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Songwriter Groups Accuse SESAC & Harry Fox Owner of Trying to Derail Music Modernization Act

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The U.S. Capitol Building in Washington, DC. 

Meanwhile, Blackstone says its proposed changes are an attempt to offset Senator Ted Cruz's amendment to create competition for the blanket license.

Two songwriter groups are accusing accusing Blackstone -- the owner of SESAC and the Harry Fox Agency -- of offering sweeping changes to the Music Modernization Act that would destroy the proposed legislation, in a move they claim is motivated by greed and callous disregard for American songwriters.

But sources familiar with the SESAC/HFA proposals say that their proposal would offer a compromise that would keep all the elements of the MMA while offsetting Senator Ted Cruz's (R-Texas) amendment to create competition for the blanket license, an amendment that worries the music industry even though he temporarily shelved it to allow the bill to reach the full Senate. So while the Senate Judiciary Committee, including Cruz, voted to allow the bill to go to the full Senate, the industry knew it would still have to deal with Cruz' proposals, in order to get the legislation passed.

"Blackstone, SESAC and Harry Fox have had months to review and suggest changes to this bill, to participate in the process with the rest of the industry in good faith," the Nashville Songwriters International Assn. and the Songwriters of North America charge in a statement. "Their repeated message has been, 'This bill is good for songwriters. We are fine with it.' Now at the last minute they are introducing what is essentially a poison pill. And while representatives of Blackstone claim they do not want to kill this landmark bill, what they are suggesting would do just that. If their proposal becomes part of the bill, NSAI and SONA would no longer be able to support the MMA which we've worked years to achieve."

Yet, its well known that the current administrators to digital service providers, which includes SESAC/HFA, were unhappy that their private companies were going to be displaced by a government created entity.

Moreover, both SESAC and its Blackstone owners put out statements supporting the MMA and urging the industry to consider further compromise on the bill, which is already being championed as compromise legislation.

Blackstone is the private equity firm that acquired SESAC in a 2017 deal for slightly over $1 billion, including its ownership of HFA -- which SESAC has held since 2015. HFA, as well as Music Reports Inc., MediaNet, Loudr, Audiam and Royalty Claim all either work with digital music service providers to administer play information and payout royalties to the music publishers owning the played music or check to insure their songwriters and publishers are being paid properly by the services and their administrators.

The Music Modernization Act is a multifaceted legislation, which includes a proposal to federally create a blanket license and collective to administer play information and pay corresponding royalties, search down copyright owners where information is lacking and create and maintain a public database of rights holders. The collective would cut costs by having one administrator doing all the essential work and it would lift copyright infringement liability under which all streaming services currently operate.

The main reason the collective is being proposed is because the pending and unmatched royalties -- for songs played where the publishers and songwriters are not known -- create a liability to the digital service providers while songwriters and publishers were being deprived of hundreds of millions of dollars in payments. (For instance, Spotify was sued for $1.6 billion for not making proper payments late last year.) These issues would still be addressed by the collective in the SESAC/HFA proposal.

The creation of such a collective would impact the above firms like HFA in the long run, ultimately taking away that piece of their business activities, so executives working for the above firms have privately been expressing their unhappiness that the government would create an entity that would hurt private companies. In the short run, however, the legislation is seen as a boon to those firms as every publisher and songwriter would probably be hiring the above firms to double check the collective to make sure it gets payments right. Furthermore, the collective likely request for bids to the above firms, who would compete to supply support to its efforts.

The two songwriter organizations charge that instead of trying to compete for that job, HFA and its owners are "using their financial and political muscle for their own narrow corporate self interest."

The Cruz amendment would allow the collective to compete with any other entities that represented at least 5 percent market share of music publishing copyrights, all of which could issue blanket licenses. Music executives say the Cruz proposal wouldn't work and would leave the industry with the same problems as before. Yet, in order to get the MMA passed, industry executive were planning to lobby the senator to persuade him to drop his amendment or negotiate something that the industry thinks would work. That's where HFA/SESAC saw an opportunity to craft a compromise, say sources familiar with their thinking.

As well, sources familiar with the SESAC effort wonder how the industry will deal with the Cruz amendment and why the SESAC proposal isn't being considered in light of that worry.

According to a copy of the SESAC/HFA proposal, it would create "a middle ground between nationalizing an industry" and model that would open the door to a competitive marketplace, foster innovation and improve the quality of ownership payment. In that scenario, the administrators now used by digital service providers would apply to become an agent to work with the collective and would play the same role they do now, handling the day-to-day administration of matching plays to owners and paying out royalties. These agents would use the database created by the MMA.

Meanwhile, the collective would still handle the crucial elements that cause the MMA to propose its creation, according to the SESAC/HFA proposal. As laid out in the legislation, the collective would still build and maintain the database, would still try to solve the pending and unmatched copyrights so royalties could be paid out, and would remain the arbiter of ownership disputes ensuring proper rights owners receive proper payments. The songwriters and publishers would still sit on the board and have their say in how the collective is run.

The proponents of the legislation were already worried various industry players who had their own agenda would upset the applecart while pursuing amendments to the legislation. With time running out, they are opposed to any more changes because they want to get the legislation voted on by the Senate and, since its already been amended, it would have to go back to the House of Representatives for another vote.

NSAI executive direct Bart Herbison said that Blackstone/SESAC/HFA had months to make their proposal. The legislation was crafted last summer and introduced in the house in December 2017 and in the Senate in May. Yet, "they waited to the last minute to make their proposal, which would kill the bill," he charged. "This is in bad faith."

Both SESAC and Blackstone put out statements in response to the songwriters' press release: "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. 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." Likewise, "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." Both companies declined to comment further.

The National Music Publishers Assn. declined to comment on the situation. Other organizations didn't respond to a request for comment. Yet, Herbison says, "On the record, we had a meeting last Friday and every proponent of this legislation that was there -- the NMPA, DIMA and the songwriters organization -- all told the Senate staffers that they are opposed to the SESAC proposal."

That meeting was called by Senator Orrin Hatch's (R-UT) staff to discuss the SESAC/HFA proposal. Herbison claims the proposal would reduce the savings envisioned by the creation of the collective, but others dispute that. Some sources appear to be against the SESAC proposal mainly because they worry that altering the legislation at this late date would hurt its chances of being passed before the end of the session at the end of the year. Yet sources that were familiar with the Friday meeting said the Senate staff working on the bill told the industry that their would be time to incorporate the changes without hurting its chances of being passed before the end of the year. If the legislation is not passed by the end of the year, the process must start all over again with the newly elected Congress.

SESAC/HFA are not the only industry players trying to get further changes in the bill. Sources suggest that Sirius would like to see terrestrial radio included in the Classics component of the MMA, which makes digital and satellite rate pay royalties for playing pre-1972 recordings, but doesn't include terrestrial radio which, unlike Sirius, has never paid labels and artists for playing their music. Also, the Content Creators Coalition and Music Answers are pushing for further changes.

BMI issued a statement saying that it was disappointed that at this late stage, the MMA is being endangered by last minute asks from some industry players. “The Music Modernization Act represents an historic opportunity to enact meaningful music licensing reform,” the BMI statement read. “During the long process of drafting this bill, BMI, like many others, had to compromise on certain provisions in order to achieve a final result that benefits the industry as a whole. We hope that the parties currently in disagreement can work together to resolve their issues, allowing this important piece of legislation to move forward.”

Even if there is enough time to accommodate some of the new proposed changes, the industry wonders whether there will be enough support to keep the bill moving forward with those changes. And what happens if others, who so far have been sitting on the sidelines saying they support the bill, become emboldened if SESAC/HFA is successful and decide to see if they can get their agendas incorporated too? With the clock ticking on this Congress' session, time will tell.