An Armoured Strike Against TikTok by the Largest Music Company in the World

Wed Feb 28 2024
Jim Andrews (505 articles)
An Armoured Strike Against TikTok by the Largest Music Company in the World

It was important to Gwen Stefani that her new song get some airtime. A duet with husband Blake Shelton was supposed to be released earlier this month, and the No Doubt frontwoman and famous solo musician was planning to appear before the Super Bowl to promote it. But only one week before “Purple Irises” came out, Universal Music Group—the parent company of her label—took the unprecedented step of removing all of her artists’ tracks from TikTok due to a deadlock in contract negotiations.

Because of the change, Stefani’s song couldn’t be released on TikTok, and the app’s promotional short films, which are now standard practice for promoting new music releases, couldn’t be made.

Instead of having the song published by Universal’s Interscope Records, Stefani and her team opted to switch things up and have it handled by Shelton’s country label, Warner Music Nashville. Several TikTok videos that Stefani and Shelton created showcasing the song “Purple Irises” have since amassed millions of views.

Legal disputes have arisen between TikTok and Universal, the biggest music label in the world. TikTok’s one billion plus social media users are eager to include music from Universal’s extensive library into their own films, whether it’s dance tutorials, memes, or anything else they can think of.

A TikTok video clip that’s only a few seconds long can be worth as much as the full song in this new economy they’re negotiating in.

This week, the dispute heated up when Universal used what is referred to as “the nuclear option” by industry insiders: they demanded that TikTok remove any songs that featured any songwriter who is signed to Universal’s publishing business.

According to TikTok, this process began late Monday in an effort to remove all of these tunes by the month’s end.

It is estimated that 80% of the current hits across independent labels, Universal, Warner Music Group, and Sony Music Group will be impacted by the transition. If more than ten songwriters from different publishers contribute to a single popular song, it doesn’t matter if just one of those songwriters is signed to Universal; the hit will still fall.

According to TikTok, the percentage of affected songs would be reduced, ranging from 20% to 30% of popular songs used on TikTok, depending on the market. Per sources familiar with the matter, TikTok recently contacted Universal with a proposal that the music label believed failed to adequately handle its grievances around remuneration, platform security, and AI safeguards. As a result, talks have not advanced.

The global music industry is entangled in Universal’s feud with TikTok due to the broader takedowns. Despite the short-term impact on the accessibility of millions of songs, competitors may try to better their terms in future renegotiations with TikTok if Universal succeeds in getting more favorable economic terms from the social media platform.

This battle pits the record label that signed Taylor Swift, Drake, and Billie Eilish against a Chinese-owned social media behemoth that has an app on the phones of practically every millennial and Gen Zer. The winner takes on the other in the streaming era. Universal is now demanding that TikTok, after years of preferential treatment, begin paying royalties in a more permanent agreement, similar to other well-established video-centric applications like Instagram (by Meta) and YouTube (by Google).

Artists are reevaluating their song release strategies, and some TikTok users are altering their platform engagement as a result of the continuing spat between Universal and one of the world’s largest music marketing platforms.

“Whatever happens here is going to dramatically affect the next several years of global music revenue,” stated Bill Werde, director of Syracuse University’s Bandier music business school.

For TikTok, music is now everything. According to data and content identification company Pex, 85 percent of platform videos had music last year, and that number is only going up.

The brief audio clips (up to 60 seconds) that make TikToks so engaging frequently cause videos to become viral, which in turn increases the amount of money a record label and artist make from streaming the full version of the song on platforms like Spotify and Apple Music.

On February 1, the day the license for the Universal label expired due to the impasse in negotiations, all TikTok videos featuring music by artists associated with the label went silent.

One of the prominent artists signed to Universal is Ariana Grande, who earlier this month promoted the release of a Mariah Carey remix of her single “yes, and?” on TikTok.

Even though Grande and Carey seem to be singing in the video, an artificial intelligence voice says, “We’re not allowed to put the song here.” No music is actually playing. So, to get a feel for the sound, watch this video.

Both Grande and Sony Music artist Carey chose not to comment when asked about their thoughts.

Another Universal singer, Kim Petras, whose music was trending on TikTok before to the shutdown, expressed her support for the action and her sense of security with her company.

“Everyone here at Universal is dealing with problems at the moment, but you have to pull together,” she admonished. Efforts to guarantee that musicians receive just compensation for their work are motivated by admirable goals. Everyone from the top-charting artists to the songwriters and those who work tirelessly behind the scenes deserves this.

For many years, the record industry has felt a degree of dependency on the massive corporations that distribute its music. During the peak of CD sales, physical stores like Tower Records and Walmart had a stranglehold on stock and order volume.

Apple de-bundled albums with the introduction of digital downloads and iTunes, allowing listeners to purchase individual songs for 99 cents rather than paying $10 or more for the entire collection on iTunes or much more on CDs.

Subsequently, Spotify flipped the script on music ownership by moving customers to a subscription model where they effectively rent access to any song in the world. After 30 seconds of a song being played, streaming services like Spotify pay a royalty to the labels.

With the new song breakdown feature, TikTok users can now easily find and share their favorite parts of songs. Enjoy the world’s most popular music for free while you scroll through videos on the social media app. It’s a great experience for younger generations.

Midia Research, a data tracker, found that most teens (those between the ages of 16 and 19) use TikTok at least once a week. Additionally, teens spend an average of fourteen hours per week watching videos on social media sites, as opposed to twelve and a half hours per week listening music.

Because the success or failure of a song is so random and because becoming viral does not guarantee that an artist will gain fame and fortune, record executives and artists’ teams have had a hard time putting a price on TikTok. Music industry insiders have stated that even when users enjoy a TikTok video, they are unlikely to move on to listen to the artist’s full body of work.

After merging with TikTok in 2018, parent company ByteDance inherited significant music licensing deals from its 2017 $1 billion acquisition of Musical.ly, a platform for short-form videos. In order to help smaller starting companies evolve into sustainable enterprises, labels often provide lower fees. The businesses involved announced their intention to adapt their partnerships with TikTok in response to the platform’s growing user base.

According to eMarketer, TikTok’s ad revenue has quadrupled since their last agreement, and Universal has decided that it is time for a change. Universal would like to see a change from the normal short-term deals that the social media platform has made with labels, which involve minimum guaranteed payments in the form of a lump sum, to a new model using usage-based royalties.

Thanks to TikTok’s music discovery features, the label’s artists have gained new fans and those fans have begun streaming the whole catalog of the label’s tracks. Executives in the sector believe that, as growth in music streaming starts to level off, the company needs to negotiate better economic conditions with TikTok if it wants to guarantee future revenue growth.

They worried that if Universal didn’t, it would establish a bad precedent for when the contracts of other social networking sites are up for renewal and new competitors join the market.

The majority of TikTok’s revenue comes from advertisements, and new arrangements could tie the company down with increasing content costs just when it has to find other ways to make money.

With Universal’s publishing catalog gone, the complex and disorganized world of music copyright is finally coming into focus. Records made by musicians who were signed to Universal’s labels were the first to be culled. The following round includes the producers and songwriters who are associated with Universal’s publishing business. This division is responsible for overseeing the copyrights associated with a track’s composition, which includes both the music and lyrics.

Thus, TikTok is required by law to remove any music produced or published by Sony and Warner, two of Universal’s rival record labels, that features a songwriter from Universal.

“Texas Hold ‘Em,” Beyoncé’s new country tune, was the most played song on Monday on the Billboard Hot 100. Nima Nasseri, the manager of Hit-Boy, one of the musicians involved in making the song, was celebrating at the time.

The song’s ascent to the top of the charts over the past week was closely observed by Nasseri, who had previously worked for Universal on a team responsible for running viral TikTok campaigns. “Texas Hold ‘Em” was about to go when he awoke on Tuesday to the news that TikTok had started eliminating songs that had Universal-signed composers like Hit-Boy on the credits.

Despite the low wages, Nasseri insisted that “that’s not the business—the business is discovery” on TikTok.

People familiar with the negotiations told us how they unfolded, but in a high-level meeting in the spring of last year, executives from both TikTok and Universal decided it was time to create a new kind of contract. A new, longer-term deal was the goal of the corporations’ efforts throughout most of 2023. The businesses agreed to extend their current agreement by one month until December so they could resolve any outstanding difficulties. Nearly every day, TikTok and Universal would trade term sheets.

Over the Christmas break, Universal began writing a letter to artists and devised a backup plan out of concern that the deal teams were still too far apart.

Team members involved in the negotiations were already at odds by January over a number of important points, such as the amount to be paid to the label, the terminology to define the royalty pool from which Universal’s artists are paid, and the training and usage of artificial intelligence.

While Universal insisted that the royalty revenues only go to human musicians, TikTok argued that they should also go to fans who utilize the platform’s AI capabilities to make music of their own. Executives in the music and IT industries are looking forward to a day when fans can utilize AI tools to effortlessly create both original music and their own versions of popular songs.

If an agreement wasn’t reached, Universal threatened to remove artists’ work from TikTok, according to the company’s top executives.

Like Instagram Reels, Snapchat Spotlight, and YouTube Shorts, TikTok is just one of numerous short-form video providers that Universal recognizes. Universal claims it has set a standard for licensing costs after reaching agreements with digital behemoths Meta, Snap, and Google over the last five years that it believes provide reasonable compensation for the usage of its music across various user-generated content businesses.

According to Universal’s calculations, TikTok’s payout rate is almost five times higher than that of similar short-form video sites.

In TikTok’s view, it is distinct from Reels and Shorts. The executives think TikTok’s product is special and that the agreement should reflect the value of the song discovery and promotion services it offers.

Several important individuals from TikTok’s song licensing team were supposed to meet with executives from Universal at the Santa Monica offices of the record firm on January 30th, the Tuesday preceding the Grammy Awards, a week when the whole music industry had converged on Los Angeles.

Universal, which was usually prompt in responding during discussions, had not returned a term sheet that TikTok had provided the day before outlining its most recent position, suggesting that something was wrong.

Universal released a statement on its website before to the meeting’s commencement stating that TikTok would not agree to conditions that adequately compensate artists for the usage of their music on the service.

X informed several executives at TikTok that Universal was removing its inventory from the platform, so the letter came as a shock to them. The executives from TikTok skipped the meeting.

Since TikTok’s CEO was scheduled to testify before Congress on January 31, the company felt particularly slighted by the timing.

Following the removal of Universal’s music, TikTok promoted the posting of more photo content by producers, implying that this would lead to an increase in likes and comments. According to a notification given to creators on February 12 and seen by The Wall Street Journal, “Photo posts get 1.9x more likes and 2.9x more comments on average than videos.”

Since Universal deleted its portfolio, TikTok has not witnessed a drop in interaction or lost users, the company claimed on Monday.

Compared to the three weeks before the TikTok takedown, streaming of Universal artists’ music experienced a small uptick in the first three weeks of February.

By focusing on other social media sites, the label hopes to demonstrate that it is independent of TikTok. A number of advertising efforts, including one featuring Kacey Musgraves, were moved to Instagram Reels after Universal withdrew its portfolio. Taylor Swift and Olivia Rodrigo, both musicians signed to Universal, recently promoted themselves on Snapchat.

In their pursuit of fame and fortune, some up-and-coming musicians have lamented the fact that they are omitting a vital promotional tool.

Julia Breen, lead vocalist of the new indie band Similar Kind from Connecticut, was taken aback when her videos suddenly stopped playing. The band’s music is released by Universal. The band’s inability to utilize the app to promote their upcoming album or conduct their customary presale campaign—which helps generate buzz before release—was a source of frustration for her, she added, due to Universal’s action.

She stated that it is currently causing more harm than good.

Jim Andrews

Jim Andrews

Jim Andrews is Desk Correspondent for Global Stock, Currencies, Commodities & Bonds Market . He has been reporting about Global Markets for last 5+ years. He is based in New York