BMI is changing to a for-profit business model, the company announced to its staff in an internal email Wednesday morning.
The performing rights organization, like most across the globe, had previously operated broadly on a not-for-profit basis, like its chief U.S. competitor ASCAP, since it was founded in 1939. However, as for-profit PROs, notably SESAC and the relatively new Global Music Rights, launched in the U.S., the restrictions of that model began to limit BMI’s opportunities. BMI attempted a sale last year but did could not come to terms with potential buyers.
CEO Mike O’Neill tells Variety, “We realized that we needed to make certain changes to the organization in order to be even more competitive in the future. As you know, there’s lists of companies that waited too long to change. And as a result, you know, they’re no longer in business.”
Performing rights organizations collect the royalties due to songwriters and publishers from what is termed the public performance of their works, which can range from radio airplay to bars, restaurants, stadiums and more. The money collected by the organizations — and it is up to the songwriter or publisher which PRO they join — is then distributed back to the rights-holders. Under a not-for-profit model, the PRO retains only operating costs and other expenses and distributes the bulk of the revenue to its members. However, a for-profit model enables the PRO to operate more like a traditional business, although like ASCAP, it will remain under what is called the consent decree governed by the Department of Justice, which limits some of its business opportunities, particularly with regard to royalty negotiations with publishers.
Asked whether the rapidly changing music business has made it untenable for a PRO to operate on a not-for-profit basis, O’Neill said, “We found that the old model stifled us in terms of investing in BMI, and investing for the future, and that we weren’t able to actually grow. For example, if we wanted to invest in an IT project, that meant we couldn’t invest in other areas of the company, because it would affect that year’s distribution. But by changing the model, we’re able to bring in financing, we’re able to reinvest in companies, we’re able to profit from those companies and invest those to the benefit of BMI. We’ll be using this to enable BMI to do things that we were held back from doing.”
Asked whether the company’s attempted sale affected the decision, he said, “Initially, we hired Goldman-Sachs to help us view strategic opportunities, and there were discussions about how do we change the model. But we had already been looking at that, and at the end of the day, the board and BMI decided that it was in our best interest to control how we do this, and how we grow and how we how we can ultimately benefit our affiliates.
“Our goal is to be that champion for songwriters, and to continue to innovate and change so they have a stronger organization that they can rely on. At the end of the day, our mission isn’t changing. It’s always been about serving songwriters, composers and publishers.”
O’Neill’s letter follows in full below.
I’m writing today with some exciting and transformational news about the future of our company.
After a comprehensive and careful assessment on how best to position BMI 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 our mission to support our affiliates and grow the value of their music. And most importantly, our goal is to continue to grow our distributions at an even greater rate than we have before.
As you all know, we 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.
I know this is a big change for us. 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.
Our amazing team and your individual hard work and contributions have made this all possible. Because of you, we are in control of our destiny and that is a great place to be. We now need to make the most of this opportunity, and I know we will.
We will be communicating this move to our affiliates and sharing additional information with them to help them better understand this change and the benefits to them as a result. Growth for BMI means growth for our affiliates. 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.
Thank you for all that you do.