Universal Music Group, Sony Music Entertainment and Warner Music Group are asking TikTok to share advertising revenue and increase the royalties it pays them for the rights, according to people familiar with the conversations in a report from fortune.
Both sides have been negotiating all year and are trying to reach an agreement before their contracts expire in the coming months. As TikTok has grown in popularity, it has become one of the most powerful hit makers in the music industry.
Record labels rely on TikTok to identify up-and-coming artists and market new releases. is the most important marketing tool that the industry has, to the point of having become a standard.
Promotion or Consumption? the eternal debate
According to the research firm eMarketerTikTok is on its way to get $12 billion in revenue in 2022, and music companies want TikTok to share more of that money, compensating them with a share of ad sales based on the number of streams their artists get.
An executive from a major record label said TikTok should be paying two to 10 times more than its existing deal, based on similar relationships with other platforms with large audiences, such as Facebook Y Youtube.
However, TikTok shields itself by arguing that its platform is a promotional tool, a complement to listen to music, and not a replacement for other consumer platforms.
Music companies first licensed the rights to TikTok when it was a small music app. lipsync It didn’t make money. TikTok paid big music groups a flat fee to use music from their catalogs in videos shared on the social media platform.
Viral hits on TikTok draw audiences for artists on streaming platforms like Spotify, that it does pay the industry according to the number of reproductions. However, if a song becomes a huge viral hit on TikTok, that doesn’t translate to more TikTok revenue.
Sony, Warner, and Universal announced their current agreements with the company in November 2020, January 2021, and February 2021, respectively. Businesses continued to charge flat fees, rather than reduced revenue, in part because TikTok he was just beginning to discover his advertising business. These contracts run for two years, although the parties tend to reach short-term extensions during negotiations rather than let the contracts lapse.
TikTok’s deal with Marline, which represents independent labels, expired at the beginning of the year and the two parties used short-term extensions to avoid the need to remove music from the service. “Record labels and publishers gave TikTok a license to monetize their catalogs while they figured out how it works,” according to an article by Mark Mulligan. “Now they have found out.”
Many executives believe that TikTok should share revenue from advertising, and its owner, ByteDance should create a paid music service that operates globally. ByteDance could then use TikTok to feed users with its subscription product.
ByteDance has already created a paid music service called Resso in 2019 and introduced it to three markets: Indonesia, Brazil and India. Resso has tens of millions of monthly active users, according to people familiar with the business, but the service has so far struggled to convert many of them to paying subscribers.
ByteDance has been seeking the rights to expand Resso to a dozen new territories for more than a year. He has asked partners to lower their fees, offering to pay less than his peers as Spotify Y Apple Music. Rights holders have refused and Sony removed his music from Resso last September.
Beijing-based ByteDance has registered a trademark for TikTok Music and has discussed rebranding Resso under that name. But the company has yet to ask record labels for the rights to use its music in a potential branded service. TikTok Music.
The new “value gap”
Music companies remain optimistic that they can convince ByteDance to pay up. The record companies’ uneasy relationship with TikTok—Mulligan described it as schizophrenic—reminds executives of their decade-long spats with Youtube Y Facebook.
Music companies criticized their business partners in Silicon Valley for years, claiming they didn’t do enough to stop piracy and got rich off their work.
Record labels lobbied YouTube to offer a subscription music service, arguing that it would make a fortune converting even a small percentage of its two billion users into paying customers.
As a result, as of date YouTube paid the music industry over $6 billion between July 2021 and June 2022, and is now the second largest revenue stream after Spotify.
While Facebook hasn’t created a paid music service, now share the ad revenue generated by the videos containing music with rights holders.
TikTok seems to be looking for ways to cut record labels out of the process. In March, the company launched SoundOn, a service that allows artists to upload their music directly to TikTok and earn royalties when that music is played.
Bytedance has also been looking to hire executives who can discover new artists and sign them to contracts like a record label would, it reported. MBW earlier this month.
“We will fight and determine how our artists are paid,” Lucian Grainge, Universal’s chief executive, told investors when asked about TikTok last month. “I’ve seen this movie before, and I know the ending.”
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Can the industry get TikTok to pay per view? – Music Industry