BMI Moves to For-Profit Business Model, Eyeing Growth and New Initiatives
After more than 80 years operating, in effect, as a not-for-profit organization, BMI has decided to transform itself into a for-profit commercial enterprise. This move comes on the heels of BMI — aka Broadcast Music Inc. — hiring Goldman Sachs to explore strategic opportunities earlier this year.
While that exercise was wide reaching and included the possibility that the radio stations that own the performance rights organization would sell the company, the bidders either didn’t hit the price the owners wanted, or they came up with convoluted going-forward business plans that didn’t appeal to BMI management, according to a Bloomberg report in August.
“We learned a lot from the process and the most important thing is to be more commercial going forward,” BMI president and CEO Mike O’Neill tells Billboard. “It basically came back to the concept of how do we continue to grow distributions to our affiliates [publishers and songwriters] in a changing environment.”
In a note to BMI employees, O’Neill said the change in the business model “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.”
Or as he reiterates to Billboard, “Growth requires investment, not just maintenance… This new [commercial] model will grow at a faster rate than BMI has grown historically.”
Last year, BMI grew collections by 15.6% to $1.573 billion and distributions were up 10.2% to $1.471 billion from the prior year totals of $1.361 billion and 1.335 billion, respectively.
The change in the business model will not impact its consent decree with the U.S. Dept. of Justice; the BMI consent decree, which provides more latitude to BMI’s mandate than ASCAP’s consent decree, will stay in place as is, according to the organization.
In order to accomplish the transformation to a commercial enterprise, BMI will require investments to upgrade technology and adopt new ones; and enhance and expand current services and products while also adding new services and product capabilities. Those efforts may mean partnering with or buying other companies, O’Neill said. While such moves will come with a cost, O’Neill says “the beauty is that BMI has no debt so we will be able to use leverage to finance” BMI’s planned growth initiatives.
To be clear, songwriter and publisher royalty collections will not be used to finance any new initiatives. Instead, proceeds from the new initiatives will be used to “reinvest in BMI,” O’Neill tells Billboard. He also noted that the BMI’s current radio and television ownership will not be investing in BMI’s growth plans, but nor will they be paid dividends under the for-profit model that BMI will embrace.
On the other hand, if BMI, which is said to carry a more than $1 billion valuation, had been sold as a result of the earlier Goldman Sachs’ process — or if the PRO is eventually sold — the broadcast owners would be the beneficiary of that payment.
As to what these new planned initiatives could be, O’Neill was vague except to say that BMI wouldn’t be branching into mechanical licensing but may pursue growth opportunities outside the U.S. “There’s potential for international expansion” under the new BMI business model, O’Neill says. For example, he cites unlicensed territories around the globe as a prime opportunity. While music licensing and collection societies exists in many countries around the globe, there are still some territories in Africa and Asia that could use a licensing presence and or a stronger presence.
In the aforementioned note to BMI staffers, O’Neill added, “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.”
This switch will allow BMI to be at the center of industry change, O’Neill says, adding, “The path forward only works if it benefits our songwriters, composers and publishers. We absolutely understand that BMI’s growth will be our affiliates’ growth.”