- TikTok has become a key promotional tool for record labels and publishers.
- The app’s future also hinges on its ability to maintain access to rights holders’ song catalogs.
- This co-dependency has created a dynamic of “enemies” as parties negotiate licensing agreements.
The music industry is worried – and excited – about TikTok.
“There’s a problem here,” said Boyd Muir, chief financial officer of Universal Music Group, when asked about the application of short videos at Morgan Stanley’s technology, media and telecommunications conference earlier this week. .
Muir described TikTok as “exciting” and a remarkable engagement engine, but saw its monetization deal with the app as a problem.
“We are going to move TikTok in a direction where there is greater financial alignment based on the contributions that are made to the platform,” he said, noting that how this will be accomplished is “complicated” .
Complicated is a fair way to describe the tangled relationship that has formed between TikTok and the music world over the past few years.
The social entertainment app has become the go-to platform for discovering new music, regularly pushing songs into the mainstream and often to the top of the Billboard 100 or Spotify Viral 50. Record labels use the platform to promoting songs through influencer marketing and advertising. . Artist teams host private listening parties for TikTok creators, and A&R managers scan the app for new talent. All of these promotional features have benefited the music industry, boosting streams on platforms like Spotify or Apple Music and helping artists grow their fan base.
But TikTok’s musical ambitions extend far beyond 15-second song snippets. He launched his own song distribution platform called SoundOn in March. It offers SoundOn artists between 90% and 100% of the royalties from their music, while hiring its own A&R scouts in select markets.
Its parent company ByteDance runs a three-country Spotify competitor called Resso. The company filed a trademark application in the United States in May for a potential music streaming product called “TikTok Music”, Insider first reported. Licensing negotiations to expand Resso or introduce TikTok Music to other markets are ongoing, a person with direct knowledge of the process told Insider.
TikTok is positioned to disrupt the status quo of how record labels, publishers and artists make money on the internet. Digital streaming has been a bright spot for the music industry in recent years as platforms like Spotify and Apple Music have created a new revenue stream for labels and publishers. As social media plays an increasingly important role in consumption, music rights holders want to secure their reduced revenue.
“The argument for the labels’ position is that TikTok wouldn’t have an app without music because that’s what people mostly use in their videos,” said Tatiana Cirisano, music industry analyst and consultant at the within the research company MIDiA Research. “The argument on the TikTok side is that TikTok is now so important to the music industry that they can’t afford not to have their music on the platform.”
“Labels and publishers want to have a good relationship with TikTok, and they want TikTok to be a partner,” she added. “But if they admit how important TikTok is to the music industry, they lose some bargaining power.”
Licensing negotiations are almost constant in the music industry
ByteDance and TikTok already have deals in place with major record labels and publishers such as Warner Music Group, Sony Music Entertainment, the National Music Publishers’ Association, and ICE. But those deals are short-term and still in a renewal cycle, the person familiar with TikTok’s negotiation process told Insider.
Bloomberg reported last week that rights holders wanted TikTok to share advertising revenue and increase the royalties it pays them for song rights, writing that the company had been negotiating with Sony, Universal Music Group and Warner for months so that they were trying to reach an agreement before existing contracts expire.
“There’s a joke among all of us working in this that the minute you finally get your long form signed, you have two months until you need to enter a renewal cycle,” said Vickie Nauman, a music licensing consultant who has advised companies like Spotify and Warner Music Group. “You’re almost always in a constant state of re-negotiating and updating the partners you have on both sides about the performance of your business and the performance of someone’s catalog within your business.”
Representatives for TikTok and UMG declined to comment on the matter. Sony and Warner did not respond to Insider’s requests for comment.
Why record labels see YouTube as a model for TikTok
When music industry executives think about how to work with a tech powerhouse like TikTok, they often point to YouTube, which was once seen as a source of revenue for the industry.
In its early days as a platform protected by the “safe harbor” provision of the Digital Millennium Copyright Act, YouTube routinely skirted liability for hosting unlicensed copyrighted content in its videos.
“Artists, labels and publishers aren’t happy with the DMCA model of free content,” said Daniel J. Schacht, music attorney at Donahue Fitzgerald LLP, which represents musicians, tech companies music and publishers like Wixen Music Publishing. “It’s completely normal, especially when an application grows, to ask for more [revenue] participation, especially where music is so fundamental to the app.”
In YouTube’s early days, its DMCA policy created tension for record labels’ digital staff. When Warner initially entered negotiations with YouTube for licensing revenue, for example, its internal team was told not to post on the platform, a former Warner staffer told Insider.
“The platforms will operate under the DMCA until they’ve grown big enough that the music industry starts saying, ‘Okay, we’re not turning a blind eye anymore,'” Cirisano said. “It always happens the same way: a platform comes up; the music industry turns a blind eye; the platform gets really big; and the music industry turns around and says, ‘Wait, we want our share.”
YouTube’s relationship with labels has changed dramatically over the past decade. In 2009, he launched Vevo with UMG, creating an easier path to collecting ad revenue. In 2015, he created the standalone music streaming service “YouTube Music”. He generates revenue for music rights holders by running ads on his new short TikTok-copycat in February. Last quarter, YouTube’s head of music wrote that the company paid out $6 billion to the music industry over a 12-month period.
TikTok and ByteDance could take a similar approach, adding new ways to compensate the industry by sharing cut ad revenue on short videos and expanding Resso or launching a TikTok-branded music streaming service.
Social is poised to become the next big money maker for the music industry
TikTok’s rapid rise in the music industry has caught record labels and publishers off guard.
“Four years ago, I didn’t — I don’t know if anyone did — I didn’t see TikTok as a huge player,” Warner Music chief financial officer Eric Levin said at the conference. JPMorgan Global Technology, Media & Communications in May. . “It just shows how new models can unlock consumer interest, spend and create a new revenue model.”
Now that rights holders have recognized TikTok’s influence and aspirations to build a business around music, they’re playing hardball. Sony Music recently pulled its Resso catalog from ByteDance amid negotiations, for example.
Achieving licensing deals with so many different rights holders around the world remains an extremely complicated task for any technology player, said Jordan Bromley, a partner who leads the entertainment practice at Manatt, Phelps, & Phillips, LLP and Advocacy Group Board Member. , the Coalition of Musicians.
“It’s really hard to get a license,” Bromley said. “It takes a long time. It’s very expensive. You also have to get the attention of these companies, and if you’re not big enough, you won’t.”
But the chasm between social media platforms, which often thrive on unlicensed user-generated content, and traditional record labels and publishers, is narrower than you might think.
The revolving door between big tech and the music industry is turning, with executives like Ole Obermann, global head of music at TikTok and ByteDance, joining the company after serving as chief digital officer at Warner Music. . Many of the staff on TikTok’s internal team who negotiate with rights holders have previously held positions at record labels or publishers. And Warner Music’s new CEO, Robert Kyncl, is leaving YouTube where he served as chief commercial officer.
As apps like TikTok, YouTube, Instagram and Snapchat distract consumers from platforms like Spotify and Apple Music, the need for rights holders to build revenue models around social media will only grow.
“Social media platform deals are relatively new to our economy and now generate nine figures in revenue a year,” Bromley said. “It’s certainly a huge point of focus for us as the entertainment community to make sure everyone is properly licensed.”