Business model

After scrapping sales plans, BMI shifts to for-profit business model

There’s a big change afoot at US performing rights company BMI (Broadcast Music Inc.).

BMI revealed on Wednesday October 12 that its not-for-profit business model, under which it has operated since the establishment of PRO in 1939, is changing to a for profit model.

The news was announced by the company in an article posted on its website, which includes a note sent by BMI President and CEO Mike O’Neill to affiliates of the organization.

In his memo, O’Neill writes that the decision to change BMI’s business model comes “after a full and careful evaluation of how best to position our business for the future.”

He says the move “will open up significant new opportunities for us to invest in our business.”

O’Neill added, “Simply put, growing BMI means growing our affiliates. Most importantly, our goal is to continue to grow our royalty distributions at an even higher rate than before.

Last month, BMI revealed that it had distributed a record $1.471 billion to its songwriters, composers and publishers in the year ended June 30, 2022, an increase of 10%.

By comparison, its close rival ASCAP, which operates a nonprofit license management and collections company, reported annual collections of $1.335 billion for calendar year 2021.

The shift to a for-profit model follows news in August that BMI had abandoned plans to sell a multibillion-dollar business following disappointing bids.

Citing sources, Bloomberg reported at the time that the music rights collection company was pricing up to $2 billion or $3 billion for some potential buyers and that BMI executives hoped to sell for at least $1.5 billion.

BMI recruited Goldman Sachs as an adviser in March to help it review strategic opportunities.

Commenting on this strategic review process, O’Neill said in his memo to BMI affiliates this week that “BMI began a strategic review earlier this year to assess opportunities for growth in our business and to make the most of our evolving industry for our affiliates”.

He added: “The one thing we have continually heard throughout this process has reinforced what we have thought 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 exploit new strategic opportunities, adopt new technologies and improve and expand our services and products in ways that under our old model would have come at the expense of distributions. .”


Elsewhere in the memo to BMI affiliates, O’Neil says that while the business model change “is a big change”, the old model “has held [BMI] back and limited [its] ability to invest in the future in a meaningful way”.

He added: “Our move to for-profit gives us more financial flexibility and makes us more nimble to do what we need to do.”

O’Neill cites the need to upgrade BMI’s delivery technologies and the organization’s ambitions to “buy a company that provides emerging services for songwriters,” or “create a tool that introduces affiliates a digital record that tracks royalties across the spectrum of their earnings”.

“To make these types of investments in our old model, we should have picked one option and focused on that over any other,” O’Neill said.

Billboard reports that BMI’s change in business model will not affect its consent decree with the US Department of Justice.

You can read O’Neill’s full memo below:


Cheers,

I am writing to you today with some exciting and transformational news about the future of BMI.

After a thorough and careful evaluation of how best to position our business for the future, we will change our business model from non-profit to for-profit operation. This will open up new and important opportunities for us to invest in our business and allow us to continue to fulfill BMI’s mission to support our songwriters, composers and publishers and increase the value of your music. Simply put, growing BMI means growing our affiliates. Most importantly, our goal is to continue to grow our royalty distributions at an even higher rate than before.

As you may know, BMI began a strategic review earlier this year to assess opportunities for our business growth and to make the most of our evolving industry for our affiliates. The one thing we continually heard throughout this process reinforced what we had thought 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 exploit new strategic opportunities, adopt new technologies, and improve and expand our services and products in ways that our old model would have come at the expense of distributions.

We recognize that this is a big change. There is no doubt that the old model served the BMI well. But it has also held us back and limited our ability to invest in the future in a meaningful way. Our move to a for-profit business gives us more financial flexibility and makes us more nimble to do what we need to do.

For example, we may explore a necessary upgrade to distribution technologies to potentially allow affiliates to tap into future digital revenue; we may invest in, partner with, or buy a company that provides emerging services for songwriters; or we can create a tool that presents affiliates with a digital record that tracks royalties across all of their revenue – all things we have an interest in pursuing.

To make these types of investments in our old model, we would have had to pick one option and focus on that at the expense of everything else. An IT upgrade, for example, meant investing in other areas of the business had to wait, to minimize the impact on that year’s distribution. Buying a business meant that we had to operate it on a not-for-profit basis and could not funnel any of the profits from this new business back into BMI or use those profits to fund other opportunities.

In short, this new model will allow us to approach our business in a way that we have never been able to before to stay ahead of the industry and the needs of our affiliates. It frees up so many more options.

We are excited about all the opportunities that lie ahead of us, especially because we are now proactively doing so from a position of strength rather than risking being forced to change in the years to come. We are the number one PRO and have just declared our highest payouts ever and we hope this move will help solidify our leadership.

But it’s a long-term plan and it won’t happen overnight. It will take time because we are determined to get it right. We fully recognize that this new path is only successful if our affiliates see the benefits. And we will continue to manage our costs and apply financial discipline to all the investment decisions we make.

We’ve been proud to be a trusted guide and champion of the music maker for over 80 years, and this new chapter will only strengthen that commitment as we look forward to the next 80 years.

As always, thank you for the privilege of representing your unparalleled music.The music industry around the world