Music Licensing Giant BMI Sells to Private Equity Firm
BMI, the giant music licensing agency that represents hundreds of thousands of songwriters, including Taylor Swift, Dolly Parton, Kendrick Lamar and Lady Gaga, has agreed to sell itself to New Mountain Capital, a private equity firm, the organization announced on Tuesday.
BMI, along with its archrival ASCAP, is one of the major performing rights organizations in the United States. They act as clearinghouses for the legal rights that allow songs to be played on the radio, streamed online or piped into retail shops — and distribute billions of dollars in royalties to songwriters and music publishers.
Terms of the deal between BMI and New Mountain were not disclosed. In its announcement, BMI, whose full name is Broadcast Music Inc., said that the sale is subject to approval by its shareholders and “customary” regulatory review, and that it expects the deal to close in the first quarter of 2024.
According to the announcement, CapitalG, a fund affiliated with Alphabet, the parent company of Google, is also acquiring a minority stake in BMI.
Normally a quiet financial engine of the music industry, BMI has been the subject of some heated debate among songwriters and publishers recently, as the organization changed its financial model and news reports emerged that it was seeking a buyer.
Founded in 1939, BMI has long been controlled by radio and broadcasting companies, but, like ASCAP — which dates to 1914 — it has operated on a nonprofit basis, collecting licensing fees and, after paying overhead costs, distributing the rest to its affiliated songwriters and publishers. These performing rights organizations do not own copyrights — the asset that has driven a gold rush in recent music deals — but typically have deals to represent songwriters for this part of their business.
For its 2022 fiscal year, BMI collected $1.57 billion and distributed $1.47 billion, the most it has ever paid in a single year. On Tuesday, BMI said it represents more than 1.4 million songwriters and music publishers, and has some 22 million compositions in its catalog.
But last year, after first considering a sale, BMI said it would switch to a for-profit model. That drew concerns from songwriter groups, who worried that profits for BMI for any new owners would come at the expense of royalties for writers.
In a statement last month issued as part of BMI’s annual report, Michael O’Neill, BMI’s chief executive, said the company was switching to a for-profit model to “explore new sources of revenue and invest in our platforms,” and that BMI intended to distribute to affiliates 85 percent of the income it receives, and retain 15 percent to cover costs “and a modest profit margin.” Historically, O’Neill said, BMI had kept only around 10 percent for overhead.
Any investments, O’Neill added, would come out of retained profits, not royalties.
In a statement on Tuesday, O’Neill — who will remain the chief executive — said: “We are excited about the many ways New Mountain will accelerate our growth plan, bringing new vision, technological expertise and an outstanding track record of strengthening businesses, all of which will help us build an even stronger future for BMI and our songwriters, composers and publishers.”
In its announcement, BMI said that $100 million in proceeds from the sale would be allocated to its affiliates, though it said that how that money would be paid, while “in keeping with the company’s distribution methodologies,” had not been finalized.
One reality for BMI’s new owners to navigate will be the complex regulatory structure that governs how BMI — and ASCAP — can operate. According to antitrust agreements with the Justice Department, called consent decrees, that have been in place at both organizations for more than 80 years, BMI and ASCAP are limited in what services they can provide and the rates they can charge licensees like radio stations or online music services.
Those agreements have been periodically reviewed by the federal government, but have not been substantially changed in many years.
New Mountain Capital — whose other investments include Citrin Cooperman, a financial advisory firm that has played a big part in the recent rush in catalog deals — said on Tuesday that it was eager to expand BMI’s business and help “modernize” how it works.
“While the music industry has undergone a technology-driven transformation over the past two decades,” said Mike Oshinsky, a director at New Mountain, “music infrastructure, including the performing rights ecosystem, has been slower to transform.”
