SESAC's John Josephson On the PRO's Plans to Grow After Major Blackstone Acquisition
Fueled by a $1 billion acquisition by the equity fund Blackstone Group, the PRO chief is taking his company beyond its comfort zone.
For years, SESAC has been very good at its core business: making money for songwriters, publishers and shareholders. And after doubling in both size and profitability during the past five years, the performing rights organization proved an attractive investment for the equity firm Blackstone Group, which laid out a rumored $1 billion to acquire the company earlier this year.
Bolstered by the financial muscle and resources that Blackstone brings to the table, John Josephson, SESAC's chairman/CEO since 2014, has plenty of tools to deliver a big return on Blackstone's investment. And it's a good bet that the company will continue to grow; since Josephson's appointment in 2014, SESAC has launched an aggressive strategy to move the PRO beyond its comfort zone through acquisitions and joint ventures.
Unlike PROs operating under consent decrees, such as ASCAP and BMI, which have to accept any songwriter that wants to join, membership in SESAC is mainly obtained by invitation. The company represents 20,000 songwriters -- including Bob Dylan, Charli XCX and newly-signed R.E.M. -- and 675,000 compositions, as well as 30,000 publishers through its September 2015 acquisition of the Harry Fox Agency.
Under Josephson's leadership, SESAC has diversified beyond performance-rights licensing, acquiring HFA, which put the PRO in the business of mechanical licensing for publishers; RumbleFish, which specializes in YouTube monetization; and Christian Copyright Licensing International, which handles copyrights for churches and worship music. The PRO also has entered a Pan-European licensing joint venture, MINT, which licenses repertoire to digital services throughout the continent.
Josephson is no stranger to C-Suite multitasking. By the time he was elevated to the PRO's top job, he had been a director at SESAC for 22 years, while simultaneously serving as a managing director for investment banking firm Allen & Co. Along the way, the 55-year-old Harvard Business School-educated executive -- who lives on Manhattan's Upper West Side with his wife, Baby CZ CEO Carolina Zapf, and their three children -- also co-founded Downtown Music, which made its mark after releasing Gnarls Barkley's Grammy-winning album St. Elsewhere in 2006.
But after selling his stake in Downtown, Josephson is now fully focused on SESAC's future, and with the backing of Blackstone, he's looking to continue evolving and integrating its businesses. "Sometimes, it takes time to get people comfortable in changing existing practices," says Josephson. "But I am optimistic."
How did Blackstone finance the deal?
We only closed on financing at the end of February. It's a combination of a direct investment from their core equity fund and the proceeds from a debt finance. [But] we never have released the amount paid.
Was that long-term debt?
It's long term. It was a slightly higher amount than before. We currently have $525 million of long-term debt, slightly higher than the $439 million reported by an analyst a few months before the Blackstone acquisition.
Have they installed any of their people in the company?
No. Assuming we can continue to perform well, they will be actively involved as members of the board, but they will be looking to the team to run the business on a day-to-day basis and they don’t have any plans to install anybody.
How did you explain the growth opportunities for potential investors?
The growth story here involves three buckets. One is to continue the growth of our core domestic performing rights business [and] look to continue to broaden the base of rights that we monetize. Our share of that business has grown consistently over the past 20 years, and we are on a path to continue that [growth]. We just signed R.E.M., and we have a couple of other things coming up over the course of the next month or two that drive growth in our PRO business.
The second source of growth is acquisitions. Just as we did with the Harry Fox Agency and Christian Copyright Licensing International, we are hoping to find interesting opportunities where we can bring something to the table.
And then third, we announced last fall a joint venture with [Swiss collection society] SUISA, which will engage in Pan-European digital licensing. We will soon announce a launch customer for that business. Over time, we will be more involved internationally as a third prospective source of growth for the business.
Have you made any inroads yet into services that would be using your organization to license performance and mechanical rights combined? Have you had any luck on signing up publishers for that?
For bundled performance and mechanical rights, we have been talking to a lot of people for about a year now. And we have gotten interest, but nothing that is imminent in terms of a launch customer. The nature of the industry, people want to consider decisions like that very carefully. Part of the process is walking through and exploring all the nuances of making a change like that, and then getting to a place where they have the confidence to take the step. I still think that is something that we are going to do, but my guess is we are still six to 12 months away.
Is it a chicken-and-egg situation? Do you need the service to first commit to it, or do you need a publisher to get behind it?
Yes, it is a little bit, but we have been involved in chicken-and-egg situations before. They don’t intimidate us enough to stop trying; it’s the nature of any business, any industry. We are going to have to keep working, talking to people, walking through the different scenarios. You need to both get the services interested in a license like that and you need a sufficient number of publishers to want to do it to make it interesting for the service to want to do that kind of licensing. There is a different perspective from each service and you have a multiplicity of views among publishers. It is getting to a place of planting a flag in the ground with one of each and building around that. That’s the process we are engaged in right now.
Have you sought to administer deals beyond your current situations? For example, did you seek to administer the Turtles-SiriusXM settlement?
We did not. For the time being, we are focused on mechanical and performance rights, both domestically and internationally. I would expect that the music publishing universe would remain our focus.
There seems to be a movement by music licensers to identify what percentage of a song PROs and publishers control. Has SESAC addressed that issue?
There is a discussion within the industry on addressing transparency. Coming out of our settlement with the RMLC [Radio Music Licensing Committee, which represents 10,000 U.S. radio stations], we already had publicly made available a comprehensive list of compositions we represent. But we made enhancements to it as a result of the settlement.
As of today's date, that song list doesn't represent the fractional interest that we represent. I expect that, over time, you will see an evolution in our position on this topic consistent with where the industry is going as a whole.
How far along is your organization in integrating the SESAC and Harry Fox databases?
There are about 14 million compositions in our combined database, approximately 8 million of which are linked to recordings. We have 73 million recordings in the database, of which approximately 27 million are linked to compositions.
Could you see SESAC buying a foreign PRO?
If someone came to us and was interested in being acquired, we would definitely take a look.
Do you foresee any opportunities in synch licensing with digital services?
If you are talking about micro synch licensing, that is a business that we are already involved in through RumbleFish, where we have a portfolio of pre-cleared music that you can synch with user-generated content. That is a business we are in today and plan to try and grow it.
Do you foresee SESAC itself, or Blackstone separately, looking to own music publishing copyrights?
I can only speak for SESAC, and I can tell you unequivocally, we will not own copyrights. Publishers are our partners, our customers, and we don't want to compete with them.
What do you like about the music business versus the Wall Street investment banking business?
The opportunity to interact directly with the artists and the teams that work with them to exploit their works in the marketplace. Before, as a director of the company, I didn't get to do that. It's a thrill to get to know some of the artists that we work with and work more directly with their teams, whether that be their managers or the attorneys that they work closely with. It has just been a lot of fun to get firsthand experience around the creative community.
This article originally appeared in the May 13 issue of Billboard.