Wednesday, Jul 6, 2022 • 15min

When will TikTok start paying the music industry 'properly'?

Play Episode

Welcome to the latest episode of Music Business Worldwide's Talking Trends, supported by Voly Music https://www.volymusic.com/ 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' – i.e. the platform pays a lump sum upfront, 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. The last time we let a company of this size and power run away with things without paying us properly... was MTV." Ole Obermann, TikTok's Global Head of Music, has told Music Business Worldwide in response to this podcast: ""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 [that] 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 [for artists], the launch of careers, significant streaming uplift and TikTok having a positive impact on charts worldwide. "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 licenses on a rolling basis and as engagement with music on TikTok evolves, our business model will also evolve." Adds Obermann: "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.” The Music Business Worldwide Podcast is supported by Voly Music https://www.volymusic.com/

Talking about

Speakers

(1)

Tim Ingham

Transcript

Verified

Tim Ingham

00:00

When will

TikTok

start paying the music industry properly. My name is Tim Ingham, the founder of Music Business Worldwide and welcome to talking trends, a podcast where we dive behind the headlines to look at what's really going on in today's music industry.

Break

Tim Ingham

00:56

So 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.

01:20

My first source was high up at a major music company and as you know, there's only three of them so feel free to guess at which one it was in your own time. The second two sources both worked at what might be termed distribution and services businesses, although these companies are both properly global heavyweights and they also own some copyrights. So you can fairly think of them both as sort of mini majors if you like.

01:47

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, according to my sources,

TikTok

is paying music companies what I would term quote unquote "blind checks". Others might call these payments "advances" that are uncoupled from consumption on the platform.

02:13

One person I spoke to called them buyouts because

TikTok

is effectively buying out music licenses every couple of years. The important thing is this, once these so called buyout 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.

02:52

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.

03:04

But there are also flaws within the system, especially when we compare it to what you might term a quote unquote revenue share model that's the sort of model seen on

YouTube

for example, it means every time a song is played and that play generates money from advertising or paying subscriber and agreed portion of the money generated goes back to the rights holder.

03:26

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 proportional. So if

YouTube

makes X percent more money from videos with music in them, the music industry also makes X percent more from those same videos.

03:44

That's all made possible because of

YouTube's

content ID system, which can identify user generated content, videos made by people at home that contain music on its service. And

YouTube's

content ID system then gives rights holders music rights holders the opportunity to partake in the monetization of those videos.

04:07

So let's go back to the

TikTok

so called buyout agreements with music rights holders and why concerns are growing over that model. Well for one thing, the buyout 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 a platform.

04:32

So you're an artist and your piece of music blows up with millions of players 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.

04:57

But that's actually not the primary reason I'm hearing for the music industry to be increasingly concerned about TikTok buyout deals. The primary reason I'm hearing for that concern is that bite dance. The owner of

TikTok

is seeing its revenues absolutely explode right now.

05:14

And because of that, 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 tech or media giant, you've guessed it, building its business off the back of artists without paying those artists what they deserve.

05:36

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

05:55

According to a

Bloomberg

story posted in June this year,

TikTok

, that's just the platform.

TikTok

, no other bike dance properties generated $4 billion dollars annually, primarily from advertising. If you miss that, I'll run you through it again. Last year.

TikTok

generated $4 billion 12 months later, that number is going to trouble or for my American friends triple.

06:30

What's particularly interesting and perhaps scary about that number for the music industry is this in 2021? According to public filings,

Alphabet

filings, YouTube generated around $29 billion in advertising, and that's $9 billion dollars a year.

06:48

But

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 32nd video clips.

07:06

And check out these statistics to underline this changing world. According to AppAnnie, by summer 2021 in the U. S.

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 dot ai via

Bloomberg

07:30

The average

TikTok

user in the

now spends 28.7 hours a month watching

TikTok

and that is up by about six hours a month. Year on year. I don't need to remind you, but just in case the music industry directly shares in

YouTube's

revenues, it does not directly share in

TikTok's

revenues,

TikTok

pays music companies to license their music? And then pretty much to go away?

07:59

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 quote, unquote emerging platforms contributed 30% of all ad supported streaming revenues to the recorded music business in 2021. And that

TikTok

contributed 13%. That's 13% of that quote, unquote "emerging platform revenue".

08:31

Don't worry if that went a bit fast, I'm going to walk you through the numbers shortly. We know that all ad-supported streaming revenues according to the AFPI contributed $4.6 billion to the record industry in 2021. 4.6 billion U. S. dollars. So figuring out what

Goldman Sachs

thinks was

TikTok's

contribution amongst all of that isn't very hard.

08:53

30% of 4.6 billion is 1.38 billion U. S. dollars. And that's what Goldman believes so called emerging platforms that includes

Facebook

TikTok

and others paid the music industry in 2021 13% of that number is approximately $179 million. $179 million. That is what

Goldman Sachs

appears to be suggesting?

TikTok

paid the record industry out of its $4 billion in revenues last year.

09:29

So why doesn't the music industry just change its deal with

TikTok

? Why doesn't it force

TikTok

into a revenue share deal more akin to the one that it has with

YouTube

? That is the big question. One global music industry company I spoke to did try to force

TikTok

into a revenue share deal last year.

09:48

That message was kind of "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". And 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 buyout deal, and the rest of the industry at that point kind of had to fall in line.

10:16

TikTok's

defense to the best of my knowledge, the music industry at large is still operating on buyout or blind check advanced 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. That allows for example, labels and distributors to more accurately past the money through two artists that were popular on a certain platform in a certain period.

10:43

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. I'm going to quote some of what Ole Obermann had to say for you here now. The full version, the full text version will be up on Music Business Worldwide, in the post that accompanies this podcast.

11:02

So this is now Ole Obermann:

11:04

"From the outset we wanted to pay rights holders 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 being a powerful marketing and promotional platform for artists of all genres".

11:21

"We're delighted by the success that artists both new and old have found using

TikTok,

connecting with fans and kick starting their careers. This success in 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".

11:44

And

TikTok

Ole Obermann goes on to say,

"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 licenses on a rolling basis and as engagement with music on

TikTok

evolves, our business model will also evolve".

12:06

So there's a couple of bits really worth noting there. Ole Obermann, the head of global music for

TikTok

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.

12:25

His mention of quote, "significant streaming uplift" - close quotes - is a clear reference to TikTok argument that it powers consumption on

Spotify

and

Apple Music

and others. I, you go on

TikTok

, you discover a song, you hop off to

Spotify

and play it in full.

12:41

And the point he's making without saying it is that those platforms,

Spotify

Apple Music

etcetera, pay through a revenue share to the music industry. So Ole Obermann is saying, "We're a key promotional platform, not a key consumption platform".

12:54

But we shouldn't ignore

ByteDance's

own subscription streaming platform Resso, which is already a serious player in markets like

Brazil

and

India,

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 - and I'm thinking about the

, europe U. S. etcetera -.

13:21

In addition, I think within Ole Obermann 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 quote, "as engagement with music on

TikTok

evolves, our business model will also evolve".

13:39

Close quote whether or not

TikTok's

model evolves into directly sharing an agreed proportion of its revenue with the music industry kind of depends; I would argue on music business unity during the next round of licensing negotiations with

TikTok

13:54

If the likes of

Universal Music Group

Sony Music Group

Warner Music Group

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.

14:08

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". Well then one could argue

TikTok

has the music business exactly where it wants it.

14:24

Music Business Worldwide Talking Trends will be back soon with more insights into today's global music industry.

Add podcast

Leave feedback

🇮🇹 Made with love & passion in Italy. 🌎 Enjoyed everywhere

Build n. 1.36.0

Tim Ingham

BETA

🌎

About