SESAC Music Group has become an increasingly important player in the US music eco-system, as well as internationally. From a small boutique performing rights society, formed in 1930 to collect royalties from the use of music in cinema by European rights holders, SESAC has become a group of companies with a diverse portfolio of activities.
The company was acquired in the 1993 by a group of investors led by Stephen Swid (the S in SBK, the company that acquired the CBS Songs assets from CBS in 1987). But the key to the transformation of SESAC into a group with multiple businesses was the arrival of private equity group Blackstone Group as the company’s main shareholder in 2017, although the acquisition from the NMPA of the Harry Fox Agency (HFA), which managed mechanical rights on behalf of music publishers, dates back to 2015.
Based in New York, the company has expanded in the Christian music market, with the acquisition of Christian Copyright Licensing International, the data market (Audiam and Audiosalad) and internationally, mainly through a licensing joint venture with Swiss rights society SUISA, Mint Digital Services.
SESAC has had a notoriously low media profile, with rare public comments from its leadership. But something has changed and Creative Industries News‘ Editor Emmanuel Legrand was offered to speak with John Josephson, who has served as Chairman and Chief Executive Officer of SESAC Music Group since August 2014.
Josephson initially invested in SESAC in 1992 and has served as a director of the company continuously since that time. Prior to joining SESAC, he was a Managing Director at Allen & Company LLC, a privately held merchant bank. He is a member of the Council on Foreign Relations, the Recording Academy, the Academy of Country Music, and the Country Music Association.
Here’s a slightly edited version of the hour-long conversation with Josephson.
Why are you doing interviews now after staying quiet for so long?
John Josephson: We really haven’t had any incentive or desire to tell our stories since we were acquired by Blackstone, a) because I think it’s good sometimes to be below the radar screen; and b) we have a long term partner that we’re going to be in business with for at least 10 to 15 years. We’re probably five years into that relationship at this point, so there was really no need to speak out, but as our business has changed significantly in the last five years, the challenge that I have is to have conversations with people where they understand that we’re really operating across a much broader tableau, if you will, than we were five years ago, and to really understand what our company is today, which very, very few people do. It’s like the Chinese proverb, every journey of 1000 miles begins with the first step, so you have to begin somewhere. We’re just beginning now to make an effort with people that I think can really appreciate what we’re doing, and have enough knowledge and background and context to begin to get the message out.
What is the SESAC Music Group made of? What kind of businesses are you in?
John Josephson: Let me recap quickly. If you ask for a high level description of what the company is, it’s a business to business, infrastructure and services platform that sits between rights holders and businesses that want to use music, in a variety of different contexts for different business models. And the unifying capability that sort of drives why these businesses make sense together, is the expertise that we’ve developed in data, data analytics, and administrative tech — just straight data processing technology, and administration services. So all of these businesses leverage off of those core competencies. Of the four business units that exist today, obviously the largest one is our domestic Performing Rights Organisation SESAC, which everybody knows about, and everybody thinks is basically the totality of the company. We have a another business unit that basically serves the needs of Christian congregations that are incorporating music into their worship services. Those are principally evangelical congregations, both in the US and internationally. That’s a business that we bought in 2016. It’s probably the largest commercial partner for the Christian music publishing and writer community. It represents a fairly significant portion of the revenues that that industry generates, I would suspect. Since we bought that business, it’s done very, very well under our ownership. We’ve done a lot to drive it. It has a very competent management team and it’s grown very substantially since we bought it. We have a group of audio visual music businesses. As a side note, for our broad domestic Performing Rights Organisation, audio visual music — as opposed to what we call audio-based music, which is music on radio or Spotify — represents a disproportionately large part of our Performing Rights business relative to any of our competitors. We feel that we’ve developed a particular expertise and understanding the intrinsic value in the context of performing rights in the US of audio visual music, and we sort of drawn on that expertise and knowledge base to expand into a business called Audio Network, which is based in London. It competes globally, but from a market share standpoint, its strongest markets are the UK, continental Europe and Australasia. I’s got a decent market share in the US that’s expanding, but it’s a business that really has started from a base in the UK and in Europe. And then, the fourth business unit is what we call Music Services. It’s an aggregation of a variety of different businesses that serve different needs for creators, as well as publishers and labels across a variety of different sort of needs that they have, and that serves a clientele that’s both domestic and international. All of those businesses really drive on what is our core expertise in both licensing and technology. History shows that we achieve very good results when we license music, and we’ve built a pretty robust technological capability combined with a data asset that, from our perspective, is second to none in the world right now.
What drives your investment choices?
John Josephson: We want to focus on businesses that are driven by the things that we think we know well, and do well. So we’re principally interested in businesses that are licensing- and administration-focused — obviously, in music. And then beyond that, it’s somewhat opportunistic. We’re looking for good businesses with good business models that are in niches that we think are sustainable, that we can scale with solid management teams, or businesses that may not have solid management teams where we think we can bring a particular expertise to help drive growth of the company.
Let’s talk about your data business. What does it encompass?
John Josephson: It’s a combined data asset that sits across HFA, our Performing Rights business, and our joint venture with SUISA, which is called Mint. We look at it holistically across all those different businesses and there are components that are are oriented more towards serving the needs of one of those businesses, or the other. We think of it as an asset that exists across all three of those businesses, and we have made a lot of efforts and spent a lot of time and resources in the last seven or eight years to sort of be able to look at the picture holistically, both across multiple geographic territories, and multiple rights. So it’s not just performing rights, not just mechanical rights, but both other rights categories we’re looking at, and we’re having a picture that is not just in the US, but global.
Do you include what you do for the MLC as part of that business?
John Josephson: Music Services includes HFA and HFA is basically the back-end, if you will, for the MLC, so it’s the processing and matching and the dataset that we’re maintaining on their behalf to help fulfil their business.
Did you understand why some people were surprised that HFA was allocated the data management part of MLC’s business considering that HFA was already in charge of this business before? And not everybody was actually convinced that it was the best choice.
John Josephson: No, I wouldn’t be surprised at all by that. I mean, just to give you the history, we went through a similar process back in 2015, when we’d actually begun speaking with HFA, probably before I took my job when I was still working at Allen & Co. and was on the board of SESAC. We spoke to a lot of people. There was obviously a lot of negative press and a lot of negative reputational perspective by many industry participants about HFA. We spent a year looking at the entire universe and the conclusion that we came to is whatever HFA’s faults were, it was actually doing a better job than anyone else. The quality and breadth of their data asset, however much improvement it could benefit from, was still better than anything else that would be available onto the market with us. And when you combine that with the fact that they had an existing commercial relationship with virtually every publisher in the United States and a large percentage of them outside the US, that kind of commercial connectivity is very valuable. So we went through a similar diligence process, and we knew what the flaws were. But the other thing I would point out to you, HFA was doing most [data processing], but it wasn’t doing all. There were other companies, like MRI, that were also doing matching and transaction processing on behalf of DSPs. And what we have found is that the amount that’s actually paid out to rights holders since the advent of the MLC with HFA as a commercial partner has actually gone up. Some of that is because we’ve just been in a process of continuous improvement of our data asset. But part of that is a reflection of the fact that HFA was probably doing a better job than others that were also serving the need in the marketplace, although they were smaller than HFA.
There’s also that rumour that during the discussions about the MMA there was a quid pro quo with you, so that in order for you not to block the MMA, you were given a guarantee that HFA was going to be part of the MLC process.
John Josephson: No, that’s one narrative. I will tell you this: the concerns that we had about the MMA — and no one had consulted us or thought to consult with us when the legislation was initially drafted —, was that it really created a risk of destroying the value of HFA. And we didn’t think, given the fact that we paid the industry to acquire that asset, that that was entirely fair. And we wanted it to be at least on an even playing field. I would say that just raising our hand to express a concern and slowing down that process generated so much ill will towards our company, that if anything, I think it put us at a real disadvantage to get the business. I honestly believe that the reason why we got the business is that the committee that the MLC put together — to which we pitched and went through a process selection process that lasted, you know, six to nine months — came to the conclusion that when you do the work and you look at the numbers and you study the problem, I don’t think you have an alternative that’s as viable as HFA. That would be why we had that business.
Let’s talk about your performance rights business. Why is it that we cannot access your figures, like we do with ASCAP and BMI’s?
John Josephson: We don’t share our profit and loss statement publicly. I would just point out that any of the parties that we do business with come to us of their own volition, and we don’t impose any restrictions on their ability to leave whenever they want, unlike ASCAP and BMI, which make it very difficult, with a variety of different rules that they have to allow people to leave when they want to leave. So I don’t feel that there’s any sort of ethical or moral obligation to share that. What I can tell you is that [thinking in terms of] market share in the performing rights space in the US is probably simplistic if you think about it across everything — you need to look at different market segments. For example, in audio visual music in local television, we have a very, very high market share. Our market share in radio is certainly less than it is in local broadcast television, but there’s significant variations in sub-markets. Overall, we’re probably comparable in audio-based music to Global Music Rights, and probably larger than them in audio visual music. But we’re obviously much smaller than either ASCAP or BMI.
In terms of repertoire, you are more focused on the Latin repertoire and on country music, right?
John Josephson: We have launched an initiative many years ago called SESAC Latina that was focused very exclusively on serving the needs of Latin composers. That’s a meaningful part of our business. But I wouldn’t say it represents who we are. I don’t think we have any specific genre focus, we thought that we could best serve the needs of Latin composers by forming a distinct business unit with people who really focus exclusively on that market. But that’s really more on the A&R side. On the licensing side, it all gets subsumed across the whole platform. We have a disproportionately big focus on audio visual music for sure, relative to ASCAP, BMI and Global Music Rights. Within audio-based music, we’re not really focused on any specific genre — we have a lot of classic rock, we have a lot of contemporary music that’s doing well, we do a fair amount of country, and we do a fair amount of Latin music, but I don’t think it skews that different than the market overall.
How hard did the Covid hit you? And where are you now compared to where you were in 2019?
John Josephson: For performing rights we’re meaningfully above where we were in 2019. It was a very challenging time for six to 12 months, you know, with the general licensing part and the concert licensing part of our business going to zero for a period. We had to really focus very aggressively on containing costs, which we were able to do successfully. But I would say, today, the business is probably 10% above where it was in 2019. And then across the entire company, we’re probably 30 to 40% larger than we were in 2019, principally, because we acquired Audio Network through the eOne transaction in 2021 [SESAC parent Blackstone acquired eOne Music for $385 million, with Audio Network being part of the package].
You were one of the first for profit performance rights societies in the world. What’s the benefit of being for profit?
John Josephson: We approach our business in a very commercial way. We are very agile and commercial when we license music. So I think the result of that is that we tend to license more effectively than our competitors. That means we’re licensing at a premium. We obviously are an unregulated entity compared to ASCAP and BMI. So we license in a free market, whereas they’re constrained by various provisions of the consent decrees on how they license music. Then, secondarily, we’re just a very service-oriented company. We really focus on the customer and on responding to customer needs. We treat rights holders as though they own the music, not like we control it, and they are a customer. I think this gives you a very different attitude and how you interact with your customers, particularly publishers. We’re able to operate more cost efficiently and more nimbly than our competitors in our space. We also deliver a higher level of service to our clients. So when you marry that with the enhanced licensing capabilities, the answer is that for the people that we serve, we can deliver more flexibility, better licensed and better value outcomes.
One of the argument against that could be that since you’re a for profit company, your profits must come from the share would have gone to writers or publishers.
John Josephson: And my response to that would be — would you rather have 100% of $50, or, to pick a number, 80% of $100. I mean, if you’re focused on having 100%, then we’re not the place that you should come to, because we’re focused on maximising the value of our affiliates’ IP and delivering the highest dollar value possible. People who are at SESAC chose to come here from somewhere else, and they are free to leave whenever they want. Ultimately, they’re only here for two reasons: one is to get better value for the rights and the other is to get better service.
People can only join SESAC if they’re invited. Is that correct? So how do you pick those who want to invite?
John Josephson: Well, we approach each affiliation on a case by case basis. And it’s really about who we think we can serve. Do we think we can license it for a meaningful premium over market and therefore deliver incremental value for them? So it’s really in the context of — is there a specific reason why we think we can deliver better value for this writer or publisher than they’re currently getting?
Do you provide advances to songwriters?
We do advances. Yes.
Is that a good way to lock songwriters into a long-term relationship?
John Josephson: I mean, the writers that we’re dealing with, and the publishers we’re dealing with generally, have already achieved a fairly significant degree of commercial success. And they’re generally being advised by pretty well informed attorneys and managers. So I don’t think it’s a rope a dope, where we lock people into things. And frankly, people are always free to leave if they have another deal. If somebody wants to pay off their balance, they can leave tomorrow.
Do you still have Bob Dylan as a client?
We do. But obviously, Universal Music Publishing owns all his rights now. So they’re really the party that we’re negotiating with.
How did you get Dylan to join SESAC in the first place?
John Josephson: I think it was really treating him like a customer. And giving him a substantial increase in what he could get for his Performing Rights. And, you know, that’s a relationship that started in 1994 or 1995, and continued right up through the time that he sold his catalogue to Universal. For his new compositions, he remains an affiliate of ours. The way you keep relationships is by delivering better results.
Would that be an advice you would give to BMI CEO Michael O’Neill, who now runs a for profit PRO?
John Josephson: I think Mike O’Neill’s business is fundamentally different from ours — it’s many times larger in terms of market share. How you run a business of that size, versus one that’s very focused on just the premium creators is very different. They involve different challenges and different solutions. I think that, irregardless of for profit, not for profit, taking more of a customer-centric approach and treating your customers not like they have no alternative than to deal with you, is a good thing. It’s really about meeting them where they need, where they are and what they need is. I think it’s a good advice. It becomes more important when you’re a for profit, because the expectation is going to be that they’re going to deliver something better than they have historically. Because otherwise, you revert to the question that you asked me before, which is, where’s the benefit? So they’re going to have to find a way to better serve their clients’ needs going forward to justify that.
They can now claim there are the biggest for profit PRO in the world, which is what SESAC used to be.
John Josephson: You know, I don’t think our objective has ever been to be the largest rights organisation. Our objective is to be the best, and to have a great business that we can grow sustainably over time for the benefit of our affiliates, our licensees and our shareholders. Our business model has evolved: when I started we were a boutique Performing Rights Organisation, and we’re now sort of a multi-line music company that sits between rights holders and users of music across a variety of different use cases, not just domestically, but internationally. Obviously, we compete with Global Music Rights, we compete with BMI, we compete with ASCAP in a portion of our business that still is the largest part of our business. But I also think that companies like Kobalt or Downtown Music Services as competitors as well.
Blackstone is your main shareholder. As you just mentioned, you’re five years into this relationship. Why are they making this investment?
John Josephson: I would break it into two parts. Blackstone and their core equity fund probably owns 85% of the company today, or somewhere between 80 and 85%. So for those investors, Blackstone’s objective is to deliver the best return possible. As a partner for us, Blackstone brings a lot to the table. Just let me give you a couple of examples. They’ve got a group in DC that that is really focused on legislative affairs and interfacing with Congress and the government, broadly speaking. The degree of connectivity and access that we have now relative to where we were, before we were controlled by them, is night and day. So that’s an important asset when you’re working in a business. Even though we’re not regulated, music is a highly regulated business. Making people who are legislators and regulators understand the nature of our business is very important. And having the ability to tell our story and have that access is very valuable to us. Another example is Blackstone has had for the last five years a huge Data Science Initiative to use data and metadata to help drive enhance performance of their portfolio companies. They’ve got 20 or 30 people, highly educated, very experienced, very competent, focused on those capabilities. When we need them, they come to our assistance. Just to give you an anecdotal illustration, although this goes beyond data services, Blackstone took 40 of its most cloud-forward portfolio companies on a trip out West earlier this year, to see Microsoft, Google and Amazon Web Services, to see a couple of other of the major participants in the world of AI because as much as they’ve done a lot in data science, they have a huge initiative internally. We happen to be one of their more technology forward, data forward, cloud forward companies. The exposure that we’re getting to the underlying technologies puts us easily six to 12 months ahead of any of our competitors in the music industry, in terms of access to and the ability to really begin drive implementation of those technologies. So that’s another benefit. And then, when we want to go and do debt financing in the capital markets, we get the best execution that you can possibly get, honestly, in the world. As a platform, Blackstone delivers value to us in a variety of different ways that ultimately serves the interest of their investors, but also serves the interests of our commercial counterparties, because it really enables us to create a platform that sits on the edge of what’s available in the marketplace today.
And if you were to go to Blackstone and say, ‘Hey, how about giving us half a billion dollars to acquire catalogues’, like the Bob Dylan catalogue, would they follow you? Or would they say, we already have partnerships elsewhere?
John Josephson: Well, I’d say two things to that. I think we have gone to Blackstone and asked them for $400 million, and they’d given it to us. We’re not really interested in buying catalogues per se. And as you know, obviously, people tend to think of Blackstone as being a monolithic entity, but it’s actually multiple different businesses. You have Tac Opps [Tactical Opportunities, which has $34 billion in asset management], which has a different investment strategy than private equity — and we sit within the private equity business unit —, so their investment in Hipgnosis sits within Tac Opps. Those businesses are run like completely separate businesses — their deal team is in London, ours is in New York. We don’t wake up in the morning saying we want to go on catalogues. There are other businesses that we been interested in owning, whether the Christian copyright licensing, whether it be Audio Network, and our track record, to be frank, on our acquisitions has been very, very good, both buying at good prices, and then being a good place, good home for those companies, so that they grow. Over time, they become very accretive to the value of our company. Every request we would make to Blackstone has to stand on its own merits, but we’ve have the benefit of a very good working relationship with them over five years, over which we’ve created value for ourselves as well as their investors. And I think that that puts us in a very good place when we sit down with them and say, Hey, we think we’d like to do business X. But I’m not sure that catalogues per se are the area where we really want to focus our M&A activities.
One of the things that you’ve been doing is expanding your footprint internationally. What kind of role do you want to play?
John Josephson: The dream in the world would be to have one place you could go to declare all the rights you need to use music. Imagine if you’re Spotify and you could push one button and one company would give you sound recording the composition rights, for every territory in the world. That’s not really practically possible in the intermediate to long term. If for no other reason than in South America, for example, many territories have essentially legalised monopolies that control the exploitation of performance rights in those territories. You’re never going to be able to really deliver a true global license. But what we’ve been working towards since we acquired HFA in 2015 is to try and create the ability to exploit music across all rights categories in as many territories of the world as possible. And everything that we do is really working towards that goal. When Mint originally started, the idea was to do pan-European digital licensing. But what we’ve seen is that, actually, some of the most interesting opportunities for us had been in India, Australasia, Southeast Asia, Sub Saharan Africa. We are doing as much in those areas as we’re doing in Europe right now. So our objective is to really use that, as a leverage point, to help put us in the position of having as complete this licensing picture as possible for business.
How do you see your company in five years from now? Where do you see the business evolving?
John Josephson: The businesses that we own today, if I had to pick a number, we think will continue to compound at over 10% a year in terms of just organic growth. So just working on making that happen takes a fair amount of our bandwidth. And as I said to you before, our M&A plan is more opportunistic than sort of sitting back. There are companies that are on our radar screen that aren’t for sale today that we’d like to own, so I can’t tell you for certain whether or not they’ll come to market in the next two or three years. If they did, we would be very proactive in trying to acquire them. And that will go domestically, as well as internationally. I think some of the most interesting opportunities are internationally, but there are complexities, cultural complexities, operating environment complexities. There’s what you call span of control, and you’re just having a worldwide disparate group of businesses, so you want to be thoughtful about that. But we’re looking to do more internationally. I would think that we will probably increase the non US component of our business, from a revenue perspective, over time through acquisitions, in addition to organically, but my objective, if you look across all these businesses, is to be running, if not the largest, but one of the largest B2B platforms that sits between end users of music and rights holders that’s involved in the exploitation and administration of music globally.