When will Tiktok start paying the Music Industry ‘Properly’?-MBW

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.”

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.

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.”