BMI is transitioning to a for-profit business model, the company announced to employees in an internal email Wednesday morning.
Since its founding in 1939, the performing rights organization, like most organizations around the world, has previously operated extensively on a not-for-profit basis, like its main U.S. competitor, ASCAP. However, as a for-profit PRO, especially with SESAC and the relatively new global music rights launch in the US, the limitations of the model began to limit BMI’s opportunities. BMI tried to sell last year but was unable to reach an agreement with a potential buyer.
CEO Mike O’Neill told Variety, “We realized we needed to make certain changes to our organization to be more competitive in the future. As you know, some companies wait too long to change their roster. As a result, you know , they are no longer in business.”
Performance rights groups receive royalties due to songwriters and publishers from public performances of their work, ranging from broadcasts to bars, restaurants, stadiums and more. The money these organizations collect—as determined by the songwriters or publishers of the PROs they join—is then distributed to the rights holders. Under the not-for-profit model, the PRO keeps only operating costs and other expenses and distributes most of the revenue to its members. However, the for-profit model allows the PRO to operate more like a traditional business, although like ASCAP, it will continue to be subject to so-called consent statutes administered by the Department of Justice, which limit some of its business opportunities, particularly with publishers. Royalty negotiations.
Asked if the rapidly changing music business made it impossible for PRO to operate on a not-for-profit basis, O’Neill said: “We found that the old model was investing in BMI and for the future and we couldn’t really grow. For example, if we wanted to invest in an IT projects, which means we can’t invest in other areas of the company because that affects the distribution for the year. 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 These are invested in the benefits of BMI. We will use it to enable BMI to do what we are prevented from doing.”
Asked if the company’s sale attempt had influenced the decision, he said: “Originally, we hired Goldman Sachs to help us look at strategic opportunities and have discussions on how we could change the model. But we’re already thinking about that, Ultimately, the Board and BMI decide that it is in our best interest to control how we do this, how we grow and how we ultimately benefit our affiliates.
“Our goal is to be an advocate for songwriters and to continue to innovate and change so they have a stronger organization they can rely on. At the end of the day, our mission hasn’t changed. It’s always been for songwriters, composers and publishers business services.”
The full text of O’Neal’s letter is below.
I wrote some exciting and transformative news today about the future of our company.
After a thorough and careful assessment of how best to position BMI for the future, we will change our business model from a not-for-profit operation to a for-profit operation. This will provide us with new and important opportunities to invest in our business and ensure that we can continue to deliver on our mission to support our affiliates and enhance the value of their music. Most importantly, our goal is to continue growing our distribution faster than ever before.
As you all know, we began a strategic review earlier this year to assess opportunities to grow our company and make the most of our growing industry for our affiliates. One thing we kept hearing throughout the process reinforced what we’ve been thinking for some time: we need to invest in BMI and operate in a more commercial and forward-looking way.
Growth requires investment. Under this new model, we can now build, fund and operate new strategic opportunities, adopt new technologies, and enhance and expand our services and products, at the expense of distribution under the old model.
I know this is a big change for us. There is no doubt that the old model served BMI well. But it also hinders us and limits our ability to invest in the future in meaningful ways. Our move to for-profit gives us more financial flexibility and gives us more flexibility to do what we need to do.
For example, we could explore necessary upgrades to distribution technology to potentially allow affiliates to capitalize on their upcoming digital revenues; we could invest in, partner with, or acquire a company that provides an emerging service for songwriters; or we could create a tool , which provides affiliates with a digital record to track royalties across their entire revenue spectrum – all things we’re interested in pursuing.
To make these types of investments in our older model, we’re going to have to pick just one option and focus on it at the expense of everything else. For example, an IT upgrade meant that investments in other areas of the company had to wait to minimize the impact on distribution for the current year. Acquiring a company means we must operate it on a not-for-profit basis and cannot take any profits from the new company back to BMI or use those profits to fund other opportunities.
In short, this new model will allow us to conduct business in unprecedented ways to stay ahead of the needs of the industry and our affiliated companies. It frees up more options.
We’re excited about all the opportunities that lie ahead of us, especially since we’re doing it aggressively now from a position of strength, rather than risking being forced to change over the next few years. We are the #1 PRO and just reported our highest distribution ever and hope this move will help strengthen 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 will only be successful if our affiliates see the benefits. 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 make this possible. We are in control of our own destiny because of you, and this is a great place. We need to make the most of this opportunity now, and I know we will.
We will communicate this move to our affiliates and share more information with them to help them better understand this change and the benefits it brings to them. Growth in BMI means growth in our affiliates. For over 80 years, we’ve prided ourselves on being a trusted guide and advocate for music creators, and this new chapter only reinforces that commitment as we look forward to the next 80 years.
Thanks for all you do.