MBW Reacts is a series of analytical commentaries from Music Business Worldwide written in response to major recent entertainment events or news stories. MBW Reacts is supported by JKBX, a technology platform that offers consumers access to music royalties as an asset class.
I can’t be 100% sure. I mean, it was late in London last Wednesday, around 9.30pm, when MBW revealed that private equity firm, New Mountain Capital (NMC), was in advanced talks to acquire BMI (Broadcast Media Inc.).
But just after that news broke – and then rumors started swirling that NMC might even be willing to pay $1.7 billion for the PRO – I could have sworn I heard the faint sound of laughter.
It clearly emanated, this guffaw – so hearty it traveled over land, sea, and continent – from somewhere over the Atlantic.
It had to be. Irving Azoff. Laughing his head clean off.
What is BMI becoming?
The dominant duo of US collection societies split a market share of around 95% between them, reports suggested at the time – and Azoff believed they were ripe for disruption.
Like John Josephson and SESAC before him, Azoff was convinced that, working on behalf of a narrow clutch of superstar songwriters, GMR could negotiate better royalty rates from the radio industry than either BMI or ASCAP.
Azoff believed this because, to skim slightly over the granular detail, both ASCAP and BMI are – to slightly different extents – hamstrung in the US by Consent Decrees overseen by the Department of Justice and established over 80 years ago.
These Decrees severely limit both orgs’ power to negotiate better rates for songwriters from US broadcasters. Here are just two key limitations they each face:
- Neither ASCAP or BMI can threaten to pull specific music compensations (‘partial withdrawal’) from radio stations that they’ve licensed. Thanks to a so-called ‘blanket license’ structure, BMI has to license its entire repertoire of 20.6 million songs to a broadcast/digital partner, or nothing at all;
- Whenever there is a dispute over royalty rates between ASCAP/BMI and the radio industry (both terrestrial and digital) it has to be hammered out in designated US ‘rate courts’, rather than behind closed doors.
(We’ll set aside, for now, the additionally complicating factor that BMI is – as of this moment, anyway – actually owned by some of US radio’s biggest players.)
Irving Azoff deduced that as a private, for-profit, company, GMR could gain more leverage in seeking better radio rates, because:
- GMR could threaten to pull the music of specific superstars (including Drake and the Eagles) from radio if it wasn’t happy with its rate of pay; and
- It was unencumbered by rate courts and Consent Decrees entirely.
So that’s exactly what GMR did: The New York Times reported in 2014 that after launching GMR, Azoff, Grimmett and co. set about telling songwriters that they could secure royalty rates “as much as 30% higher from radio stations and online outlets than they can get through ASCAP or BMI“.
‘GMR has been able to establish market rates that are higher than the rates achieved by BMI’
Five years later, in September 2018, BMI flat-out admitted that GMR was getting better rates for its songwriters than BMI was able to achieve.
This revelation came via a subpoena issued by BMI, which demanded GMR declare to its rival the precise royalty rates it had agreed with the US radio industry.
“As a non-regulated Performing Rights Organization, GMR has been able to establish market rates that are higher than the rates achieved by BMI in the shadow of the Rate Court,” confirmed BMI’s attorney Scott A. Edelman at Milbank, Tweed, Hadley, and McCloy LLP.
The subpoena added: “In contrast to BMI, which operates as a not-for-profit corporation, GMR has an economic motivation to avoid consideration of its license agreements in this proceeding and thereby seek to suppress the rates that BMI is able to charge to users.”
Or to put that in plainer English: GMR has better royalty rates than us, we don’t know what those rates are, and if it continues to have better rates than us, it’s going to competitively screw BMI. We want to know the rates GMR’s getting from the radio industry, because we can then use that as a precedent to up our own rates.
“GMR has been able to establish market rates that are higher than the rates achieved by BMI in the shadow of the Rate Court… GMR’s strategy is working.”
Scott A. Edelman, attorney for BMI, 2018
In what amounted to a not-too-shabby marketing slogan for GMR, BMI’s attorneys even confirmed: “GMR’s strategy is working.”
Interestingly, BMI’s 2018 subpoena contained two kinda sniffy (and now rather prescient) comments about GMR’s status as a for-profit entity.
First, BMI’s attorneys asserted: “Unlike BMI, as a for-profit entity, GMR’s investors can extract part of [its] increased rates to pay themselves, rather than songwriters.”
Reiterating the point, they added: “GMR can either… pass on higher amounts to its affiliate songwriters, or… keep the additional amounts for its own investors.”
And it’s the sumptuous irony of these two lines that may have given Mr. Azoff pause for good humor last week
Because BMI is now also a for-profit entity, just like GMR. Not only that, but we stand on the precipice of profit-hungry private equity taking ownership of BMI – the world’s biggest PRO by revenue.
“BMI is required to provide a home to any writer who wants to join. Can BMI confirm that they will not seek to drive writers away from BMI or discourage writers from joining BMI?”
Question posed by songwriters’ letter to BMI’s Mike O’Neill earlier this month
Songwriters have been left wondering if, when BMI generates additional revenue in future, it will indeed “pass on higher amounts to its affiliate songwriters” or instead “keep the additional amounts for its own investors”.
Nowhere was this concern better articulated than in a letter penned by multiple songwriter rights groups (namely: Black Music Action Coalition, Music Artists Coalition, Songwriters of North America, SAG-AFTRA, and
the Artist Rights Alliance) earlier this month.
That letter, addressed to BMI CEO, Mike O’Neill, asked a number of tough questions of the BMI boss on the topic of the PRO’s future.
To paraphrase, those questions included: (i) How much of BMI’s future profits will be going to songwriters, and how much will be going to its prospective new private equity owners?; and (ii) If and when BMI sells, will its current radio-industry owners get all of the money?
But there was one other question within the letter that really got me thinking this past week. It’s this one:
- BMI is required to provide a home to any writer who wants to join. Can BMI confirm that they will not seek to drive writers away from BMI or discourage writers from joining BMI?
The more I’ve considered this question, the more I’ve wondered if it points to a dramatic change in the future structure of BMI under profit-fattening, private equity ownership.
Will there be a BMI exodus?
Today, there’s a deliberately low barrier to entry to join BMI for songwriters.
To quote the org’s own website: “If you have written at least one musical composition, either by yourself or with others, and the composition is currently being performed or is likely to be performed soon, you should join BMI.”
Here, once again, those Consent Decrees rear their head: It’s actually a condition of ASCAP and BMI’s Consent Decrees that they each “accept as members any songwriter, artist, or publisher who meets certain requirements”.
It will cost any songwriter out there just $75 per annum to become a BMI member, which they can do online in minutes.
This, says BMI, is all part of the “groundbreaking open-door policy” that it’s operated since 1939, whereby artists of all genres and levels of success are welcomed into the organization.
But the music business of 2023 is a very different beast from the music business of 1939.
And BMI’s shift to a for-profit operation – putatively under the future ownership of private equity – is bound to throw this difference under stark illumination.
Today, gazillions of songs and artists operate in a world where the creation and digital distribution of music have been commoditized in every market around the globe.
- In February this year, Spotify confirmed that it now has music from approximately 9 million musical artists on its platform;
- Spotify also confirmed that just 57,000 of these artists – around 0.6% of its total artist base – generated more than USD $50,000 on the platform annually;
- Spotify suggested that there are only 200,000 acts – around 2% of its total artist base – that it considered “professional or professionally aspiring”. These 200k artists, said Spotify, generated 95% of royalties on its platform.
So, imagine you’re BMI, with your ‘open door policy’. yYu’re currently getting just USD $75 per head, per annum from any DIY artist/songwriter who has a track with at least one play on streaming services – or which has been “performed” live.
You have 1.3 million affiliates (songwriters plus publishers) – despite the fact that Spotify estimates that only 213,000 artists on its platform have both released ten or more songs in their career so far, and have over 10,000 monthly listeners on its platform.
(See below, via Spotify’s Loud & Clear.)
Yes, an artist is not necessarily a songwriter. But these stats clearly indicate a gulf between the million-plus volume of creators currently being served by BMI, and the much smaller number of creators generating significant revenue on streaming services.
In other words, there must be an absolute shedload of artist/songwriters out there today whose work is being administered by BMI, but which is earning fractions of pennies – or nothing at all – in royalties.
Yet each of these low-earning artists/songwriters need to be administered, and accounted to, by BMI. That kind of service doesn’t come for free.
To better illustrate how this explosion in songwriter registrations weighs on BMI (and other ‘open door’ PROs) today, look below – a chart showing the number of songwriters and publishers who have been members of BMI at the close of June each year, according to the org’s annual reports.
Lo: BMI’s membership more than doubled in the decade from 2012 (500k) to 2023 (1.3 million).
Hockey-stick growth in members has for the past couple of decades been one of BMI’s highest priorities.
The org’s former CEO, Del Bryant, boasted in an exit interview in 2014: “When I joined BMI in 1972 the company had fewer than 25,000 songwriters, today it has more than 600,000 writers and publishers.”
But here’s the thing: Because the majority of new affiliates joining BMI each year inevitably aren’t earning what the org’s largest clients are generating, the average amount paid out to each BMI member is continually being dragged down.
See below: In 2012, according to MBW’s calculations based on BMI data, the average BMI member/affiliate was paid approximately $1,499 a year, or $125 per month, in royalty distributions. By 2022, that number had fallen to $1,132 a year, or $94 per month.
To borrow the words of music biz economist, Will Page, there are simply “more mouths to feed” for non-profit PROs with an ‘open door’ policy.
One wonders what private equity will make of this situation – and if it’s ripe for a shake-up.
BMI’s new private equity owners (if, indeed, the deal gets finalized) are inevitably going to be looking for two things in particular: efficiencies and, tied to that, profitability.
Through this lens, BMI and its new owners may decide that something of a cull is in order – a dramatic reduction in the number of songwriters on BMI’s books who are earning less than a certain royalty threshold per year.
This would hit at the heart of BMI’s restrictions under the Consent Decrees: Those Decrees exist in the first place, after all, as a check against the vast licensing power of BMI and ASCAP.
If BMI voluntarily slashed its member base from 1.3 million ‘affiliates’ to, say, less than half of that, could the DoJ view BMI differently – as an entity in need of less stringent anti-trust curtailments?
Drastically cutting its volume of members would certainly bring BMI more in line with the mindset of GMR and SESAC, which both cherry pick only high-revenue-generating rightsholders as members – in order not to waste resources on administering/collecting for songwriters who cost more than they generate.
(SESAC today, for example, says it works with around 30,000 songwriters and publishers – that’s around 2.5% of the size of BMI’s currrent roster.)
A Decree of difficulty?
Ultimately, there is a big, over-arching question threaded through this article.
As mentioned, both SESAC and GMR are today able to operate outside of the US Consent Decrees that stifle both BMI and ASCAP’s ambitions.
With BMI now for-profit, and potentially soon to be sold to PE, will it be able to shake off even some of the shackles of these Decrees in future – enabling it similar market negotiating freedom to the likes of SESAC and GMR?
If BMI can’t cut loose from the burden of these Decrees in future, it will likely give SESAC – not to mention Mr. Azoff – yet more reason to chuckle.Music Business Worldwide