Labels asking TikTok for share of ad revenue in new deal talks (report)

Last month, MBW noted that the music industry could be headed for a tussle with TikTok over royalties.

We also asked if TikTok should follow Meta and commit to paying a fixed proportion of its advertising revenues to music industry rightsholders.

According to a new Bloomberg report, the three majors, Warner Music Group, Sony Music Entertainment and Universal Music Group, are currently negotiating new deals with TikTok, and they’re asking for a share of advertising revenues generated on the platform.

As covered by MBW in July, the major record companies have struck so-called ‘buy-out’ agreements with TikTok, which see the platform pay a lump sum to use licensed music across its service from a major’s catalog for two-year periods.

We noted last month that some in the music industry believe that they’re only licensing TikTok for sub-30-second videos which – some argue – act as promotion for properly monetized music on subscription platforms like Spotify or Apple Music.

Others in the music industry argue that TikTok, which has over 1 billion global monthly active users, is growing off the back of music’s popularity on its platform.

The argument that music is playing a key role in TikTok’s growth has led some in the industry to suggest that the majors should strike ‘revenue-share’ agreements with TikTok in order to secure a guaranteed proportion of all revenue generated on music-led TikTok videos.

According to Bloomberg’s article published on Tuesday (November 8), citing people familiar with the talks, the major music companies have been negotiating “all year” with TikTok, and are asking for the platform “to share the advertising revenue and increase the royalties it pays them for rights”.

Bloomberg’s story added that the majors “are trying to reach a deal before their contracts expire in the coming months”.

TikTok’s current licensing deal with Universal Music Group was signed in February 2021, with Warner Music Group in January 2021 and with Sony Music in November 2020.

In a statement issued to Bloomberg, Ole Obermann, TikTok’s Global Head of Music, said: “We are committed to creating value for rights holders, songwriters and artists when their music is used, and are proud of the deals we’ve struck and the growing revenue stream we’ve delivered to the industry in a few short years.”

As noted by MBW a couple of weeks ago, new US financial data and comments from Universal Music Group Chairman and CEO Sir Lucian Grainge at the Music Matters conference in Singapore last month suggest that tension has been mounting over TikTok’s payouts to the music industry.

Speaking at Music Matters, Sir Lucian Grainge called on the music industry to “avoid repeating past mistakes” that had led to power imbalances with MTV and YouTube in particular.

Alongside all of this, TikTok parent ByteDance reportedly has its sights set on expanding its dedicated Resso music service into more markets, potentially branded as ‘TikTok Music‘.

Last month, The Wall Street Journal, citing people familiar with the discussions, reported that ByteDance is in negotiations with record companies about expanding its dedicated music-streaming platform to multiple new markets.

Resso is currently only available in Brazil, India, and Indonesia. In September, Sony Music pulled its entire recorded music catalog from the platform in those three territories.

MBW has been following all the ‘TikTok Music’-related developments closely over the past few months. Last month, we spotted at least six verified Twitter accounts for ‘TikTok Music’ for multiple global markets including Malaysia, Australia and New Zealand, Latin America, Singapore and Asia. All accounts share the same branding and messaging, stating: “Welcome to a new way to experience music.”

In August, MBW uncovered a US patent filed by Singapore-based TikTok Pte hinting at a music service. We also spotted that TikTok was hiring for staff to work on its ‘TikTok Music’ team, and one ByteDance job ad saying: “Resso or TikTok Music, is a music app for Gen Z that launched [in] 2020 in India, Indonesia and Brazil.”

Meanwhile, in addition to ByteDance’s music streaming ambitions, MBW asked this summer if TikTok – via its parent company – was also slowly turning into a record label. MBW spotted last month that TikTok’s parent company has been hiring for A&R Manager in four major North American cities: Los Angeles, New York, Miami and Toronto.

During Universal’s Q3 earnings call at the end of October,  Guggenheim Securities analyst Michael Morris asked UMG’s leadership to comment on news reports around an expansion of TikTok’s service to include music streaming.

Morris asked specifically “whether an expansion would require some sort of renewed discussion with them or whether your existing relationship provides an opportunity for expansion”.

In response to the question on discussions between UMG and TikTok specifically, UMG’s EVP of Digital Strategy Michael Nash told analysts that, “it wouldn’t be appropriate for us to discuss confidential negotiations with any one specific partner.”

He added later that “we’re going to be working hard to improve the economics for our artists and labels moving forward” and that “we believe that win-win partnerships are certainly possible – we’ve seen before where there have been value gaps in the social media space.”

Adding to Nash’s point about previous “value gaps in the social media space”, Sir Lucian Grainge cited YouTube as an example of a social media platform that has become a significant revenue generator for the music industry.

He continued: “When you look at where the industry was where we were as a company with YouTube 10, 12, 15 years ago; YouTube recently announced that they were paying out to rightsholders $6 billion over a year-long period. They have stated that they want to be the number one contributor of revenue to the music industry by 2025.

“When you look at what the funnel that TikTok has, when you look at the billions of views, the rate at which the company has grown, we will fight and determine how our artists get paid and when they get paid, in the same way that we have done throughout the industry for many years.”Music Business Worldwide

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