MBW Explains is a series of analytical features in which we explore the context behind major music industry talking points – and suggest what might happen next. MBW Explains is supported by JKBX, a technology platform that offers consumers access to music royalties as an asset class.
What’s happened?
Ultra-popular short video app TikTok has become – for lack of a better expression – a major player in the music business.
The app has been the seed behind some of the biggest musical phenomena in recent years, including Lil Nas X’s megahit Old Town Road.
It has at times stunned observers with its ability to resurrect classic tracks and turn them into hits all over again, as was the case with Fleetwood Mac’s Dreams and Simple Plan’s I’m Just A Kid, which got new life as hits for a second time 41 and 18 years after they were initially released, respectively.
It’s beyond doubt at this point that TikTok has become a major influence on recorded music, in terms of both which artists and which songs rise to prominence. But if this observation is reversed, it still rings just as true: Music is a major reason for TikTok’s rise in popularity.
No wonder the major recording companies are publicly hinting at – and privately pushing for – a bigger slice of TikTok’s advertising revenue pie.
Two questions have been hanging over this conversation in recent months: To what extent is TikTok willing to pay more to license copyrighted music for the videos users post to its platform? And to what extent will TikTok resist attempts at greater revenue-sharing, and instead replace music from major and indie labels with its own musical ecosystem?
We came a lot closer to the answer to those questions last week, when TikTok owner ByteDance unveiled Ripple, a free-to-use music production app with two principal features: an AI “melody-to-song” generator, and a virtual recording studio.
The melody-to-song feature allows users to hum a melody directly into the app, around which Ripple builds an instrumental musical track, equal in length to the original hummed melody.
(In response to growing concerns within the music industry about AI models training on copyrighted music without permission, ByteDancetold MBW it trained Ripple on music licensed to or owned by the company.)
The virtual recording studio works much like other portable digital audio workstations such as Splice, BandLab’s Cakewalk or Apple’s GarageBand.
Ripple users will be able to upload their musical creations to TikTok or other social media platforms. For the time being at least, it’s being released to a small group of beta testers via invitation.
For many observers, the idea that TikTok would want to jump into the increasingly crowded fields of AI music generators and digital audio workstations for its own sake doesn’t make sense. It does, however, make sense if TikTok is trying to replace music from the major and indie labels with music it doesn’t have to pay for.
What’s the context?
Ripple’s release comes amid negotiations between TikTok and the major recording companies over the size and structure of the payments the video app makes for the use of copyrighted music in videos uploaded to TikTok.
So far, TikTok’s arrangement with the recording companies has been for so-called “buy-out” agreements, under which the social media site pays a lump sum to use licensed music across its platform for a period of two years.
The current agreements with the big three recording companies – Sony Music, Universal Music Group and Warner Music Group – were signed between November 2020 and February 2021, meaning their time is running out. And reports suggest that the majors want to replace the lump-sum deals with a share of TikTok’s ad revenue on music-led videos.
But TikTok has been playing hardball, and in more ways than one.
Earlier this year, it was reported that TikTok disabled the ability of certain users in Australia to add major label-licensed music to their videos. Additionally, certain already uploaded videos featuring these tracks would be muted.
Sources told MBW that the move was designed to give TikTok leverage in its negotiations with the record labels; if the experiment showed little significant decline in user engagement, TikTok would be able to argue that music is not a major part of the TikTok experience.
TikTok reportedly lost users during the experiment. – Evidence that music is a key part of TikTok, as further demonstrated by ByteDance’s own actions.
“We have lots of people [working at TikTok] who came from record labels and publishers and societies, and we understand how complicated, how capital-intensive, and how specialized that business is. It does not fit into our strategy to become a record label.”
It can also distribute to Resso, ByteDance’s social media platform expressly for sharing music. The app is currently available in Brazil, India and Indonesia, but Ole Obermann, TikTok’s Global Head of Music Business Development, told MBW in May that it’s the company’s ambition to make the app available worldwide.
Initially launched in the US, UK, Brazil and Indonesia, the platform has now expanded to Australia, New Zealand, Canada and Mexico. SoundOn pays creators 100% of the royalties generated by their music in the first year, and 90% after that – a pretty good deal, compared to traditional music labels.
SoundOn scored a major publicity coup earlier this year when it landed an exclusive contract with Death Row Records and Snoop Dogg to bring the label’s catalog to TikTok exclusively for a week, before its return to major streaming platforms.
Now, with the release of music-making app Ripple, it’s hard to avoid the impression that TikTok is positioning itself to be an all-in-one shop for music creators. Use Ripple to generate a song and turn it into a track, then take it to SoundOn for distribution on TikTok and other platforms. No labels – major, indie or otherwise – needed.
Yet the company insists that it isn’t becoming a music label.
“There is no intention of TikTok becoming like a record label,” Obermann said in his interview with MBW.
“SoundOn was really born from one of the main objectives [we have] at TikTok, which is to work with our creator community, to allow them to make money, get discovered, and to strike partnerships and relationships with brands,” Obermann said.
“SoundOn is the answer to all of those, as well as: How do we address the fact that so many unsigned, unknown, or unidentifiable pieces of music are coming on to TikTok? And how do we make that better for the community?”
He added: “We have lots of people [working at TikTok] who came from record labels and publishers and societies, and we understand how complicated, how capital-intensive, and how specialized that business is. It does not fit into our strategy to become a record label.”
What happens next?
In the coming months, the major recording companies – Sony, Universal and Warner – might have news about new deals with TikTok.
Given the majors’ resistance to continuing with the “buy-out” model, it will be interesting to see if those deals are a repeat of the agreements TikTok had previously had with the companies – though whether the details of those deals will be made public is anyone’s guess.
And the degree to which TikTok will be willing to concede to the majors will depend on a number of factors – including the outcome of its Australian experiment.
Preliminary reports suggest that a number of younger Australian users who were blocked from using licensed music reduced their usage of the app, or even left it altogether. If true, this would give considerable leverage to the recording companies.
“If we were forced to take down a catalog or part of a catalog, we are pretty confident that we could still remain a compelling service for our users.”
Ole Obermann, TikTok
However, also playing into this will be the performance of SoundOn and Ripple. If these apps prove popular with TikTok users, it will give ByteDance a reason to continue playing hardball with the music industry, on the argument that the platform’s users can (and do) generate their own music, and don’t need to rely on licensed music from major record companies.
It will be about more than the number of subscribers; if TikTok is to pull off this dramatic shift in how its platform is used, it will need to see evidence that not only are people signing up to Ripple and SoundOn, but that they are actually generating music and distributing it, and – most importantly – that TikToks with this music are going viral, and the songs themselves are becoming popular.
That’s a tall order, but TikTok has been promoting some of SoundOn’s early successes, such as that of 20-year-old Canadian Katherine Li, who in 2022 released an EP through SoundOn that, according to a TikTok press release, has been streamed 49 million times on Spotify alone.
Nevertheless, the record majors have their own leverage: If they don’t get a deal that satisfies them, any one of them could simply refuse to license their music to TikTok. Depending on which company it is, this could mean a loss of between 15% and a third of the major-label music available for use by TikTokers.
That could seriously affect the TikTok user experience, though Obermann doesn’t seem particularly worried about such a scenario.
“If we were forced to take down a catalog or part of a catalog, we are pretty confident that we could still remain a compelling service for our users,” he asserted in May.
Whether that’s bravado in the face of record company negotiations, or a sober assessment of TikTok’s position in the marketplace and cultural sphere, is anyone’s guess.
A final thought…
All of this comes at a time when TikTok’s future has grown uncertain because of the rising tensions between China and Western countries.
As the world’s most popular Chinese-owned app – TikTok has become a magnet for criticism among across North America and Europe.
Worried about the close ties between ByteDance and the Chinese Communist Party – which could mean that China’s government has had access to detailed user data from countries around the world – many governments have banned TikTok from government-issued devices.
Among them are the US, UK, European Union, Canada, Australia and others. Some countries, namely Afghanistan and India, have banned TikTok outright, as has the US state of Montana, though TikTok has vowed to fight the ban on freedom of speech grounds.
Following a four-and-a-half-hour grilling of TikTok CEO Shou Zi Chew in front of the US Congress this spring, the US House Foreign Affairs Committee advanced a bill that would authorize President Joe Biden to ban TikTok throughout the country.
However, that bill has not made much progress since, and many critics have pointed out that it’s both unusual and constitutionally questionable for a law to target a specific company.
Nonetheless, TikTok finds itself at the center of major geopolitical shifts in the world today in a way that other platforms aren’t.
Strangely enough, TikTok’s potential campaign to build itself into a musical behemoth is dependent on developments in the ongoing US-China trade war, and developments over the status of Taiwan.
That places a large question mark over its future – and even over the majors’ licensing negotiations with the platform. TikTok might soon be a major generator of music, competing with the likes of Universal and Sony – or it might soon be gone, or anything in between.
That radically wide range of possible outcomes adds a layer of uncertainty to all of this that likely doesn’t help anyone in the music business sleep at night.Music Business Worldwide
