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I can’t be 100% certain. I imply, it was late in London final Wednesday, round 9.30pm, when MBW revealed that personal fairness agency, New Mountain Capital (NMC), was in superior talks to accumulate BMI (Broadcast Media Inc.).
However simply after that information broke – after which rumors started swirling that NMC may even be keen to pay $1.7 billion for the PRO – I may have sworn I heard the faint sound of laughter.
It clearly emanated, this guffaw – so hearty it traveled over land, sea, and continent – from someplace over the Atlantic.
One may need urged, logically talking, that it got here from SESAC‘s John Josephson. However, no; it had this refined, tell-tale, Illinois twang.
It needed to be. Irving Azoff. Laughing his head clear off.
What’s BMI changing into?
When Azoff launched his US-based for-profit efficiency assortment society, Global Music Rights, with Randy Grimmett in 2013, there have been two clear targets of their crosshairs: BMI and ASCAP.
The dominant duo of US assortment societies cut up a market share of round 95% between them, reports suggested on the time – and Azoff believed they had been ripe for disruption.
Like John Josephson and SESAC earlier than him, Azoff was satisfied that, engaged on behalf of a slim clutch of famous person songwriters, GMR may negotiate higher royalty charges from the radio {industry} than both BMI or ASCAP.
Azoff believed this as a result of, to skim barely over the granular element, each ASCAP and BMI are – to barely totally different extents – hamstrung within the US by Consent Decrees overseen by the Division of Justice and established over 80 years in the past.
These Decrees severely restrict each orgs’ energy to barter higher charges for songwriters from US broadcasters. Listed below are simply two key limitations they every face:
- Neither ASCAP or BMI can threaten to tug particular music compensations (‘partial withdrawal’) from radio stations that they’ve licensed. Because of a so-called ‘blanket license’ construction, BMI has to license its complete repertoire of 20.6 million songs to a broadcast/digital companion, or nothing in any respect;
- Each time there is a dispute over royalty charges between ASCAP/BMI and the radio {industry} (each terrestrial and digital) it needs to be hammered out in designated US ‘price courts’, moderately than behind closed doorways.
(We’ll put aside, for now, the moreover complicating issue that BMI is – as of this second, anyway – really owned by a few of US radio’s greatest gamers.)
Irving Azoff deduced that as a personal, for-profit, firm, GMR may acquire extra leverage in looking for higher radio charges, as a result of:
- GMR may threaten to tug the music of particular superstars (together with Drake and the Eagles) from radio if it wasn’t pleased with its price of pay; and
- It was unencumbered by price courts and Consent Decrees totally.
In order that’s precisely what GMR did: The New York Instances reported in 2014 that after launching GMR, Azoff, Grimmett and co. set about telling songwriters that they may safe royalty charges “as a lot as 30% greater from radio stations and on-line shops than they’ll get via ASCAP or BMI“.
‘GMR has been in a position to set up market charges which can be greater than the charges achieved by BMI’
5 years later, in September 2018, BMI flat-out admitted that GMR was getting higher charges for its songwriters than BMI was in a position to obtain.
This revelation got here by way of a subpoena issued by BMI, which demanded GMR declare to its rival the exact royalty charges it had agreed with the US radio {industry}.
“As a non-regulated Performing Rights Group, GMR has been in a position to set up market charges which can be greater than the charges achieved by BMI within the shadow of the Price Court docket,” confirmed BMI’s lawyer Scott A. Edelman at Milbank, Tweed, Hadley, and McCloy LLP.
The subpoena added: “In distinction to BMI, which operates as a not-for-profit company, GMR has an financial motivation to keep away from consideration of its license agreements on this continuing and thereby search to suppress the charges that BMI is ready to cost to customers.”
Or to place that in plainer English: GMR has higher royalty charges than us, we don’t know what these charges are, and if it continues to have higher charges than us, it’s going to competitively screw BMI. We need to know the charges GMR’s getting from the radio {industry}, as a result of we will then use that as a precedent to up our personal charges.
“GMR has been in a position to set up market charges which can be greater than the charges achieved by BMI within the shadow of the Price Court docket… GMR’s technique is working.”
Scott A. Edelman, lawyer for BMI, 2018
In what amounted to a not-too-shabby advertising slogan for GMR, BMI’s attorneys even confirmed: “GMR’s technique is working.”
Curiously, BMI’s 2018 subpoena contained two kinda sniffy (and now moderately prescient) feedback about GMR’s standing as a for-profit entity.
First, BMI’s attorneys asserted: “Not like BMI, as a for-profit entity, GMR’s buyers can extract a part of [its] elevated charges to pay themselves, moderately than songwriters.”
Reiterating the purpose, they added: “GMR can both… go on greater quantities to its affiliate songwriters, or… preserve the extra quantities for its personal buyers.”
And it’s the luxurious irony of those two strains which will have given Mr. Azoff pause for good humor final week
As a result of BMI is now also a for-profit entity, similar to GMR. Not solely that, however we stand on the precipice of profit-hungry personal fairness taking possession of BMI – the world’s greatest PRO by income.
“BMI is required to supply a house to any author who needs to hitch. Can BMI affirm that they won’t search to drive writers away from BMI or discourage writers from becoming a member of BMI?”
Query posed by songwriters’ letter to BMI’s Mike O’Neill earlier this month
Songwriters have been left questioning if, when BMI generates extra income in future, it’ll certainly “go on greater quantities to its affiliate songwriters” or as an alternative “preserve the extra quantities for its personal buyers”.
Nowhere was this concern higher articulated than in a letter penned by a number of songwriter rights teams (particularly: Black Music Motion 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, requested numerous powerful questions of the BMI boss on the subject of the PRO’s future.
To paraphrase, these questions included: (i) How a lot of BMI’s future earnings might be going to songwriters, and the way a lot might be going to its potential new personal fairness house owners?; and (ii) If and when BMI sells, will its present radio-industry house owners get all the cash?
However there was one different query throughout the letter that basically acquired me considering this previous week. It’s this one:
- BMI is required to supply a house to any author who needs to hitch. Can BMI affirm that they won’t search to drive writers away from BMI or discourage writers from becoming a member of BMI?
The extra I’ve thought of this query, the extra I’ve questioned if it factors to a dramatic change sooner or later construction of BMI beneath profit-fattening, personal fairness possession.
Right here’s why.
Will there be a BMI exodus?
Immediately, there’s a intentionally low barrier to entry to hitch BMI for songwriters.
To cite the org’s own website: “When you have written at the very least one musical composition, both by your self or with others, and the composition is at present being carried out or is more likely to be carried out quickly, you must be a part of BMI.”
Right here, as soon as once more, these Consent Decrees rear their head: It’s really a situation of ASCAP and BMI’s Consent Decrees that they every “accept as members any songwriter, artist, or publisher who meets certain requirements”.
It would value any songwriter on the market simply $75 each year to turn into a BMI member, which they’ll do on-line in minutes.
This, says BMI, is all a part of the “groundbreaking open-door coverage” that it’s operated since 1939, whereby artists of all genres and ranges of success are welcomed into the group.
However the music enterprise of 2023 is a very totally different beast from the music enterprise of 1939.
And BMI’s shift to a for-profit operation – putatively beneath the longer term possession of personal fairness – is sure to throw this distinction beneath stark illumination.
Immediately, gazillions of songs and artists function in a world the place the creation and digital distribution of music have been commoditized in each market across the globe.
Right here’s a fast reminder of some key numbers, courtesy of Spotify:
- In February this 12 months, Spotify confirmed that it now has music from roughly 9 million musical artists on its platform;
- Spotify additionally confirmed that simply 57,000 of those artists – round 0.6% of its complete artist base – generated greater than USD $50,000 on the platform yearly;
- Spotify urged that there are solely 200,000 acts – round 2% of its complete artist base – that it thought of “skilled or professionally aspiring”. These 200k artists, stated Spotify, generated 95% of royalties on its platform.
So, think about you’re BMI, along with your ‘open door coverage’. yYu’re at present getting simply USD $75 per head, each year from any DIY artist/songwriter who has a observe with at the very least one play on streaming companies – or which has been “carried out” dwell.
You’ve 1.3 million associates (songwriters plus publishers) – even if Spotify estimates that solely 213,000 artists on its platform have each launched ten or extra songs of their profession up to now, and have over 10,000 month-to-month listeners on its platform.
(See beneath, by way of Spotify’s Loud & Clear.)
Sure, an artist shouldn’t be essentially a songwriter. However these stats clearly point out a gulf between the million-plus quantity of creators at present being served by BMI, and the a lot smaller variety of creators producing vital income on streaming companies.
In different phrases, there should be an absolute shedload of artist/songwriters on the market right this moment whose work is being administered by BMI, however which is incomes fractions of pennies – or nothing in any respect – in royalties.
But every of those low-earning artists/songwriters should be administered, and accounted to, by BMI. That type of service doesn’t come totally free.
To higher illustrate how this explosion in songwriter registrations weighs on BMI (and different ‘open door’ PROs) right this moment, look beneath – a chart displaying the variety of songwriters and publishers who’ve been members of BMI on the shut of June annually, in response to the org’s annual reviews.
Lo: BMI’s membership greater than doubled within the decade from 2012 (500k) to 2023 (1.3 million).
Hockey-stick progress in members has for the previous couple of a long time been one in all BMI’s highest priorities.
The org’s former CEO, Del Bryant, boasted in an exit interview in 2014: “After I joined BMI in 1972 the corporate had fewer than 25,000 songwriters, right this moment it has greater than 600,000 writers and publishers.”
However right here’s the factor: As a result of the vast majority of new associates becoming a member of BMI annually inevitably aren’t incomes what the org’s largest shoppers are producing, the common quantity paid out to every BMI member is frequently being dragged down.
See beneath: In 2012, in response to MBW’s calculations based mostly on BMI information, the typical BMI member/affiliate was paid roughly $1,499 a 12 months, or $125 per thirty days, in royalty distributions. By 2022, that quantity had fallen to $1,132 a 12 months, or $94 per thirty days.
To borrow the phrases of music biz economist, Will Web page, there are merely “more mouths to feed” for non-profit PROs with an ‘open door’ coverage.
One wonders what personal fairness will make of this case – and if it’s ripe for a shake-up.
BMI’s new personal fairness house owners (if, certainly, the deal will get finalized) are inevitably going to be searching for two issues particularly: efficiencies and, tied to that, profitability.
Via this lens, BMI and its new house owners could resolve that one thing of a cull is so as – a dramatic discount within the variety of songwriters on BMI’s books who’re incomes lower than a sure royalty threshold per 12 months.
This may hit on the coronary heart of BMI’s restrictions beneath the Consent Decrees: These Decrees exist within the first place, in spite of everything, as a examine in opposition to the huge licensing energy of BMI and ASCAP.
If BMI voluntarily slashed its member base from 1.3 million ‘associates’ to, say, lower than half of that, may the DoJ view BMI otherwise – as an entity in want of much less stringent anti-trust curtailments?
Drastically reducing its quantity of members would definitely convey BMI extra in keeping with the mindset of GMR and SESAC, which each cherry choose solely high-revenue-generating rightsholders as members – so as to not waste assets on administering/accumulating for songwriters who value greater than they generate.
(SESAC right this moment, for instance, says it works with round 30,000 songwriters and publishers – that’s round 2.5% of the dimensions of BMI’s currrent roster.)
A Decree of problem?
Finally, there’s a large, over-arching query threaded via this text.
As talked about, each SESAC and GMR are right this moment in a position to function outdoors of the US Consent Decrees that stifle each BMI and ASCAP’s ambitions.
With BMI now for-profit, and doubtlessly quickly to be offered to PE, will it have the ability to shake off even among the shackles of those Decrees in future – enabling it comparable market negotiating freedom to the likes of SESAC and GMR?
Don’t guess on it: BMI advised Billboard in December that its for-profit transfer didn’t, at that time anyway, affect its Consent Decree restrictions.
If BMI can’t lower unfastened from the burden of those Decrees in future, it’ll probably give SESAC – to not point out Mr. Azoff – but extra purpose to chuckle.Music Enterprise Worldwide
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