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Music Modernization Act Stares Down Potential Snag

SESAC parent company Blackstone proposes significant changes that advocacy groups say would "doom" the legislation.

It’s so far been smooth sailing for the Music Modernization Act (MMA), which in June was approved unanimously by the Senate Judiciary Committee following its passage, also by unanimous vote, in the House of Representatives in May. The legislation aims to improve royalty payments to songwriters, artists and creatives in the digital era. Its next and final step before heading to President Trump for signature is a full Senate vote to consider the act.

But on July 17, private equity firm Blackstone, which purchased performance rights organization SESAC in January 2017, submitted a proposal that MMA proponents say would “doom” the legislation by “upsetting the fundamental structure of the bill to benefit its private company at the expense of the entire music industry.”

At the heart of the issue for Blackstone is the nearly 100-year-old Harry Fox Agency (HFA), the rights management and collection entity which was bought by SESAC in 2015 for a reported $20 million. The HFA has acted as a hub for administrating and distributing mechanical license fees on behalf of music publishers. The MMA in establishing its proposed Mechanical Licensing Collective (MLC), to be overseen by a Board of publishers which includes four self-published songwriters, allows the HFA to compete as a vendor in an open market but it could also devalue SESAC’s investment.

Says attorney Dina LaPolt, a key figure in drafting and shepherding the MMA through the halls of Congress: “We worked very hard to get songwriters on the governing board of the Music Licensing Collective so they can be involved in the oversight of properly matching the mechanical royalty income. We cannot have a competing entity.  We are in this problem because of HFA’s inability to effectively license. HFA should just shut their doors, fire everyone, and sell off all their furniture.”

Adds Nashville Songwriters Association International (NSAI) executive director Bart Herbison: “It’s not a proposal in good faith. They’ve had well over a year to discuss any changes they wanted to make in this bill. And many times they’ve said, ‘We support it; it’s good for songwriters.’ So to come forth with a proposal that radically alters the bill in this way is just disingenuous and frustrating. I would add that it’s a bad proposal. It adds layers of duplicate services and costs and is just a non-starter for all of the primary stakeholders who crafted this bill. I hope they will back off from it and that we can move on and pass legislation that’s great for songwriters.”

SESAC is a for-profit company (as opposed to ASCAP and BMI who operate on a not-for-profit model) and is able to determine rates for its copyrights in an open market. Until now, the two leading PROs have had to operate under rates determined by a government-run rate court, which they, along with songwriter advocacy organizations like the  (NSAI) and Songwriters of North America (SONA), argue is an antiquated and inefficient system that urgently needs restructuring. It’s worth noting that SESAC did not endorse the MMA officially though it has voiced support for the act.

In a statement released by NSAI and SONA, the two organizations assert that Blackstone and SESAC aim “to disrupt the bill’s progress in the 11th hour. This attempt to appear constructive is simply a stall tactic.”

For its part, Blackstone argues that allowing multiple vendors to administer mechanical licenses and process royalty payments will create fair market competition. It further claims the MMA would harm the business of licensing vendors and that the proposed creation of a MLC could not be efficient. “A single, European-style, government-regulated monopoly [is] antithetical to the free market … inefficient and ineffective at best and corruptible at worst,” reads the proposal obtained by Variety.

NSAI and SONA responded to each of Blackstone’s arguments directly, calling its efforts “essentially a poison pill” and labeling the Harry Fox Agency’s complicity as “an act of greed and callous disregard for American songwriters and recording artists” that uses “their financial and political muscle for their own narrow corporate self-interest.”

Where a real free market is concerned, the MMA advocates say Blackstone’s proposal “benefits only one company — SESAC/HFA.” As for the insinuation that the MLC could not be efficient and innovative, they point to SoundExchange as a successful collective operating in the music market. Additional proposals by Blackstone would create “inefficiencies” and multiple “middlemen” and administrators, bogging down the clearance process for DSPs and creators alike,” say NSAI and SONA.

The right thing to do, MMA backers add, “would be for Blackstone, SESAC and Harry Fox to abandon any changes that would disintegrate support for the Music Modernization Act from an unprecedented collection of stakeholders and immediately call for its swift passage. Otherwise, SESAC, Harry Fox Agency and Blackstone will bear responsibility for stopping the most important songwriter legislation in decades.” Should the HFA remain, backers of the bill will pull their support and the MMA will effectively die.

Among the benefits touted by the MMA are the establishment of a new streaming mechanical royalty rate standard for songwriters, and a process for producers and engineers to receive their digital royalties; a statutory guarantee of streaming royalty payments for artists’ songs recorded prior to 1972; the creation of the MLC to oversee blanket digital mechanical licenses as a privately funded and operated entity; and fixing statutory license issues as legislated by Section 115 of the Copyright Act of 1976.

The DSPs are holding millions in unmatched mechanical royalties — the sum of all Notice of Intent (NOI) filings currently parked at the U.S. Copyright office, while unknown, is climbing. If the MMA passes, that money would be passed through to the MLC which would match it to the songwriters and publishers. Appearing in Congress to support the MMA in May, R&B icon Smokey Robinson told the Senate Judiciary Committee, “It is about lives — they could really use that money.”

A representative for Blackstone tells Variety, “Blackstone strongly supports music modernization, and we are confident legislation will be signed into law this year as long as all parties continue working in the same cooperative spirit that has characterized the process so far.”

“SESAC is committed to working towards a version of the Music Modernization Act that retains all of the benefits for writers, publishers and DSPs and which will move music licensing into the 21st Century while supporting a competitive market in music rights administration,” says a representative for the PRO. “We expect that as the Senate continues to work through these issues with input from concerned and well-meaning stakeholders, an appropriate resolution will be reached and the MMA will be passed before the end of the year.”

On July 25, SESAC further stated: “SESAC is America’s second oldest PRO. We have a long history of advocating on behalf of songwriters and providing a premium value for their work unavailable at other PROs in the U.S. since the 1940s.  SESAC is a driver of competition that benefits ALL songwriters.  SESAC wholeheartedly supports the goals of the Music Modernization Act and wants those goals made law — just like you do.  We are concerned that a lack of competition might damage not only our business, but songwriters too.  We’ve suggested a simple amendment to improve competition so we can continue to ensure that ALL songwriter and publisher royalties continue to grow. Any assertion to the contrary is simply dishonest.”

Update: The sum of all NOIs submitted to the Copyright office is unknown; the article previously stated $1.5 billion was being held as “black box” money.

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