Music Business

What every songwriter needs to know about the BMI sale [Chris Castle]

Musicians and other music professionals are understandably nervous about the likelihood of BMI being sold to venture capitalists. Attorney and artist advocate Chris Castle offers answers.

by CHRIS CASTLE from Music Tech Policy

I’ve been getting a lot of questions about the proposed cash-out sale of BMI. These usually come from freaked-out songwriters and independent music publishers who haven’t been quieted down and locked in by loans from BMI that were made and accepted before the going private sale. There are still a lot of people affected and who are scared of what the future may hold. This post is not about the fairness of the distribution of the sale price. Those issues are covered well by an open letter from songwriter groups. 

We will talk more about what is the most likely result from any sale to private equity–they will come in and move pieces around the board without realizing who butters their bread because they have zero cultural reference for what a PRO actually does or more precisely what a PRO like BMI actually does. After the sellers cash out and the buyers bring in Boston Consulting Group to tell them how to gut the organization and structure massive layoffs, the songwriters and publishers will gradually jump ship or start their own and the buyer will sell the smoldering remains at a fire sale because nobody at the buyer will understand what they did wrong. Or elves and unicorns could reign supreme, whichever version of the future you think is most likely.

Layoffs likely

These are bittersweet conversations because there are really good people at BMI, and these creative relationships go back years and decades. The immediate reaction is to eject–how do I get out of the situation, why wait around–but at the same time there is a reluctance to leave your writer relations team behind. There is some cold comfort in the knowledge that they may be having the same emotions about their writers. In any major acquisition there are likely to be layoffs, perhaps massive layoffs and reorganization–all of which the incumbent senior management weasels will deny are in the works until they happen. 

So what move can you make assuming you are not locked down by advances against future BMI royalties (aka debt) that you cannot pay off in the short term or transfer in the long term.

It must be said at the outset that there’s a deeper question of what should BMI itself do for its songwriters in light of this sale. The easy solution is to offer all affiliated songwriters and publishers the immediate ability to terminate their affiliation agreements early. This approach may avoid some of the antitrust implications of the sale which seem inevitable given BMI’s consent decree and the likely concentration of ejecting writers to the remaining PROs. 

If there are a lot of writers who leave, this approach may actually benefit BMI’s rumored long term goals of dropping the bottom 90% or so of earners (which top 10% may correspond to most likely recipients of large advances from BMI (paid with…ahem…other cash sources)).

Unilateral Termination

You may also elect to unilaterally terminate your affiliation agreement which is a more cumbersome process because these people never make it easy. BMI has an FAQ on the websiteabout how to terminate and what happens if you do terminate. You need to review your own affiliation agreement which for songwriters is likely available through your Online Services account dashboard if you didn’t keep a copy. The key issue to understand is that these agreements have a fixed term (two years for songwriters and five years for publisher generally) with an automatic renewal if you don’t opt out. The agreement term starts on the effective date of your agreement, so you need to know what that is in order to effect a termination.

Terminating that agreement requires notice to BMI at certain times to avoid the auto-renew, so there’s that.

There are some twists and turns with termination that relate to post-termination payments under BMI licenses with music users that were still in effect after your termination. Because of these various wrinkles it’s highly likely that your revenue will get screwed up following a termination. At a minimum, you may want to decide which PRO you want to jump to before you terminate with BMI. There’s no guarantee that other PROs are not planning on adopting a similar top 10% program themselves or at least charging more for affiliations as BMI. (It may be worth consulting BMI’s Royalty Policy Manual.

Changing PROs gets a little hairy so you should discuss with your lawyer and accountant. A cynic might say they make it so difficult to get out once you get in because they are trying to keep you from opting out.

What Does a PRO Actually Own?

This discussion highlights some issues about the proposed sale. First of all, what does any PRO actually own in the way of property they can sell? The core asset is clearly the right to collect performance rights royalties on certain songs or shares of songs that are given effect by affiliation agreements that can be terminated at will. It may take a while to actually pry their hands off of the income stream, but from a buyers perspective, there is a big difference between owning a copyright and renting the right to collect a share of one income stream from that copyright when you can be fired at any moment.

A PRO does actually own technology and data, but can they sell it? Who would buy it? As the technologist and investor Ann Winblad used to say, bought code is crap code. A bit emphatic, a bit expansive, but not really assailable. What she was getting at is when you buy bespoke code you will probably spend the purchase price again in figuring out how to operate it and fix everything that was wrong with it, especially the parts that the developers lied about. (Attention MLC.). And if you think that’s good stewardship of other people’s money or even your own, there is a whole vast universe of people who will be happy to sell you things. Just ask Boston Consulting Group who may spend a lot of time and get paid a lot of your money to essentially tell you the same thing that Ann summarized in a pithy maxim.

What about the data?

There are some interesting privacy issues that arise here, but let’s say that the personal payment data of songwriters is the clearest privacy issue. There’s a question about whether songwriters gave up their data (personal or song data) to BMI with the plan being that BMI could sell it at a profit and pocket the money. Leaving aside whether those writers are entitled to a share of the sale price based on their data even if they did approve the charitable sale of that data, it does seem that the songwriters should be accorded the courtesy of being asked nicely. And in some jurisdictions, they just might have the right to compel something involving the data and sale thereof. 

To my knowledge, no one has asked them jack and they are largely being blown off. Now I am sure that there’s all kinds of legal opinions (also called a good guess) from white shoe New York lawyers you could stack from Brownsville to Amarillo that says they have the right to do what they are doing. But what I don’t think they have is a judge’s order blessing all aspects of the transaction.

Of course, the most valuable resource that BMI has–at least for the moment–is its staff. They have wonderful people who work there and the songwriters I know have always had great support from them and are tremendously loyal–to the staff. What the weasels have done is put these people in a position where they have to choose between their own families and their songwriter families. Which sucks.

So there’s probably other things you can do starting with talking to your lawyer. But I point out that the deal hasn’t closed and even if it does close its unclear whether the government will be involved.

MORE: ASCAP throws shade, highlights nonprofit status as BMI eyes $1.7B sale

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