For years, ASCAP and BMI were considered the Coca-Cola and Pepsi of the performance rights business—two giant entities with complex formulas that looked the same from a distance but quite different upon closer inspection. The November deal to sell BMI to an investor group led by New Mountain Capital, which closed Feb. 8, changed that — and the songwriters they're competing for have already seen it in their marketing. BMI argues that a for-profit model will allow it to invest more aggressively in technology, among other things, while ASCAP pointed out on social media that “private equity has never written an iconic love song.” The Pepsi Challenge seems graphic by comparison.
There have always been differences between the two — ASCAP is member-run, BMI was owned by its licensees. ASCAP once charged $50 to sign up while BMI was free, although that has changed and now ASCAP is free to sign up and BMI charges $75. And while it's hard to know for sure, this could end up being more of an evolution than a revolution: NGOs invest in technology and operations all the time, though it can be difficult, and the music industry hasn't exactly been untainted by greed before the days of private equity.
However, BMI and ASCAP collect and distribute more money than any other rights organization in the world. So any changes to how BMI operates—let alone any changes ASCAP makes in response—will reverberate throughout the competitive ecosystem at their less regulated US rivals SESAC and GMR (which only invite songwriters who want to join). to performing rights societies around the world; and ultimately to everyone who writes, owns or publishes songs.
New Mountain Capital wants a return on its investment, so BMI should be profitable — plus growing. Some of this will likely come from higher-margin new ventures, including international ventures – think partnerships or collaborations with societies in India, Africa or the Middle East. (BMI and ASCAP are subject to consent decrees that limit the other businesses they could enter in the US) However, there is already competition in some of these places from European organizations.
Presumably, some of the profit will have to come from BMI's traditional U.S. performing rights business — and that won't be easy, according to about a dozen rights and music publishing executives I spoke with for this column. (No one has any inside knowledge of BMI's plans.) Essentially, BMI will need to keep enough of the money it collects to cover its operating expenses and make a profit on top of that, while paying its songwriters and publishers more than they can get from her rivals.
BMI has said little about how it plans to do this. In an Oct. 12 letter to “BMI industry partners and associates,” CEO Mike O'Neil said that for the next three years, BMI's goal would be to retain 15% of licensing revenue, as opposed to “about 10%,” although a higher margin would be needed in the “incremental growth we're creating for the company “, including acquisitions and new services. To make sure the extra 5% doesn't eat into the rights of songwriters and publishers, BMI will need to negotiate deals that are significantly better than ASCAP's on a consistent basis.
The only way to do that is to have the most sought-after repertoire from top songwriters like Taylor Swift, possibly BMI's biggest songwriter — and getting and keeping it may require offering better terms to top writers. This would likely involve attractive advances (sometimes offered by all four US performing rights organizations) and some form of top performer bonus structure (offered by ASCAP and BMI, although their methodology differs). BMI said that advances have always been part of its strategy and does not intend to change its general approach to it or its bonus structure or distribution policies. But what if BMI's competitors also offer higher payouts and better bonuses? If getting the best deal terms means having the best repertoire, they have every reason to.
The question is how these writers will be rewarded for the leverage they provide, and if Swift's popularity helps her fellow songwriters, it's only fair that she should benefit. But this can also create a temptation to pay even more to the most successful authors—to give a little more to Peter and a little less to Paul and Mary. It's good for everyone — until at some point it starts to feel unfair. And everyone who writes songs or manages those who do is either deeply concerned about this issue or just wants to make sure they end up on the right side of it. Competition is good and it will be interesting to see which creators look for better deals and which stick with their current rights arrangement. (It may be harder than it should be to switch in some cases, which will be the subject of another column.) Ultimately, however, all these creators may find themselves fighting for bigger slices of the same pie.
from our partners at https://www.billboard.com/pro/bmis-sale-benefit-songwriters-taylor-swift/
