or not or not we transfer ahead with a sale.
As we take a look at the following three years of our enterprise, our aim is to distribute 85% of licensing income to our songwriters, composers and publishers and retain roughly 15% to cowl our bills/overhead (which have traditionally run round 10%) and a modest revenue margin. For context, that is nicely beneath the margins taken by comparable for-profit companies in our trade. Moreover, for any incremental development we create for the corporate (for instance by higher know-how, M&A alternatives, new companies or expanded providers), we are going to look to take the next margin on any income generated, although all the time with the aim of sharing that new development with our associates.
As well as, if BMI decides to hunt outdoors capital or borrow cash to spend money on new providers and alternatives, any repayments will come out of our retained income and never distributions. We will even announce the annual development charge of our money distributions.
I’m happy to share that our distributions for the complete calendar yr of 2023, all below our new mannequin, are projected to be up 11% in comparison with the corresponding distributions below our previous mannequin in calendar yr 2022. Not solely did every quarter improve year-over-year, however our upcoming November distribution is forecasted to be over $400 million, one other document that will make BMI the primary PRO to ever distribute this excessive an quantity in a single quarter.
We will even preserve our open door coverage of welcoming all songwriters and composers of all genres of music, as now we have executed since our founding.
We’re excited for the longer term and assured in our potential to perform our plans on our personal, however we additionally acknowledge the chance to considerably speed up our development by partnering with a like-minded, growth-oriented investor with a profitable historical past of constructing companies. After all, that associate would want to share our imaginative and prescient that driving worth for our associates goes hand-in-hand with rising our enterprise and constructing a stronger BMI.
As all the time, we’re there for you, our incomparable inventive neighborhood. We acknowledge there isn’t a BMI with out our songwriters, composers and publishers and it’s in our greatest pursuits to make sure that any adjustments we make work to your benefit, so that you just select to stay a part of the BMI household for a few years to return. You’ve got my dedication that the updates I’ve shared right here, and any selections we make going ahead, will proceed to profit our inventive neighborhood, so you’ll be able to preserve delivering the world’s greatest music.
CEO OF THTBITS.com, sharing my insights with people who have the same thoughts gave me the opportunity to express what I believe in and make changes in the world.