TikTok Cannot Afford the Music Industry
Hello, happy to bring 2022 to a close. If you’re a musician or freelancer, check out the New York Seed Fund that allows freelancers to claim up to $5,000 of money lost due to the coronavirus pandemic. Groups like the Music Workers Alliance fought for this, so please check it. I'll be on a holiday break till January 11th, so I hope y’all have a nice holiday. If you want to support my work tell your peers to subscribe and if you’d like to give a few bucks you can subscribe here. Now, let’s dive into a topic I’ve wanted to do for a year… TikTok.
Music industry executives shared the same script in 2022: “The industry is doing amazing” or “recession who?”, but mention TikTok, and the tone shifts. The Chinese short-video platform is held at arm’s length by exhausted marketers, frustrated label higher-ups, and rival technology firms unused to real competition. Lucian Grainge, the CEO of Universal Music Group, warned about “repeating past mistakes”, an allusion to previous foes MTV and YouTube, in making sure their artists take a healthy slice of new revenues coming into the industry. Lyor Cohen, Global Head of Music at YouTube, mirrored the thought bemoaning young music fans’ “abundance of choice” and that TikTok, so far at least, is not producing a music fandom capability to the traditional industry. The talking points may be self-serving but reflect an industry that is grappling with shifting consumer behaviors and an ever more fragmented cultural landscape.
A couple of years ago I wrote about the rise of “Old Town Road”, often credited as TikTok’s first major hit. Yet, that ignores the fact Lil Nas X actively marketed the song, and once signed to Columbia, the label repackaged and recontextualized the song to make it inescapable in 2019. This story appeared to be forgotten throughout 2020 and 2021 when sea shanties could go viral and no one was allowed to forget that Fleetwood Mac’s “Dreams” achieved minor popularity again. These one-off moments combined with high pandemic-induced platform usage by younger people engendered real hype. That’s become far more muted throughout 2022 as TikTok, like playlists, reportedly aren’t driving new hits. Cat Zhang over at Pitchfork spotted these mixed signals with artists alleging they needed to go viral to release a single, which some perceptive fans understood as “anti-marketing marketing”. That displayed less artistic frustrations and more label contempt for TikTok for failing to be a readymade cog for the recorded music industry interests. The recorded music industry or at least its executives' mixed perception of the company obscures TikTok’s own bumpy ride to global reach.
TikTok is owned by Bytedance. That Chinese company was founded in 2012 and quickly came to prominence with its apps: Douyin and Toutiao. In 2017, they purchased Musical.ly and turned it into what’s now TikTok. In 2020, the app saw a pandemic-induced growth spurt that made it beloved by young users and suddenly eating away at attention previously dominated by Facebook and Google. This burst of attention saw Bytedance rush to hire, raise more money, and even get into its own investments. That same year Sequoia Capital and KKR, the same private equity firm that last year announced a $1 billion raised with BMG to buy up song rights, joined together for an investment round valuing Bytedance $180 billion. Within a year Tiger Global Management, a big-spending hedge fund, would reportedly buy shares at a valuation of $460 billion on the private market. For context, Bytedance in 2021 saw operating losses of $7 billion and a net loss of nearly $85 billion; luckily according to leaked results Q1 of 2022 net losses were down to only $4.7 billion. The company is demonized for not paying enough to artists, ruining the pipeline for building new artists, and is also burning cash every day. Ironically in many ways, it's a speedrun of previous firms, (see: YouTube, Spotify, etc.) splashing into the entertainment technology space but now there’s an industry set playbook on how to squeeze every dollar outta each new entry.
The factors that accelerated TikTok’s growth in 2020 and 2021, started sliding only a year ago, and perhaps that is best seen through the fortunes of a recent investor: Tiger Global Media. In June, New York Magazine profiled the company because at that point it reportedly already lost $25 billion in 2022 and was the poster child of the last 18 months of tech excess spending. The bad news didn’t stop there, as the Financial Times reported the hedge fund marked down the valuation of its private equity holdings every month this year. With a month to go, Tiger’s yearly losses are at 54%, which unfortunately for Bytedance’s own valuation the apple didn’t fall from the tree.
Last fall in private markets, Bytedance saw its valuation eclipse $400 billion and in September, the company issued a $3 billion stock buyback program for investors valuing the company at only $300 billion. A month later, Bloomberg reported the company offered to buy back employee stock in an effort to retain talent and release the pressure that’s mounted from an inability to spin off parts of its business to go public. The pain didn’t stop there as The Information reported that investors are struggling to sell shares even with a valuation of $240 billion. TikTok’s rapid growth and success can be credited (for good or ill) to Tiger, Sequoia Capital, and KKR just flooding the company with so many resources to rapidly balloon up to over 100,000+ employees. Again inflation, rising interest rates, and China’s crackdown on technology firms are well outside of the control of these firms but perhaps that might mean the company’s economic, and perhaps cultural value, was overstated.
The fall of Bytedance from 2021 highs extended beyond valuation collapse. TikTok over the last year enacted underreported layoffs (making sure to pump out stories saying hiring isn’t stopping…), saw works councils formed to address labor concerns, and experienced eCommerce expansion growing pains. Brendan Carr, a right-wing Federal Communications Commission (FCC) official, cannot shut up about how TikTok should be banned from the US, and last month Chris Ray, the current FBI Director, said the app was a national security threat. (Meanwhile, states are barring state employees from keeping the app on their devices.) Interestingly, the app is actively seeking out more traditional social media engagement with friends, less with creators; while dialing up creator monetization options. (It's even gotten into the distribution business.) The scrambling on all sides of the company from investors, workers, and management would say this isn’t a company ready to fork over a sizable chunk of revenue to avoid protracted music lawsuits. However, another firm may be giving TikTok, and others, a blueprint out of this bind.
Triller, a professional fighting promotion company that doesn’t always pay its talent, is also a short-form video platform. Not unlike ByteDance, Triller is familiar with negative numbers with it absorbing a $191.6 million loss in 2021 according to an SEC filing. That reality combined with allegedly aiming to IPO, so it can actually get the $310 million it reportedly raised from Global Emerging Markets, a Luxembourg-based asset manager, but can only access once going public. That may help explain Triller’s suddenly aggressive stance towards record labels. In early December, the company removed large chunks of major and independent label content and made sassy press statements about their ongoing negotiations with labels.
The company repeatedly downplayed the impact of music on the platform to justify why it stopped working with Merlin and to gain leverage with rights holders for better terms. They wrote: “Most of Merlin’s music is indie rock and dance; both genres which have a lower interest on the Triller app.” Harsh, but facts. The bluntness stands in contrast to TikTok, which attempts to avoid too much public mudslinging. Triller is right to state it cannot forgo a large chunk of revenue to the music industry and maintain its operations; MixCloud said it, and Spotify hints at every quarterly report. TikTok, still straddling a line, isn't sure where it can firmly stand.
This is an issue because outside of vinyl revival and desperate experimentations with NFTs, there’s very little imagination for new revenue streams that don’t involve essentially policing any music consumption out of the major labels. When I covered contemporary piracy, it was to highlight the expansive imagination for copyright and that it’s a framework that is currently cast with a nearly inescapable reach. This helps frame TikTok as a music killer wasting precious youth attention if not properly monetized; but if it signs the right legal contract, it can aid industry growth. Either still downplays the firm’s large losses, scrambling from business model to business model, and the crunch being felt by its most recent investors.
The contradiction can be best witnessed by pairing this Bloomberg headline: “Record Labels Ask TikTok to Share More of Its $12 Billion”, and waiting 24 hours for the Financial Times to report on the company missing those same revenue targets. In contrast, Spotify reported in Q3 2022 that for every $1 of profit made in advertising, the company made over $100 of profit on subscriptions. That may account for why labels want TikTok to lean into paid music streaming. Digital advertising and music streaming aren’t a great match and that was before there was a recent downturn in advertising spending. Ultimately industry reporting will be how we find out the kind of deals that get signed between TikTok and major music firms, but I’d caution that the pandemic bubble may have already burst for the music’s future revenue engine.
In a rather disappointing end, the United Kingdom’s Competition and Markets Authority said that the low streaming rates aren’t being driven by major label monopolies and harped on the benefits of streaming for consumers. Many of my gripes with this report were echoed in the UK’s similar pivot away from halting Sony’s purchase of AWAL, where the government restated insightful facts but failed to understand the corrosive effect of major labels on the broader music business. *le sigh* Back to 2023 Recession Watch: Amazon is reported going to cut an additional 10,000 jobs and SiriusXM said it was likely to implement layoffs as ad revenue declines. Then it appears the American Music Fairness Act, a bill that would force radio to pay recording artists along with songwriters is getting closer than ever before to passing even with a divided congress. IP holders rejoice!
A Note of Financialization
Jamar Chess, the grandson of the founder of Chess Records, along with a couple of industry veterans started the Wahoo Music Fund with an explicit mission to buy Latin music catalogs and began with half of Oro Solidio’s publishing and recordings. BMG, who must be worried people don’t know they’re in the catalog market, announced two new deals with Chris Rea and Peter Framton. Litmus Music, which is funded by Carlyle Global Credit, bought Keith Urban’s master recordings in their first publicly announced deal. Apollo Global Management, the asset manager that backed HarbourView Group, is helping Concord establish a $1.85 billion bond offering attached to royalties the company owns. Great usage of capital here. Then what’s a fitting close to the year, Billboard explored why the Hipgnosis Songs Fund continues stock buybacks despite them not reviving its languishing stock price and the Financial Times reported that the company’s latest catalog valuation remains unmoved despite the stock drop-off. Maybe 2023 will look up for Merck and the boys. Maybe!
6 Links 2 Read
This is corecore (we’re not kidding) - No Bells
A fun story examining the vibeless vibe that sits at the end of one’s TikTok For You Page. Kieran connects this to “trend exhaustion” that years of dumping all culture online are starting to produce unsustainable nano trends that still yearn for community. I’d argue that such abstraction might call out for said users to look away from screens for that need but perhaps they need to find that on their own.
Playlists Don’t Hit Like They Used To - Billboard
I always thought playlists were overhyped and their slow fall back to irrelevancy only affirms what a media-driven cultural phenomenon it turned out to be.
Insiders made millions from Justin Bieber's NFT project. His fans are down almost 90%. - Dirty Bubble Media
So many celebrity NFT projects over the last years were fairly sketchy to be kind. This dive into a Bieber project helped give more context for other folks filing away other celeb NFT lawsuits.
From the Top, Touring Looks Better Than Ever - Billboard
The business of live music is booming for music’s most popular acts. Though many mid-sized and smaller acts are speaking up more about the issues of touring during a pandemic, the money is flowing in for Live Nation and the management firms that represent these stars. An interesting note to me is that the age of tours got younger while the costs of the tickets increased; potentially showing what these fans crave outside of digital offerings.
Left-Wing Politicians: Run on Abolishing Ticketmaster - Jacobin
There are an increasing number of issues that impact the music industry that cross partisan lines, so I’ll continue to be interested in what can pass and what new horizons are proposed by advocacy and trade groups, alongside politicians.
A.I. Just Makes the Old Problems Worse - Garbage Day
The Official 2022 Penny Fractions Line on “artificial intelligence” can be summed up with: Please no. I will cover this more in 2023, so this post is a good opening salvo of skepticism.