SESAC Parent Considers Acquisition of Harry Fox Agency (Exclusive)

Rizvi Traverse, the private equity firm owner of public performance rights organization SESAC, is planning a bid to acquire the Harry Fox Agency, the U.S. mechanical rights organization.

HFA’s parent National Music Publishers Assn. is now planning to hire an investment bank to explore the possibility of selling its HFA subsidiary as it anticipates the Rizvi Traverse bid. But even before now, the NMPA has been informally exploring the possibility of selling the agency for at least the last six months sources say. According to sources, Raine Group, which sold Concord Music Group last year, is among the investment banks that have been approached.

Rizvi Traverse may be considering a bid between $30 million and $40 million, according to some sources, while others say the company's letter of interest in acquiring HFA didn't include a price.

Last year Rizvi Traverse paid nearly $800 million for its 75 percent stake in SESAC.

If Rizvi’s acquisition of HFA were to go forward, it would give SESAC (the smallest of the three U.S. performance rights organizations, behind ASCAP and BMI) a unique capability of bundling performance and mechanical licenses for its songs, if the publishers of those songs agreed to this licensing approach. This is a strategic advantage for SESAC because interactive streaming services like Spotify need both performance and mechanical licenses in order to operate. (Non-interactive services, also known as passive streaming services like Pandora only need performance licenses.) Currently, most streaming services do direct deals with publishers for mechanical licenses while going to the performance rights agency for a blanket performance license.

An HFA acquisition by SESAC provides that organization with other possibilities too. It would expand the SESAC song database, giving it access to the mechanical song splits to millions of ASCAP and BMI songs.  

Furthermore, if the major music publishers follow through on their threat to withdraw from ASCAP and BMI to earn the right to negotiate higher rates from digital services, SESAC would ideally be positioned to service as an administrator for withdrawing publishers.

Within the last nine months, in proceedings to set public performance rates for Pandora, both the ASCAP and BMI rate courts in separate rulings said publishers have to either withdraw all their rights from each society or leave all their songs in there for all performance licensing.

Moreover, both ASCAP and BMI as well as the major publishers have approached the Dept. of Justice about getting the consent decrees under which they operate changed to allow publishers to withdraw digital rights. If that change doesn't happen, the major publishers say they will withdraw completely from both BMI and ASCAP.

If the major publishers withdraw completely from ASCAP and BMI it would create turmoil for all music publishing licensing. But a SESAC armed with HFA capabilities would help solve some of the problems that could occur.

Finally, some suggest that SESAC has long harbored the ambition to be a global society and an acquisition of HFA would provide it with the basis for building a global database.

On the downside, SESAC and Rizvi Traverse would be acquiring a company that is on the decline revenue wise. Sources suggest, as recorded music sales have fallen, the HFA’s revenue has shrunk over recent years to $150 million currently.

While ASCAP is prohibited from engaging in mechanical licensing due to its consent decree with the DOJ, one observer suggests there might be some wiggle room in the BMI consent decree that would allow it to make a play for HFA. But whether they are interested is another matter, that source speculates.

SESAC, Rizvi Traverse and HFA either didn't respond to a request for comment or declined to comment, while the NMPA issued a statement saying it "has received interest and is always open to options."