‘US regulation for songwriters is archaic – and it results in less fair outcomes.’

SESAC has a long history of advocating for songwriters and music publishers: it is, after all, the second oldest PRO in the United States.

These days, there are some major differences between SESAC and its Stateside competition – not least the fact that it operates on a for-profit basis, while its two largest competitors, ASCAP and BMI, are not-for-profit entities.

SESAC CEO & Chairman John Josephson argues that his company’s commercial imperative makes it more dynamic and hungry to strike the best possible deals for its ‘affiliates’, who include huge names like Adele, Bob Dylan, Mariah Carey, David Crosby, Rosanne Cash, Kings Of Leon, and very successful film and television composers such as Christophe Beck, Gabriel Mann and Randy Newman.

Furthermore, SESAC doesn’t let just anybody through the door: the firm is focused on only working with truly premium, established and up-and-coming songwriters – which explains why its roster of ‘affiliates’ stands at circa 35,000. (ASCAP, as an example of the contrast here, added 40,000 new members to its books in 2018 alone.)

SESAC is an organization with genuinely global ambitions: backed by multi-billion dollar private equity group Blackstone, the company has successfully expanded into Europe via its JV, MINT, with Swiss collection society, SUISA. It’s also making waves in India, having recently inked a digital licensing and administration deal for BMG’s repertoire in the territory. And then there are its acquisitions, which in the past five years have included US mechanical rights processing hub The Harry Fox Agency (HFA) and microlicensing firm Rumblefish.

As for what’s next? SESAC is looking to become an alternative to larger competitors around the world and provide songwriters and publishers a choice. SESAC also hopes that HFA will be in contention to become an administration partner of the new Mechanical Licensing Collective (MLC) – the body widely backed by the industry to carry out the mandate of the Music Modernization Act (MMA), which passed in the US last year.

The MLC’s operation will be funded by admin fees paid by digital services, who will be able to obtain a blanket streaming mechanical license from the body – covering all music used in the US. This means that the likes of Spotify can avoid the legal headache of lacking mechanical licenses for individual songs amongst the tens of millions of tracks on its platform.

Here, MBUSA catches up with John Josephson to ask all about SESAC’s recent growth, and its ambitious plans for the years ahead…

What have been some of the biggest progressions at SESAC in the past year?

We’re executing on the strategic objectives that were put in place between 2014 and 2017. MINT is something that we’re continuing to execute on, in partnership with SUISA, and it’s scaling very quickly right now. I suspect the geographic footprint of that business is ultimately going to be much broader than just pan-European. We’re now representing Bertelsmann/BMG for certain rights in India, for example, and there are other discussions we’re in the midst of right now, frankly, across the world.

At the core of our business is our bespoke US performing rights organization. Over the course of the past two or three years we’ve really fine-tuned that business, both in terms of the quality and capabilities of our technical infrastructure, as well as enhancing our focus on delivering the highest possible level of customer service.

We maintain a laser-like focus on driving continuous, incremental value for the performing rights of our affiliates. We want to maintain our strategy of being a home for high value creators and compositions, so we don’t plan to dramatically increase the number of affiliates that we serve, or to do anything else that would dilute our focus on our existing affiliates.

What excites you the most about SESAC’s ex-US business going forward?

We’ve really demonstrated over the past, say, 25 years, that we can drive value for rights-holders and enhance the competitive dynamic in the US market. So we’re excited by the opportunities we see outside the US to drive better outcomes for rights-holders – providing freedom of choice to songwriters and publishers by competing with incumbent rights organizations. Our hope is that we can bring the formula that we’ve perfected in the US to other markets in the world.

I think our participation with MINT across multiple territories in Europe has already created value, not just for SESAC’s affiliates, but also for clients of the other participants in the market, because those entities have had to up their game from a service, price and technology standpoint in response to our entry in the market.

How much progress is SESAC making in terms of allowing you to compete freely with incumbent collection and licensing societies in territories like the UK, Germany and beyond? I take it you’re not getting a friendly reception in certain markets?

I always say that if you want a friend, get a dog; we did so in my family recently, and I’m already feeling the love! Look, we always expected that the incumbent societies would use every tool available to them to make life difficult for us as a competitor, and that’s proven to be the case. That’s their right and we have no issue with it. We only have an issue when a competitor acts in a manner that’s not consistent with their obligations under the law. I don’t begrudge anybody’s right to fight back against us – in fact, I welcome it – as long as they’re fighting in a manner that’s legal.

The US consent decrees, which govern both ASCAP and BMI, may soon be under review in the US. What’s your view on them as things stand?

In the US, we have consent decrees – not just in the music industry – that are basically settlement agreements between parties and the Justice Department, that basically say, ‘For the next X years, you can and cannot engage in these activities.’

That leaves the Justice Department in the position, nominally, if not explicitly, of being responsible for monitoring whether the parties are behaving in accordance with the terms of the consent decree.

In some cases, there are consent decrees that govern industries that don’t exist anymore, or that are 100 years old and aren’t very meaningful to anybody. And there is a legitimate reason to clean those up, and get rid of them. This is the stated objective of the process the Justice Department has undertaken.

Music is a little different because the consent decrees we have today are still relevant to the way the US market functions and specifically, how performance rights are licensed. What that means is that there are lots of licensees that care about what happens to the consent decrees.

“There is a very high degree of alignment within the music industry across those participants who create, own or administer musical works: in the event that the Justice Department eliminates the consent decrees, governmental price control legislation is not the solution.”

Now, those consent decrees obviously impose a bunch of restrictions on ASCAP and BMI that govern their behavior, and [those PROs] are seeking to change them in a way that will allow them to deliver better value or greater efficiency to their members. We support pro- competitive changes or modifications to the consent decrees.

People are now waiting to see what the Justice Department will do. Do they want to talk about abrogating the consent decrees entirely? Do they want to talk about modifying them? Or are they going to do nothing?

The last time the Justice Department did this under the Obama Administration, they spent two years on it, and ended up deciding to do nothing. It could be the same outcome here, and either way, anything that may or may not happen is still a long way off.

We expect the Justice Department to follow its normal deliberative process, including seeking public comment before making any decision about how to proceed and submitting its views to Congress, as required by the MMA.

There is a very high degree of alignment within the music industry across those participants who create, own or administer musical works: in the event that the Justice Department eliminates the consent decrees, governmental price control legislation is not the solution.

Yet we have a group of large and powerful lobbying organizations on the other side that are seeking to exploit this process, to try and gin up support in Congress for more regulation of music rights. God forbid if that happens, because, ultimately, songwriters are the most over-regulated small business people in the United States, if not the world.

Be honest: do you see a day where songwriters’ rights and the rights of music publishers can be negotiated in a true free market in the United States in the same way that recorded masters are currently negotiated?

Well, hope springs eternal. There’s no reason why it shouldn’t be that way, and it’s terribly inequitable that it’s not.

The regulatory construct that governs the licensing of musical works evolved out of the modes of distribution and consumption that existed in the late nineteenth and mid-twentieth century. They’re archaic and restrictive, and demonstrably result in less fair outcomes for rights-holders.

There have been a lot of broader conversations about the streaming revenue ‘pie’ of late, and especially the Copyright Royalty Board-approved rate rise in the US. Spotify and Amazon, amongst others, are objecting to that ‘pay rise’ for songwriters. What’s your view?

My view won’t come as a shock: those that are involved in that appeal process, and in particular those that are leading it, will ultimately look back at their actions as a tactical and strategic mistake.

I would question what the upside is for them, as opposed to the benefits they would reap from striving for closer alignment with the rightsholder community. The appeal process is going to involve substantial legal and other costs for both sides, although I think the impact of these costs will be more sorely felt on the rights-holder side. And, ultimately, I don’t believe that it’s going to achieve a material change in the original CRB outcome.

If you’re a player that really positions itself as wanting to get ever closer to the artist and the creator, it sends a terrible message.

“The [CRB] appeal process is going to involve substantial legal and other costs for both sides, although I think the impact of these costs will be more sorely felt on the rights-holder side. And, ultimately, I don’t believe that it’s going to achieve a material change in the original CRB outcome.”

The other thing I would say is that this whole process is a good illustration of why regulated pricing for music doesn’t create the efficiencies and balanced outcomes that licensees often claim. Here you have a years-long process that for the first time in decades awarded a meaningful increase in the value of mechanical rights based on the reasoned decision of an independent panel.

That process cost enormous amounts of money to complete and now, to add insult to injury, the other side is appealing that decision, resulting in additional delay and costs to rights-holders.

SESAC is a free market player, so the very fact that there’s a statutory right that needs to be adjudicated before a tribunal, from our perspective, already ultimately inures more to the benefit of the person who’s trying to license the works than the person who created those works.

When we see certain industry groups that represent licensees arguing for statutory licensing, this serves as a good example of why it just doesn’t work. Those for statutory licensing argue that it is more efficient and fairer, but what you’re seeing in this situation is anything but efficiency and fairness.

At the 11th hour of the MMA process there was some controversy, later resolved, involving SESAC and your owner Blackstone. What happened and where are you at now?

We acquired HFA from the National Music Publishers Association in 2015. The HFA business has a significant digital administration component to it, providing services for payments on streaming for some of the largest platforms in the US market.

The initial wording of the MMA raised some concerns for us regarding the inclusion of performance rights under the MLC’s administrative mandate and the related elimination of competition in the broader digital admin services market. It was never our intention to blow the Act up or to prevent it from passing – we were just seeking some minor changes.

“We just wanted to be sure that as much of the digital administration market as possible remained unregulated.”

However, there was a very strongly held view amongst many of the groups that had come together to try and move the MMA forward that its successful passage was dependent upon making no changes to it at all. Their concern was that the changes we were seeking would imperil passage of the Act as a whole. That concern morphed into a perception that we were seeking to prevent its passage, which we were not.

In the end, senators and all stakeholders were able to reach a compromise, and once that was reached, SESAC was actively engaged in lobbying for the passage of the Act. It’s always been our position that free market solutions drive the best outcomes for rights-holders across all categories, whether they be writers or publishers. We just wanted to be sure that as much of the digital administration market as possible remained unregulated.

What else has been happening at the Harry Fox Agency since you acquired that org from the NMPA?

 We’re about 75% of the way through what has been a fairly significant undertaking at HFA: to expand the size of its database of musical works and to integrate that database with SESAC’s so that we can look across a broader range of rights categories, in the first instance mechanical as well as performance, for each work we represent.

At the same time that we’ve been growing the size of our data asset, we’ve also been cleaning the data, really scrubbing it to make sure that it performs from a commercial perspective at the highest level possible.

Since the Music Modernization Act was passed last year, we’ve also had to invest a substantial amount of time and resources to make sure that HFA’s administration activities are in compliance with the Act.

HFA is participating in the vendor selection process for the MLC. How is that going?

The MLC database is going to be very consequential for the music rights industry, not just in the US but around the world. It will be a trusted, public reference database for the largest music market in the world, and should therefore be a very commercially significant undertaking for the whole industry.

The above interview originally appeared in Music Business USA – MBW’s new annual magazine featuring some of the smartest people, with the best stories, in the Stateside music industry.

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