(Hypebot) — TikTok, which is being touted as the #1 place for music discovery, is paying creators and rightsholders a fraction of what Spotify does, and yet the streamer is under constant pressure to pay more,
By Bill Werde. A version of this essay appeared in his free, weekly Full Rate No Cap email.
Music biz grumblings that Spotify should raise their price have gotten louder of late.
Earlier this Summer, Sony Music Group chairman Rob Stringer was quoted at a Sony investor event: “Do we think [the streaming business] in the mature markets can withstand pricing increases? We do.”
And on September 12, at a Goldman Sachs event, outgoing Warner Music Group CEO Stephen Cooper had this to say:
“When you look at the value proposition in music versus video, [it’s] unbelievable. That leads us to conclude that – particularly with the stickiness and almost non-existent churn – [music streaming] services can easily raise their monthly subscription by a fraction, and they can do it on a regularized basis.“
“We’re hopeful that given historic, current, and what I’m sure will be future discussions, the [music] DSPs will ultimately see the need to raise prices, raise them regularly, and have a more rational relationship between the price and the value that’s being delivered.”
He added: “When I look at the DSP models, I would conclude, fingers crossed, that those increases will come sooner versus later.”
Cooper sounds to me like a man hell-bent on killing the industry’s golden goose.
His motivations aren’t complicated. As I covered in last week’s FRNC, streaming revenue growth is slowing, and the major labels (and their stock prices) want to keep the growth coming. But the idea of raising prices in current market conditions is insanity. A new survey showed that 25 percent of Netflix subscribers plan to cancel their subscriptions this year. The reason given by nearly half of them? Netflix’ rising costs.
So riddle me this: why are the majors so intent on putting the screws to Spotify, while they basically give TikTok a free ride? Goldman Sachs (with a little math help from Music Business Worldwide) estimates that TikTok paid global music rights holders a paltry $179 million in 2021. Let’s compare that with YouTube, the similarly-ad-driven business with whom TikTok increasingly competes. In 2021 (12 months ending June 2021) YouTube paid global music rights holders $4 billion. And YouTube just announced that their payment for the 12 months ending June 2022 was $6 billion. YouTube is breathing down the neck of Spotify now to be the global music biz’ most important revenue partner, and that’s incredible news.
In fairness to TikTok, YouTube is at about 2.5 billion monthly active users, while TikTok is at approximately 40 percent of that number (just over a billion monthly active users). The ratio for ad revenue is strikingly similar. YouTube did $28.8 billion in ad revenue in its last full year, and is projecting modest growth; TikTok is projected to hit $12 billion in 2022. Again, roughly 40 percent of YouTube. Last time I checked my math, 40 percent of the $6 billion that YouTube paid the music biz is $2.4 billion. That’s 13+ times more than what TikTok paid. If we want to be more charitable to TikTok, we can use the $2 billion figure that YouTube Music Head Lyor Cohen says his company paid the music biz in ad revenue only from user generated content. And 40 percent of that figure is still $800 million — more than four times what TikTok paid.
TikTok represents a double-edged sword slicing at potential music industry growth.
On one hand, TikTok should obviously be paying a lot more for music than it currently is. Think about it this way: If TikTok does make $12B in 2022, what would that number be without music? Would the platform even exist? And as others have discussed, the window of leverage that the music business has to demand concessions from TikTok may be slipping away. TikTok is probably already far too powerful for the music biz to ever walk away. On top of that dynamic, TikTok seems to be building a lot of infrastructure that will have them competing even more directly with the majors.
And at the same time, the growth of TikTok is pretty clearly coming at the expense of YouTube — again, music’s second most important global partner. Even more troubling than the broad trend in migrating advertising dollars? The absolute TKO that TikTok has scored on YouTube when it comes to the future: Gen Z and Gen Alpha – kids and young adults born mid-to-late-‘90s on – are TikTok’s foundation.
All of this is to say, the music business, which loves to talk about how it learned its lesson when it gave MTV videos for free and MTV built an empire… and then learned its lesson again when Apple made a fortune selling iPods full of pirated music so the music biz saw no benefit… may be about to get uh, educated again.
Bill Werde is a former Billboard Editorial Director and Director of The Bandier Program for Music and the Entertainment Industries of the Newhouse School of Public Communications at Syracuse University. A version of this essay first appeared in his free, weekly Full Rate No Cap email.
