It’s not everyday you get the opportunity to talk to a CEO of any company but we had the chance to pick the brain of the Harry Fox Agency CEO/President, Michael Simon. If you don’t know, now you know, HFA is the nation’s leading provider of rights management, licensing and royalty services for the music industry. With over 48,000 music publishing clients, HFA issues the largest number of licenses for the use of music in both physical and digital distribution formats. Mr. Simon also heads Slingshot, HFA’s rights management service, which is a comprehensive, end-to-end solution that is designed to streamline the licensing and royalty process, accelerate market entry and reduce administration cost for music distributors.
With all that on his plate, Michael still took the time answer a few of our questions. While he admitted that most of his days consists of thinking and executing ways to grow the business, talking numbers, or satisfying client’s business needs, in the end, Michael is a music guy that loves and appreciates the art of it.
Michael Simon may have started out as drummer (that is a great story we can share another day) but it is his business acumen and chops as a highly effective entertainment and music lawyer, astute music executive, and digital media executive that has propelled him through the music industry and to the top of HFA. It was a pleasure speaking with the man in charge as he brilliantly, humorously, and humbly gave us a glimpse into the world of rights management, CEO life, and HFA’s place in the music industry.
RFFocus : Give us a little background about your self, your music industry experience, and how you ended up at HFA.
Michael Simon: Over the last 25 years I have been an entertainment lawyer, a music lawyer more specifically, a band manager, a member of a band, a digital media and music executive, and now for the last 13 years I have held various roles at HFA. That is very short version of what usually takes 2 hours.
RFFocus : Michael, what is the overall mission of HFA and what place do you hold in the market?
Michael Simon: From about 1926 until about 5 years ago, HFA’s exclusive business was the representation of music publishers with respect to the mechanical reproduction of their compositions. In slightly better English, HFA aggregated the music publishers and granted licenses on the publisher’s behalf to essentially record companies for the mechanical reproduction of their compositions. There was a little a bit of non mechanical work because their was a small sync business on the side and some other businesses. That is still a significant part of the HFA mission but HFA realized that the mechanical royalties side of the business would be challenged in the new era as mechanical royalties would be on the decline. When you step back and look at HFA, you say are we an organization that grants mechanical licenses or are we really an organization that provides rights management services for any business that wants to use music based intellectual property. If that is the case, then I can expand my client base into several new areas. I can represent rights we didn’t represent before like lyrics and guitar tabs. I can help distributors clear rights as opposed to solely helping publishers grant rights to distributors. What I mean by that last point is record companies have copyright departments, they have people who are highly skilled and have been working in those departments for years and they understand the copyright act and how to get licenses either in bulk through me, or one by one through other avenues. But five people in a room in a Nordic country who get together through which they are going to distribute music, they didn’t get together to because they understand US copyright and they know how to build the best royalty database and they know how to render statements to publishers. They got together because they believe that they uniquely can build a web presence for people to listen to music. So those guys don’t have rights administration infrastructure, they have very limited staff with knowledge of the relevant laws for the market and they need help. We have the infrastructure and the ability to be engaged by those types of companies to give them the help they need. In a music business that is suffering a downturn day after day, day after day after day – we have found a new business that actually grows, which is the business of providing rights management solutions to those that require them.
RFFocus : You sort of spoke on the decline of mechanical royalties and I recently spoke with an artist that said with record stores being nonexistent, CD’s not being pressed, etc., mechanical royalties are becoming irrelevant. Do you agree with that sentiment or do you have an opinion about it?
Michael Simon: If you step up a layer, there are many types of distribution that don’t produce a mechanical royalty. If consumers and those that want to satisfy consumer demand are going to develop and make available more and more rich media experiences – those rich media experiences are not currently mechanical bearing. Meaning if I distribute an audio-visual work, that’s not a mechanical. If I distribute a work within the context of visual material, whether it’s a video, or a synchronized lyric, or either a rich media package, either some or none of that package, as opposed to all, which is what we were used to, will be subject to a mechanical royalty. A mechanical royalty is an audio only reproduction that is distributed to the public for private use. So as consumers want more and more, which I think is a good thing, from their music experiences and there are people figuring out businesses to satisfy those demands, the mechanical royalty may become irrelevant. It isn’t currently irrelevant. It is a significant contributor to a songwriter and a publishers bottom-line. As the means by which music is distributed changes and the broadband pipes get broader and you can pipe more down it, unless someone wants to have a fight in congress about bringing more and more into a compulsory license and calling it a mechanical royalty, which HFA wouldn’t support and the publishing industry probably wouldn’t support – but in today’s industry for everything one person agrees with the other person doesn’t. I could definitely see why someone would say if a mechanical royalty definition doesn’t change under the statute, which we are not advocating that it should, but as the means and the manner of distribution changes then possibly less and less would be subject to mechanical royalties over time.
RFFocus : This doesn’t directly affect HFA but since it’s a very hot topic and everybody seems to taking some stance on it, how do you feel about the fight for better compensation of songwriters and publishers from the streaming platforms like Pandora and Spotify?
Michael Simon: There are a lot of people taking a stance on it but a lot of people who don’t understand very much. That doesn’t seem to impair their ability to speak at length about it. Based on my academic training I was always taught to not speak at length about things one doesn’t understand but that doesn’t seem to apply in the commentary segment of the music industry. HFA doesn’t have a specific aggressive dog in that fight. For us on the mechanical royalty side, the rates are established by statute. So of course we believe people should be paid the proper royalty rate as established by the applicable laws. We believe they should be paid on time with clear documentation to support the basis for that payment. We pay songwriters when the songwriter is the publisher. The fight that has been swirling around has been about whether or not the rates for public performance rights, which are not governed by statute, are fair – whether or not the ratio between the royalty generated by the composition and the royalty generated by the master recording are fair and equitable. You will see a lot of discussion coming from people who do understand and are knowledgeable like our parent corporation the NMPA. Their statements on the topic are I find, of course, highly credible based on actual knowledge and real math as opposed to a lot of trash being thrown around by other people. For us on the mechanical side for physical media and permanent downloads it’s 9.1 cents and for streams, limited downloads, bundles and those sort of things the rates are a little more complicated but established by law. We are not jumping into the songwriter fight as much as we work on trying to make sure if rates are established through mechanical reproduction they are paid out properly and on time.
RFFocus : Michael for people who don’t know what is day like for a man in your position as the CEO of HFA? I’m sure each day is different but try to paint the picture for us.
Michael Simon: My intended day or my actual day? You already know your intended day is what you wrote down and intended to accomplish but your actual day is much different. We are in the client service business. We have approximately 48,000 publisher clients and we’ve got another chuck of 100 or so Slingshot clients. We live to serve their lawful objectives. Whether or not I thought I was going to do five things today a client may reach out to me and say I have this business idea and I think you can help me. Well that was not on my to-do list today but I don’t say that. I say do you want to talk at noon, four, six, eight or ten o’clock tonight. As you know the music industry is extremely dynamic and its changing hourly . There are companies that we will not have heard of at 9 am in the morning but by five o’clock that night they will be the most dominant form of music distribution for the next two years. So we have strategic plan; HFA has a strategic plan; Slingshot has a strategic plan, which is actually pretty simple, to obtain clients on the publishing side or the Slingshot side and really to make copyright work, to make musical copyright work, and to make the market efficient by consolidating and aggregating the rights and solutions. Under that there are a whole bunch of projects. Then coming in from the side you will pick up the New York Post or the New York Times and read an article like who is that guy. Now you have to call and find out and next thing you know we are in a three-hour meeting. In essence what I’m doing everyday is business 101. My strategy is to bring in more money and spend less money doing it. How do I do that? In my business it’s finding a Slingshot client who has a need we can satisfy that is profitable for us. So I have a business that is seeking those clients, acquiring those clients by implementing the solutions to meet their needs. My day after being distracted by new ideas is acquiring clients for Slingshot. I can begin my day by saying we are currently pitching 25 clients to encourage them to hire us for Slingshot. I ask questions. How are we doing in each pitch? Do any of their CEO’s need a call from me or do I need to get on a plane and meet with them? Are we almost closing any of them? How come It’s been three weeks and we haven’t closed, what are we going to do? The next layer is these guys have agreed to hire us and now are we on track to deliver. Are software has to be in place to meet the solutions they need. Are we building something, etc. On the mechanical side it’s more about making that business more efficient on a daily basis. You see people fighting in the music industry with online distributors. HFA wants as many companies as possible to exist and to launch into the market place and operate lawfully and use our clients compositions and the writers they represent to generate revenue. I’m not interested in creating complicated and insufficient licensing machines that inhibit companies from launching their businesses. Instead, on the mechanical side, everyday we are grinding into the floor trying to create more and more efficient processes that will enable those who are properly funded and properly staffed and can comply with the law and good business practice to launch those businesses so we can find out which ones will work and which ones will not work. Hopefully we can use the compositions that are controlled by our publishers and their writers in a way that makes consumers want to listen to music and get those who create music paid, and those who administer music on behalf of those creators paid, and help consumers have positive music experiences.
It’s 50% Slingshot and 50% the mechanical side if you wan to look at it like that. It’s very tactical and there are really spreadsheets on my desk. Here are the projects we need to run in order to produce all these business results for all of our clients, which will hopefully produce great results for us. It is very tactical. Often times people think you are the CEO so you come in set the spiritual direction, you get everybody pumped up, you rah-rah the company, then at 4 o’clock you leave and go get a pedicure. No, I’m here from 8:15 in the morning to at least 8:15 at night until I go somewhere else and get online and do the same thing and do it all weekend running down and aligning the strategy for the mechanical business and the Slingshot business – aligning that strategy with actual projects that are enabling us to achieve the goals that we’ve established.