TikTok’s biggest headache in its fight with Universal Music Group is UMG’s publishing catalog (and 2 other observations on the feud the whole music industry is talking about)

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A couple of days ago, had you asked a music-biz-head for their Grammy Week thoughts about Universal Music Group, you might have got a range of responses. The company’s streaming revenues; that “cut to grow” redundancies plan; Sir Lucian Grainge‘s position on the Billboard Power 100. All may have featured.

Now, when it comes to UMG, everyone’s only talking about one thing: TikTok.

Yesterday (January 30), Universal announced that it would not be renewing its global licensing deal with TikTok, primarily because, in UMG’s words, “TikTok proposed paying our artists and songwriters at a rate that is a fraction of the rate that similarly situated major social platforms pay”.

TikTok in response accused UMG of “putting their own greed above the interests of their artists and songwriters”.

As the accusations get meaner and the brickbats fly, it’s probably a wise idea for MBW to try and offer some clarity on what’s really going on here – via the following three key points, questions, and observations…

1) How much money does TikTok actually pay Universal Music Group under the deal that expires today (January 31)?

According to an open letter from UMG, issued yesterday, TikTok “accounts for only about 1% of our total revenue”.

Universal’s revenue in 2022 (across recorded music, publishing, and other activities) stood at EUR €10.34 billion (USD $10.87bn).

In 2023, MBW expects UMG’s FY revenues to hit somewhere in the region of EUR €10.65 billion (USD $11.5bn). (UMG has announced results for the first nine months of last year; its Q4 results will be out on February 28).

Ergo… if UMG’s 1% claim is to be believed – and Universal’s a public company, remember, so we’re gonna go ahead and believe it – that would mean TikTok is currently paying Universal around $110 million per year.

But here’s the crucial point. As mentioned, UMG in its open letter yesterday deliberately described TikTok as a “major social platform” – indicating that UMG is NOT expecting TikTok to pay through a similar share of royalty money as a fully-fledged music streaming service like, say, Spotify.

Instead, a more natural comparison would be Meta/Facebook, with whom UMG last inked a multi-year deal in 2022.

According to Guggenheim Partners analyst Michael Morris, who issued a note on UMG’s spat with TikTok to investors today, the amount of money paid by Meta to UMG is two to three times larger than that paid through by TikTok. That would mean Meta is therefore paying UMG somewhere in the region of $200m-$300m per annum to license its content.

Another take on these numbers: If TikTok is paying $110 million to UMG per annum, it infers that TikTok is paying the entire music rights industry somewhere in the vicinity of $400 million per annum.(The basis for that broad assumption: According to Music & Copyright, UMG enjoys a global recorded music market share of approximately 32%, and a global music publishing market share of approximately 23%.)

This $400 million figure is a materially larger estimate for what TikTok pays music rightsholders than we’ve previously seen estimated by the likes of Goldman Sachs.

So why might a company like UMG be aggrieved with being paid a nine-figure annual sum by a social media platform?

Two reasons: (i) The clear central importance of music to the typical TikTok user experience; and (ii) The fact that, according to eMarketer data, TikTok was expected to generate around USD $18 billion in net global advertising revenues in 2023.

If TikTok did pay the music business our approximate figure of $400 million last year, it would represent just 2.2% of that estimated $18 billion turnover.

2) TikTok says it has active deals in place with Warner, Sony, and the indies. Universal pulling its publishing catalog is therefore a potentially big headache for its peers.

This observation shouldn’t get lost in amongst all the mud-slinging.

In its statement issued yesterday pouring scorn on UMG, TikTok stated: “TikTok has been able to reach ‘artist-first’ agreements with every other label and publisher.”

In other words: BOTH Sony Music Group and Warner Music Group currently have active licensing agreements with TikTok in place. As do Merlin and large indie players like Believe.

Here’s where that gets gnarly.

Universal Music Group has stated that it is now refusing to license TikTok (under the terms on offer) for both its recorded music catalog AND its music publishing catalog.

The recorded music piece of this is fairly straightforward: According to UMG’s latest annual financial report, at the close of 2022, the company represented around 3 million recordings.

From today (January 31), those 3 million tracks will start to disappear from TikTok. If said recordings are found on TikTok after this date, UMG can credibly accuse ByteDance of copyright infringement.

The publishing piece of this, though, is arguably far more impactful. According to that annual financial report, at the end of 2022, UMG represented (or part-represented) nearly 4 million songs.

The relevant slide from UMG’s 2022 financial report

Those songs are often recorded by artists who are signed to other record companies. An obvious example would be Adele – signed to Sony Music/Columbia for records, but with publishing signed to Universal Music Publishing Group.

Here’s a less obvious example: Last year’s Grammy-winning songwriter of the Year, Tobias Jesso Jr. is signed to UMPG. He is a co-writer of songs for Warner Records-signed Omar Apollo and Sony/Columbia-signed Harry Styles – two artists for whom TikTok is an important media platform.

When UMPG’s catalog is no longer licensed for TikTok, tracks by Omar Apollo and Harry Styles, if they feature a UMPG writer like Tobias Jesso Jr, will in theory have to come down.

Now imagine a hip-hop or dance track with multiple writers and multiple samples. If a UMPG writer contributed just 1% of the songwriting credits to that recording, it too would need to come off TikTok.

MBW has been told by sources that Universal Music Publishing Group’s deal with TikTok has a 30-day “tail” clause, which means the final D-Day for the removal of UMG’s publishing catalog may not arrive until the close of February.

This potentially buys TikTok a few more weeks to try and get UMG back to the table – and a mutually agreeable deal signed – before the most devastating impact of the two companies’ dispute comes to pass.

What’s under no doubt: If every track on which UMPG owns/represents a songwriting cut is deleted from TikTok, the industry-wide impact would be gigantic.

One senior music industry figure at a rival music publisher today estimated in a conversation that “up to 80% of all relevant music content” on the streaming and social platform has some form of UMG representation due to “split representations” (i.e. UMPG representing anywhere from 1% to 100% of each song).

In taking this fight to TikTok, there is, of course, an element of reputational risk for UMG.

Any one of the company’s own songwriters or artists might protest against having their music removed from TikTok – and therefore missing out on the platform’s immense promotional power. The potential blowback from recording artists NOT signed to Universal, who see their content chopped from TikTok due to a UMPG-signed writer’s involvement, is also a consideration.

UMG evidently believes the importance of standing up to TikTok – and getting a landmark deal done with better terms than those currently on offer – is worth these potential hazards.

Interestingly, Universal’s decision to pull its publishing catalog from TikTok differentiates this case from another famous ‘music biz vs. digital service’ battle, when Warner Music Group pulled its videos from YouTube in 2008.

Like UMG vs TikTok today, that incident was primarily driven by WMG’s protest against the amount of licensing money that was coming its way from a video platform.

However, WMG removed all official videos from its recording artists from YouTube in 2008, but did not interfere with the videos/content of tracks that featured Warner Chappell songwriters.

(A sobering reminder of what happened in that WMG vs. YouTube spat 16 years ago: WMG ended up putting all its videos back on YouTube the following year, later revealing that, in the intervening period, it had spent $2 million on “largely unsuccessful attempts” to block/remove copyright-infringement of its recorded music by YouTube users.)

A more recent precedent: When Kobalt disagreed with licensing terms offered by Facebook in July 2022, it announced that it was pulling its music publishing catalog from the platform.

Kobalt is a smaller-scale publisher than UMPG, with cuts on around 700,000 songs. Still, like the UMG vs. TikTok scenario, Kobalt’s decision affected recordings by multiple artists whose record deals were signed to companies outside of Kobalt itself.

More positively for those hoping for a swift resolution in the UMG vs. TikTok fracas? Kobalt and Meta ‘made up’ barely two months after the music company pulled its catalog, and signed a fresh multi-year licensing deal.

3) Both TikTok and UMG know how to fight dirty. This could get uglier yet.

Another important note in Universal’s open letter yesterday: the major rightsholder accused TikTok of attempting to “bully” UMG into accepting terms on a new licensing deal by “selectively removing the music of certain [Universal-signed] developing artists, while keeping on the platform our audience-driving global stars”.

In other words, TikTok (allegedly) denied its vast promotional power to those artists on Universal who need promotion the most: up-and-coming acts. For a company like UMG, existentially in the business of developing new superstars, this hit it where it hurts.

May we remind you: TikTok is downright essential to hitmaking in the modern business. The platform counted 150 million users in the US alone as of Q1 2023. And in 2022, TikTok claims that trends on its platform drove the success of 13 out of the 14 tracks to reach No.1 on the Billboard Hot 100 that year.

There are a plethora of stats out there showing the huge level of influence that TikTok has on the behavior of music fans, both in terms of what those fans stream on platforms like Spotify, but also the tickets and merch items they buy.

We have, of course, seen TikTok frustrate music rightsholders by selectively removing music content from its app before.

In February last year, the platform removed certain major label recordings from its app for a limited number of users in Australia – a move that TikTok called a “test” to see how this action affected user behavior.

The intent here was clear: to boost its negotiation power with the major record companies, TikTok wanted to see if its audience could live without said record companies’ content.

According to a report from Bloomberg, if the “test” proved anything, it was just how valuable this music actually was: the removal of the recordings triggered a material decline in active users of TikTok in Australia.

Regardless, what’s clear is that TikTok’s unrivaled promotional power for emerging artists is a significant weapon for the company when it comes to trying to drive down the costs of licensing music from the likes of UMG.

Universal has some sharp weapons up its own sleeve, however.

TikTok is currently in the crosshairs of Senator Marsha Blackburn in the US, who is objecting to the company’s plan to open offices in Nashville.

Republican Blackburn, an ardent supporter of Donald Trump, today (January 31) delivered a stinging in-person dressing down of TikTok CEO, Shou Zi Chew, during a Senate Judiciary Committee hearing.

A key feature of Blackburn’s diatribe? Universal Music Group’s dispute with the platform.

Directly addressing Shou Zi Chew, Blackburn said: “There are a lot of people in Tennessee that are very concerned about the way TikTok is basically building dossiers on our kids… and that [this] information is held in China, Beijing.

“We also know that a major music label yesterday said they were pulling all of their content off your site because of your issues on payment, on artificial intelligence, and because of the negative impact on our kids’ mental health. We will see how that progresses.” (See the first two minutes of the video below to watch Blackburn’s address.)

Some predict that a populist, anti-China-themed attack on TikTok could form a central part of Donald Trump’s Presidential campaign this year.

TikTok may also play just as well as a ‘cultural bogeyman’ for Joe Biden’s rival Presidential campaign.

Did Marsha Blackburn just indicate that UMG’s altercation with TikTok – unless it’s quickly remedied – may be used as additional fodder in this political blitzkrieg?

Speaking of cultural impacts beyond a mere B2B music industry squabble, consider this line from UMG’s open letter yesterday.

TikTok… has offered no meaningful solutions to the rising tide of content adjacency issues, let alone the tidal wave of hate speech, bigotry, bullying and harassment on [its] platform. The only means available to seek the removal of infringing or problematic content (such as pornographic deepfakes of artists) is through the monumentally cumbersome and inefficient process which equates to the digital equivalent of “Whack-a-Mole.”

That is a very clear reference to explicit “deep fake” images of Taylor Swift which did the rounds on social media platforms this week – including on TikTok.

SAG-AFTRA, where Swift is a union member, rightly labeled these images “upsetting, harmful, and deeply concerning”, while calling for legislation to make the creation and dissemination of lewd deep-fake images illegal in the US.

TikTok took some heat yesterday when Universal Music Group targeted it with some harsh words.

That, however, is nothing compared to the outcry the platform would surely face should Swift personally lambast TikTok for its role in an experience that nobody – including the world’s biggest music megastar – should ever have to endure.

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