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Welcome to the latest episode of Talking Trends from Music Business Worldwide (MBW) – where we go deep behind the headlines of news stories affecting the entertainment industry. Talking Trends is supported by Voly Music.
In this episode, MBW founder Tim Ingham discusses the model under which TikTok currently pays the music industry.
Music Business Worldwide sources suggest that TikTok’s deals with rightsholders are currently ‘buy-outs’ rather than ‘revenue share’ deals – i.e. the platform pays a lump sum upfront to license music for a set period, rather than paying a revenue share based on each artist/label’s popularity on its platform.
With TikTok’s revenues expected to triple to $12 billion in 2022, concerns are growing amongst music companies that TikTok could soon get “too big and too powerful” to force into an agreement that sees it “pay music rightsholders properly”.
Says Ingham: “The music industry is growing increasingly worried that it’s about to star in a movie we’ve seen play out time and time again when it comes to music’s relationship with tech and media giants.
“In short, that movie is about a tech or media giant – you’ve guessed it! – ‘building its business off the back of artists’ without paying those artists what they deserve.
“As my major record company source put it to me the other week: ‘Soon TikTok is going to be too big and too powerful for us to force it into a revenue share deal.’”
“As my major record company source put it to me the other week: ‘Soon TikTok is going to be too big and too powerful for us to force it into a revenue share deal. The last time we let a company of this size and power run away with things without paying us properly… was MTV.”
You can read an abridged transcript of this episode of MBW’s Talking Trends, complete with illustrative charts (and an extensive comment from TikTok itself) below.
Normally on this podcast, I look at the context and the numbers behind a particular trend or major news story.
But this time, I’m going to do something a little bit different: I’m going to recount to you a concern about the music business that I’ve heard repeatedly over the past few weeks, and particularly from three very senior sources working in different parts of the music rights ecosystem.
My first source was high up at a major music company. And as you know, there are only three of them, so feel free to guess which one it was in your own time.
My second two sources both work at what might be termed ‘music distribution and services businesses’ – although these companies are both properly global heavyweights and they also both own some copyrights. So you can fairly think of them both as sort of ‘mini-majors’, if you like.
The concern that all three of these companies shared with me was this: TikTok currently does not pay out to record companies and artists in the same way that Spotify, Apple Music, or indeed YouTube does.
As things stand today, TikTok is paying music companies what I would term ‘blind checks’. Others might call these payments ‘advances that are uncoupled from consumption on the platform’.
One person I spoke to called them ‘buy-outs’ because Tiktok is effectively buying out music licenses every year or two.
The important thing is this: Once these so-called ‘buy-out’ checks have been banked, it grants TikTok a free license to use these music companies’ music for the duration of whatever the agreed period is.
How TikTok users then use that music, how many videos they create using it, how many times those videos are played by the TikTok audience… all of that is irrelevant.
The music rights holders have their checks, and TikTok has its music.
On the one hand, this is a very simple agreement.
A major record company, for example, gets its big lump of money. TikTok knows it doesn’t have to spend any more music in the agreed period. And that’s the end of that.
But there are also flaws within the system, especially when we compare it to what you might term a ‘revenue share’ model.
That’s the sort of model seen on YouTube, for example, which means that every time a song is played – and that play generates money from advertising or a paying subscriber – an agreed portion of the money generated goes back to the rights holder. And so you end up in a situation where the more money YouTube makes, the more money the music industry makes, and the growth of that money is proportionate.
So if YouTube makes X% more money from videos with music in them, the music industry also makes X% more from those same videos.
That’s all made possible because of YouTube’s Content ID system, which can identify user-generated content videos that contain music; YouTube’s Content ID system then gives music rightsholders the opportunity to partake in the monetization of those videos.
Let’s go back to TikTok’s so-called ‘buy-out’ agreements with music rights holders, and why concerns are growing over that model.
For one thing, the ‘buy-out’ or ‘blind check’ model makes it very hard for a major record company (or any record company or distributor) to pass TikTok’s money through accurately to artists based on the amount of consumption of their music on the platform.
Imagine: you’re an artist and your piece of music blows up with millions of plays on TikTok. Those plays, technically speaking, are not monetized. TikTok paid your label or distributor a flat fee to host that music for a set period.
It did not agree that every time that music got played, you would get paid. What you earn from TikTok’s initial check, well, that is at the discretion of your distributor or record company.
“The last time we let a company of this size and power run away with things without paying us properly… was MTV.”
Major record company source
But that’s actually not the primary reason I’m hearing for the music industry to be increasingly concerned about TikTok’s ‘buy-out’ deals. The primary reason I’m hearing for that concern is that Bytedance – the owner of TikTok – is seeing its revenues absolutely explode right now.
Because of this, the music industry is growing increasingly worried that it’s about to star in a movie we’ve seen play out time and time again when it comes to music’s relationship with tech and media giants.
In short, that movie is about a tech or media giant – you’ve guessed it – ‘building its business off the back of artists’ without paying those artists what they deserve.
As my major record company source put it to me the other week: “Soon TikTok is going to be too big and too powerful for us to force it into a revenue share deal.
“The last time we let a company of this size and power run away with things without paying us properly… was MTV.”
According to a Bloomberg story posted in June this year, TikTok generated $4 billion US dollars in 2021, mostly from advertising.
But this year, in 2022, eMarketer is forecasting that TikTok will generate $12 billion annually, primarily from advertising.
What’s particularly interesting and perhaps scary about that number for the music industry is that… TikTok is trying its best to come for YouTube’s lunch right now, and particularly come for YouTube’s advertising revenues.
In February this year, TikTok announced it was expanding the maximum length of its videos to 10 minutes. This from an app that until recently was most famous for its 30-second video clips.
And check out these statistics to underline this changing world: According to App Annie, by summer 2021, in the US TikTok users were watching over 24 hours of content per month on that platform; YouTube users were closer to 22 hours a month.
Those numbers have since changed again.
According to data.ai, via Bloomberg, the average TikTok user in the US now spends 28.7 hours a month (!) watching TikTok, and that is up by about six hours a month, year on year.
So how much does TikTok pay the music industry?
Well, we don’t know. But Goldman Sachs has taken a guess.
In its latest Music In The Air report, which was published the other week, Goldman suggested that ’emerging platforms’ contributed 30% of all ad-supported streaming revenues to the recorded music business in 2021. And that Tiktok contributed 13% of this ’emerging platform’ revenue.
“So how much does TikTok pay the music industry? Well, we don’t know. But Goldman Sachs has taken a guess…”
We know that all ad-supported streaming revenues, according to the IFPI, contributed $4.6 billion to the global record industry in 2021.
So figuring out what Goldman Sachs thinks was TikTok’s contribution amongst all of that isn’t very hard:
- 30% of $4.6 billion is $1.38 billion US dollars. That’s what Goldman believes so-called ’emerging platforms’ – including Facebook, TikTok and others paid the music industry in 2021.
- And 13% of that number is approximately $179 million.
That, $179 million, is what Goldman Sachs appears to be suggesting TikTok paid the record industry out of its $4 billion in revenues last year.
So why doesn’t the music industry just change its deal with TikTok? Why doesn’t force TikTok into a revenue-share deal more akin to the one that it has with YouTube?
That is a big question.
One global music industry company I spoke to did try to force TikTok into a revenue share deal last year. Their message to TikTok was: “Thanks very much for the money so far, thanks for completely changing the music industry landscape and giving great opportunities to artists. But we’d quite like to share in your revenue now.”
According to my source, TikTok did mull over what that deal might look like. Until one of the three major music companies did a licensing deal with TikTok that was just another mammoth ‘buy-out’ deal… and the rest of the industry at that point kind of had to fall in line.
In TikTok’s defense, to the best of my knowledge, the music industry at large is still operating on ‘buy-out’ or ‘blind check’ advance deals with Twitch, for example, as well as Facebook and Instagram – although my sources tell me that Facebook and Instagram’s consumption reporting tools are getting much better.
(This allows, for example, labels and distributors to more accurately pass money through to artists that were popular on a certain platform in a certain period.)
I got in touch with TikTok this week and the company’s global head of music, Ole Obermann, was happy to respond to what I had to say on this podcast.
Here is Obermann’s quote in full:
From the outset we wanted to pay rightsholders and we built a team to do that.
We’re proud of the deals we’ve struck and how in a few short years we’ve been able to offer a new and growing revenue stream to the industry, as well as becoming a powerful marketing and promotional platform for artists of all genres. We’re delighted by the success artists, both new and old, have found using TikTok; connecting with fans and kick-starting their careers.
This success, and the power of our platform, has translated into record label and publishing contracts, the launch of careers, significant streaming uplift and TikTok having a positive impact on charts worldwide.
“We’re not a streaming platform and we do not offer a subscription model. We negotiate our licences on a rolling basis and as engagement with music on TikTok evolves, our business model will also evolve.”
Ole Obermann, TikTok
TikTok is a unique service and has pioneered the adoption of short-form video. We’re not a streaming platform and we do not offer a subscription model. We negotiate our licences on a rolling basis and as engagement with music on TikTok evolves, our business model will also evolve.
As we continue to develop and offer more services, we know this will provide further opportunities for those choosing to use TikTok to benefit as well – there are a number of features we’re currently exploring and discussing with partners.
We want to play our part and contribute to a growing music industry, enabling music creators and makers to find success both on and off our platform.
There are a couple of bits in what he says there that are really worth noting.
Ole Obermann is pointing to the fact that TikTok has become one of the world’s most powerful promotional tools for record companies. But also it’s become a powerful tool for artists looking to be signed by major record companies.
He mentions a “significant streaming uplift” [for popular artists on TikTok]. That is a clear reference to TikTok’s argument that it powers consumption on Spotify and Apple Music and others.
The point he’s making without saying is that those platforms – Spotify, Apple Music, etc. – do pay through a revenue share to the music industry.
So Ole Obermann is saying TikTok is a key promotional platform, not a key consumption platform.
However, we shouldn’t ignore the fact that Bytedance has its own subscription streaming platform, Resso, which is already a serious player in markets like Brazil, and does pay through a revenue share of its subscription revenue to the music business.
The combination of TikTok with Resso is a powerful relationship for music business revenues in the years ahead, when Resso inevitably launches in more markets – I’m thinking about the UK, Europe, US etc.
In addition, within Ole Obermann’s quote, there is potentially a bit of light at the end of the tunnel for music companies who want to see TikTok adopt a YouTube-style payout model.
He does say, after all, that “as engagement with music on TikTok evolves, our business model will also evolve“.
Whether or not TikTok’s model evolves into directly sharing an agreed proportion of its revenue with the music industry?
That kind of depends, I would argue, on music business unity during the next round of licensing negotiations with TikTok.
If the likes of Universal Music Group Sony Music Group, Warner Music Group, and Merlin are all agreed, and all stand firm, that they will only license their music to TikTok if it offers a revenue share?
Things could legitimately change.
But if just one of those parties – particularly the industry’s very largest company, or companies – thinks ‘screw it, I’m taking the upfront check again’.
Then one could argue TikTok has the music business exactly where it wants it.
MBW’s podcasts are supported by Voly Music. Voly’s platform enables music industry professionals from all sectors to manage a tour’s budgets, forecasts, track expenses, approve invoices and make payments 24/7, 365 days a year. For more information and to sign up to a free trial of the platform, visit VolyMusic.com.