TikTok vs. Universal Is The First Salvo In Music’s Zero-Sum Era

In December 2010, at a global conference for executives of a major music label, an up-and-coming performance marketing agency (OK, it was us) showed a slide with one sentence on it: “You have too many fans and not enough customers.” Earlier that year, Eminem had a social footprint of 30 million US fans and sold 741,000 copies of Recovery in the album’s first week. He’d penetrated less than 3 percent¹ of his social footprint—and that was the biggest artist and #1 album of the year.

Fourteen years later, we’ve entered a new era. It’s becoming more obvious by the year that the growth of the streaming economy is slowing, and heading for a plateau somewhere in the neighborhood of $20 to $25 billion per year². Since streaming revenue accounts for 84% of the total music business, the major music labels see a zero-sum game developing as subscription growth levels out. In the near future, the industry will essentially be competing against itself for slimmer and slimmer slices of a pie that isn’t getting much bigger. 

This macro trend is putting pressure on labels to develop new revenue streams—and forcing a greater reckoning with partners far beyond the realm of digital streaming platforms. 

The first skirmish in this era is playing out right now in the standoff between Universal Music Group and TikTok over the cost of licensing rights. A month into UMG’s boycott—which has removed from TikTok the catalogs of Taylor Swift, Bad Bunny, Drake, and dozens of the world’s biggest stars—there are no signs of either side backing down³. How the standoff is adjudicated will tell us a great deal about the value of music to other industries.

Is TikTok the new MTV, or is it sync licensing at scale?

TikTok wants us to think of its platform like MTV⁴. When cable took off, MTV’s unique format seemed to unlock a new mode of music discovery driven largely by free airplay, which could break new artists and help sell millions of albums. Like MTV, TikTok believes it has a unique ability to expose users to artists and songs they otherwise would have missed, generating significant off-platform revenue in the process.

Does it? According to a 2023 study commissioned by TikTok, TikTok users are twice as likely to discover and share new music, compared to users of other short-form video platforms; more likely than average music listeners to buy artist merchandise and concert tickets; and more likely to pay for streaming services. That’s why TikTok believes labels should accept lower licensing rates: Those extra fans have to be worth something, right? 

But as streaming growth plateaus, new fans don’t matter to labels and publishers as much as TikTok thinks: The macro-economic forces at work against the industry are just too big. When everyone’s already on a streaming platform, those “new” fans, in a big-picture sense, are just existing streaming subscribers whose incremental attention gets shuffled from one artist to the next. 

In the time it took for TikTok to grow from a challenger into a frontrunner, music labels were smart to give the platform a longer runway, while it figured out a business model and became a revenue-generating enterprise. But TikTok wasn’t given a runway just for it to become a free promotional channel. The music industry gave TikTok the runway so that they could all become creative and financial partners in an innovative, deeply engaging, and highly profitable new form of cultural interplay. 

No one doubts TikTok’s ability to foster discovery and fan engagement. It has become an iconic platform for a new generation of music fans to discover artists from Noah Kahan to Bailey Zimmerman, Megan Thee Stallion to Doja Cat, beabadoobe to Tate McRae. And as TikTok has matured as an advertising platform, its ad units have become more effective in helping artists and concert promoters sell concert tickets and merchandise. But increasingly, those artists are siding with the labels—because they, too, see the grand, macro trends at work. Free promotion doesn’t pay the bills. Increased TikTok royalties could.  

And that’s why, when TikTok met UMG at the negotiating table, the label drew a line in the sand. While TikTok boasts 1.5 billion active users and 2023 revenue up 52% to $14 billion, its payouts to UMG account for “less than 1%” of UMG’s revenue.

Let the music play   

UMG believes TikTok’s relationship with music should function more like movie and TV sync, in which licensees pay handsomely for the use of songs which enhance the value of a product. And there’s ample precedent for new platforms to grow while also paying artists. In 2022, Goldman Sachs estimated that the music industry received more in fees from Peloton — $267 million, about 20% of the company’s subscription revenue — than from TikTok ($220 million).

Using Peloton as a benchmark—i.e., 20% of annual revenue—the question isn’t whether TikTok should be raising its music fees from $220 million to $267 million. It’s whether TikTok should be paying the music industry in the billions⁵. 

“Ultimately,” Universal writes, “TikTok is trying to build a music-based business, without paying fair value for the music.” They’re not wrong. Hundreds of millions of users enjoy free, instant, and unencumbered use of the world’s most loved songs as the soundtrack to the video documentation of their lives. At least some of those users are in turn creating their own revenue-generating businesses on the platform, in addition to the ad revenue that TikTok is beginning to attract. 

In drawing a line in the sand on license fees with TikTok, UMG has garnered broad support from a cross-section of artists, indie labels, and other music industry allies, all of whom are engaged in a tightrope dance with social media platforms and streaming services. Everyone wants their music to be available everywhere, to anyone—but TikTok needs to pay a fair price for it. 

What do you think?  Join the conversation.

¹ In its first year, the album sold 3.4 million copies in the US—so if you want to call it 10 percent, we won’t complain

² U.S. revenue from paid streaming subscriptions was up in just the single digits in 2022, according to the RIAA; Global streaming revenue was up just 11% during the same period to $17.5 billion.

³ In late February, TikTok also began to remove songs controlled by UMG's publishing arm, Universal Music Publishing Group.

⁴ In its open letter to UMG, TikTok wrote that the label had “chosen to walk away from the powerful support of a platform…that serves as a free promotional and discovery vehicle for their talent.”

⁵ Some back of the napkin math: Using Peloton’s fees as a benchmark—20% of subscription revenue—let’s round down TikTok’s revenue to $13 billion. Goldman Sachs found that music is central to 70% of TikTok videos, which gets us to $9.1 billion; and 20% of that would be $1.82 billion—conservatively.

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