SESAC Is Acquiring the Harry Fox Agency…

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News surfaced over a year ago that SESAC was bidding to buy the Harry Fox Agency for around $40 million.  Now, SESAC has officially announced that they’re acquiring HFA from the National Music Publishers Association.  This is part of a strategy to license multiple types of rights in multiple territories.

The deal gives SESAC control of both performance and mechanical licenses, a distinction that’s growing more and more antiquated in the digital era.  SESAC says this will make “the licensing process both simpler and more efficient”.

SESAC says they will invest “heavily” in HFA’s Slingshot royalty tracking platform.

The acquisition still has to be approved by NMPA’s members, but it has already been approved by their Board.

 

Nina Ulloa covers breaking news, tech, and more: @nine_u

15 Responses

  1. Anonymous

    I find this an odd move considering SESAC was for sale not so long ago.

    Reply
    • Anonymous

      @anon, it’s not odd at all. SESAC has found a way to compete with the other U.S. PROs by acquiring a company that can offer what ASCAP and BMI cannot: mechanical licenses. They acquired RumbleFish already and can leverage that holding to facilitate synch licensing as well. They’re now–or rather, plan to be–a boutique, one-stop-shop for music licensing. This allows them to become a threat to the traditional PROs.

      ASCAP and BMI are hindered by consent decrees, and publishers are growing more restless to disaggregate specific rights and catalogs from the PROs to go direct (see the BMI and ASCAP v. Pandora line of cases)–maybe now, they won’t have to.

      But also, HFA has nearly 100 years of composition data in their database linked to 10 years of recording data from digital services. That data, and the royalty-tracking service that is powered by it, is valuable.

      I think this is a great move from SESAC and at a serious bargain (if the reported $35-40 mil. numbers are accurate). What’s distressing is that a (former-)Goliath in the industry is reportedly valued at less than $50 mil. Another example of the sad state of affairs in this industry. (Or for the few optimists among the typical commenters here, just another example of the opportunities that are being created in the new music business.)

      Reply
      • Paul Resnikoff
        Paul Resnikoff

        Whoever you are, comment more!

        Big pubs are dying within their consent decree-bound PRO deals. This could be a brilliant strategic play, and horrific news for companies like Pandora that exploit consent decree restrictions.

        And who says you can’t by SESAC? Maybe they’re just plumping up the bird.

        Reply
        • Anonymous

          @Paul, I typically lurk, but I’ll comment when I feel like I can add anything of value to a conversation (or simply feel like entering a flame-war).

          But substantively, you’re right. The major pubs. are likely more than excited about this acquisition. Think about it, the NMPA board (aka the major pubs.) approved this deal, and had reportedly been trying to spin-off HFA for the better part of two years. At the very least, I assume that this deal will put some more pressure on Congress to amend or repeal the consent decrees governing the other PROs (i.e., in light of the Copyright Office’s music licensing study and various hearings over the past year).

          I’m also glad that this deal may put pressure on Pandora. Maybe now people will start to recognize that the value of music is in the MUSIC, not in the third-party, non-music, detached, digital service providers. Perhaps a bit of market pressure will finally open up an avenue for reasonable royalty rates that free from the constraints of government-imposed, arcane, and archaic statutory schemes.

          Comparatively, Irving Azoff created Global Music Rights with this forethought: the old business is dying (dead?), licensing is a catastrophe, let’s make something new. I think SESAC is following suit, and smartly so.

          Reply
        • Musician Who Understands

          While I agree that this is a way for SESAC to compete with ASCAP and BMI by being the only PROS that can license both performances and mechanicals – and I also agree that the percieved value here to SESAC is in the database and the royalty tracking systems (much more so than mechanical rights licensing, which has been a money-loser for HFA for seve4ral years, now), I don’t get this:

          Anonymous

          “ASCAP and BMI are hindered by consent decrees, and publishers are growing more restless to disaggregate specific rights and catalogs from the PROs to go direct (see the BMI and ASCAP v. Pandora line of cases)–maybe now, they won’t have to.”

          Why would SESAC having the ability to license two rights (only in those cases where they administer the song for both rights) mean that ASCAP and BMI and their affiliated music publishers feel that they don’t have to continue to pursue their partial withdrawals? What does SESAC having mechanical licensing rights have to do with partial withdrawals of performance rights from digital services?

          Also, SESAC bought HFA for $20m. Not $35-40 mil.

          Finally, Congress doesn’t have anything to do with the “amendment or repeal” of the consent decrees governing the PROs. That is 100% Department of Justice.

          And Paul?

          “Big pubs are dying within their consent decree-bound PRO deals. This could be a brilliant strategic play, and horrific news for companies like Pandora that exploit consent decree restrictions.

          And who says you can’t by SESAC? Maybe they’re just plumping up the bird.”

          1) How is ANYONE being able to license mechanical rights “horrific news for companies like Pandora”?

          Newsflash: Pandora doesn’t license mechanicals. They just don’t care. It’s not their business.

          And Newsflash # 2): SESAC WAS ALREADY acquired. Private equity firm Rizvi Traverse bought 75 percent of SESAC in 2012 for about $400m. they are the ones that engineered THIS purchase.

          Reply
          • Anonymous

            “Why would SESAC having the ability to license two rights (only in those cases where they administer the song for both rights) mean that ASCAP and BMI and their affiliated music publishers feel that they don’t have to continue to pursue their partial withdrawals? What does SESAC having mechanical licensing rights have to do with partial withdrawals of performance rights from digital services?”

            It doesn’t mean that the pubs won’t continue to pursue partial withdrawals. Of course they will. What I meant to convey was that publishers may look to SESAC as a way to get around consent decrees, and the company becomes much more attractive when they can also license for mechanicals. No consent decree and one-stop shopping for licenses…not a bad deal. Publishers may also look to SESAC as a back-end platform for licensing. The point is, as soon as the pubs can smartly get away from the PROs, they will. With SESAC becoming a more viable option (in theory), they will become more competitive, perhaps take more market share, and maybe start an exodus away from the PROs in general.

            “Also, SESAC bought HFA for $20m. Not $35-40 mil.”

            Billboard had originally reported $35m and then printed a retraction (amending to approx. $20m). I believe the NY Times originally said $40.

            “Congress doesn’t have anything to do with the ‘amendment or repeal’ of the consent decrees governing the PROs. That is 100% Department of Justice.”

            We’re both partially correct. The DoJ (I believe) is the only body that can “repeal” the consent decrees. But Congress can absolutely “amend” by changing the Copyright Act (e.g., by adopting the Songwriter Equity Act or some other new statute).

          • Paul Resnikoff
            Paul Resnikoff

            SESAC isn’t bound by the consent decrees, ASCAP and BMI are. Actually, Anonymous above explains it in more detail, read that.

          • Musician Who Understands

            I understand that the combination of SESAC having no consent decree AND also providing one-stop shopping for licenses (again, only for those songs for which it would administer both rights, however…). I agree this makes SESAC a more viable option (in theory), but I just don’t see it as that big of a deal.

            If publishers were really that concerned with moving away from ASCAP and BMI due to the Consent Decrees, they all could have gone to SESAC at any time. But they didn’t. SESAC still only has >5% of the market. Again, I think the real benefit here for SESAC will be if they can make the most of HFA’s database, that I think, could lead to serious advantage and more market share for them.

            Not to nit-pick but, it IS a technical point: We’re not “both partially correct” about the Consent Decrees.

            The DoJ is – undeniably – the ONLY body that can modify or repeal the consent decrees. Congress can NOT “amend” them. Not even by by changing the Copyright Act.

            The Consent Decrees do not come out of any provision of the Copyright Act (other than the fact that they relate to the performance right that is announced in the Copyright Act). They have nothing to do with Congress or the Copyright Act. The Consent Decrees are 100% about the DoJ protecting against unfair competition in the marketplace. The Songwriter Equity Act has nothing to do with the Consent Decrees, either.

            The only way Congress could affect the Consent Decrees would be to go in and modify the performance rights provisions of copyright law in a way that would make them obsolete. And I wouldn’t advise holding your breath on that happening, any time soon.

            Hey Paul, thanks so much for useful the explanation that SESAC isn’t bound by the consent decrees, ASCAP and BMI are.

            In other news, can you let us know if water is still wet?

      • Rfil

        I think this is right on, except for the point about BMI being constrained. They are not technically constrained in their consent decree from offering mechanical licensing services, though ASCAP is.

        This is a big win for SESAC that should increase their leverage in general licensing. With Fox, they get a glimpse into the copyright picture of millions of songs, including individual song splits. They can also look at the historical mechanical royalty earnings each. They can then select the highest value songs with the least fragmented rights and structure an advance proposal to get them into the SESAC family using their mechanical royalty history as a basis for an almost guaranteed recoupment. This should help them poach a good amount of high value writers from ASCAP and BMI.

        Reply
        • Anonymous

          @Rfil, you’re right. To clarify, I did not mean to imply that BMI was constrained because it could not offer mechanical licensing; but rather, that they are obligated to comply with the consent decrees in general, making them generally less attractive to publishers in the “new” music biz. Now that SESAC has added the ability to license mechanicals, AND is not bound to the compulsory performance scheme, they have immediately become more alluring.

          Reply
  2. get smart

    SESAC is owned by a hedge fund. They bought Fox in a fire sale. HFA has been incompetent for more than 20 years. Sony ATV, Uni and Warner Chappell were disgusted. But everything Fox does is subject to a statutory license. This is just about a hedge fund trying to make a few bucks in the music space. Means and changes nothing.

    Reply
    • Anonymous

      Agree with you comment about hedge fund ownership which is a major reason the music industry in currently merely rearranging the deck chairs on the Titanic…

      As for HFA’s incompetence, I disagree … For the last 15 to 20 years, HFA has been one of the most competently run organizations in the music business … Its problem was that publishers associated with record companies licensed the publishing rights associated with their record company’s artists direct to avoid the HFA overhead but more importantly to avoid HFA audits. The record company related publishers were happy to allow HFA to handle collections and audits from labels other than their own.

      Until streaming HFA was able to survive on rational commissions from all other sources except record company related publishers that only accounted for around 40% of the market. However, as record sales and digital downloads plummeted rational commissions could no longer sustain HFA’s operations on mechanical and dpds alone.

      HFA’s Slingshot was launched by HFA to counter the diminution of commissions from record and DPD sales. It is a far superior back end solution for digital distributors than, say, MRI, MediaNet, Google Rightsflow or any other mechanical/digital rights clearance houses. Problem is the trajectories had yet to cross before the sale of HFA became imperative. Maybe SESAC can leverage Slingshot and the digital data they secured from the acquisition into a successful operation.

      Question is, how long will the current hedge fund put up with the search for success until it sells the whole mess to another hedge fund that will, more than likely, exacerbate the current whirlpool to oblivion.

      As for me, an HFA client, I want to get out of the SESAC/HFA relationship as soon as a rational alternative presents itself … hopefully, via the one or both of the major PROs if that becomes possible.

      Reply
  3. Musicservices4less

    Great commentary! Haven’t seen something like this on DMN in a long time. I am not affiliated nor use Kobalt but they are trying to get into this space as well. I wish someone from their organization would comment here and explain to the readers what their acquisition of AMRA means and exactly what they are trying to do. It would be nice if they would give a comparison to the new SESAC/HFA. Nina?

    Reply
  4. Chris H

    Wouldn’t this also give them a HUGE amount of ISRC codes, which is the basis of tracking on a lot of digital services and Soundexchange? Just thinking out loud, since there is no centralized database of ISRC codes anyway and most independent musicians are horrible at keeping track of such things, that would put them in the driver’s seat to collect a lot of on the table revenue, no?

    Reply

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