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Tech vs Content: Behind the TikTok Fight With UMG Over Music Rights

Late last week, TikTok users woke up to the unthinkable — no sound to many of their favorite music artists like Taylor Swift and no way to add that music to their own videos. Universal Music Group (UMG), the world’s largest music company, had pulled the plug on the sound of up to three million videos using its recordings.

The move didn’t just mean that UMG artists went silent. Because UMG’s publishing arm (Universal Music Publishing Group or UMPG) helped yank that chord, and it represents four million songs itself, the action effectively mutes the videos of recording artists on other labels if UMPG songwriters helped write their underlying songs. Remember, music carries two copyrights – one for the master recording and one for the composition itself.

That fundamental legal reality has been mostly lost amidst the breathless news coverage, but it is absolutely critical to understanding the magnitude of UMG’s decision. Consider Adele, who is just one major artist caught in this complex music licensing web. She records for Sony Music, but her publishing is with UMPG. That means her videos are off limits to TikTok.

And it gets much stickier even than that. Consider songs written by multiple songwriters with multiple publishing houses, only one of which is UMPG — a situation not so unusual in hip-hop and dance music. If a UMPG writer contributed just 1% of the songwriting credits to a recording, it, too, would need to come off TikTok, as leading industry publication Music Business Worldwide pointed out. A shell-shocked senior executive from a rival publishing company told MBW that “up to 80% of all relevant music content” on TikTok and other platforms likely has at least some link to UMPG.

That’s what makes UMG’s move the kind of massive shot across the bow unlike anything before it. Its potential impact is breathtaking, as are the understandable mixed emotions of the music industry that flow from it.

TikTok has played an increasingly critical role in artists’ lives, especially to emerging artists. Take UMG recording artist Cody Fry, for example. His song “Things You Said” started to go viral just before it went dark. So while he supports UMG’s hardline stand, he told Rolling Stone that he feels like he is “just at the mercy of machinations of these multi-billion dollar corporations.”

A 2% music payout

TikTok is also increasingly dominant in our online lives, of course, much to the chagrin of some in Congress who now seek to restrict the China-based company for national security reasons. They have raised concerns that the Chinese government is using TikTok as a way to indoctrinate and gather personal data from digital natives who can now barely cope with the stress of it all. UMG’s decision is more mud to sling at TikTok’s CEO Shou Zi Chew, who just recently was in the Senate Judiciary Committee hearing hot seat.

TikTok CEO Shou Zi Chew testifies before the House Energy and Commerce Committee on Capitol Hill on March 23, 2023 in Washington, D.C. (Chip Somodevilla/Getty Images)
TikTok CEO Shou Zi Chew testifies before the House Energy and Commerce Committee on Capitol Hill on March 23, 2023 in Washington, D.C. (Chip Somodevilla/Getty Images)

The battle of two power brokers — one with the largest music pipeline and the other with the largest social distribution — was triggered even before they were unable to reach agreement on terms to extend their contract past its Jan. 31, 2024 expiration date. In a scathing open letter before taking its drastic step, UMG accused TikTok of “trying to build a music-based business, without paying fair value for the music.” It further chastised the social media behemoth for allowing it “to be flooded with AI-generated recordings” and other moves that are “nothing short of sponsoring artist replacement by AI.”

UMG made a legitimate point here, as painful as it is to all involved. TikTok has been almost unstoppable, and UMG — which boasts 32% of global recorded music market share and 23% of global publishing — correctly points out that the Big Tech social media giant is open about its music ambitions. In its letter, UMG underscored that TikTok’s senior executives “proudly state publicly that ‘music is at the heart of the TikTok experience’” yet, as UMG further pointed out, TikTok accounts for “only about 1% of [UMG’s] total revenue.”

Since UMG finished 2022 at about $11 billion in revenue (full 2023 numbers aren’t in yet), that means that TikTok pays UMG only about $110 million annually  — and the entire music industry $400 million annually — despite the fact that the platform was expected to close out 2023 with $18 billion in “net global advertising revenues.” If those numbers are right, that’s a payout to the entire music industry of just over 2%, regardless of the central role music plays in its success.

Battling the Big Tech playbook

Sure, some may cry foul at a major label’s protestations, especially young people who have grown up in an era where many have been trained to believe that music is free. But many in the entertainment industry understandably feel that Big Tech’s playbook has been to essentially steamroll over them in negotiations through sheer mass and gale force industry headwinds of the Internet, social media and now generative AI.

As I’ve pointed out repeatedly, Big Tech for the past few decades has largely built its massive user bases and resulting multi-trillion dollar valuations on the backs of the artist community. Let’s not forget that technology pipes without the content to fill them are ultimately just useless pipes.

The music industry, for example, looked to Big Tech to help save it after the original “bad” Napster wreaked havoc almost overnight on the system it had built up over decades. That’s when Apple co-founder Steve Jobs played the part of white knight by cutting albums into individual song pieces, creating the world of 99-cent downloads and then taking 30% of every song slice. There was no magic to those two numbers, but once Jobs conjured and negotiated them, they entered the wild and became industry religion.

The rest, as they say, is history. Apple has used content — and the “sexy” marketing and engagement that flow from it — as its foundation to build the most valuable company on the planet until Microsoft topped them due to their stronghold in generative AI.

Less than a decade after Napster’s great IP train robbery, YouTube entered the void and built a massive user base by enabling the unbridled uploading of millions of copyrighted videos, many of which were music videos. Still reeling from the pain of their music industry compatriots, the studios barely knew what had hit them.

Viacom ultimately sued YouTube for mass infringement, and the two companies eventually settled after 800-pound Big Tech gorilla Google bought YouTube for $1.65 billion and bankrolled its mass infringement litigation in the steal of the century. Now, about 20 years later, YouTube’s ad-first economics still rule the day, helping to drive up  Alphabet/Google’s market valuation to about $1.8 trillion while UMG’s hovers at roughly $50 billion.

TikTok picked up YouTube’s ad-supported playbook and took it to the next level with algorithms and virality that transformed social media, got us all hooked and forced the entire music industry to recalibrate. It’s the same kind of pattern and song Big Tech has played on repeat for decades.

It’s quite likely that TikTok never really believed that UMG would pull the plug. Hours after UMG made its TikTok announcement on Thursday, Ole Obermann, the platform’s global head of music business development and IP rights, “nervously gripped the podium” at Variety’s TikTok Grammys party as he tried to sway the room and convince attendees that TikTok actively supports the artist community, according to one music industry vet in attendance. “And it was not working,” the brand partnerships professional said.

So who will blink first?

UMG needs to convince its major label and publishing partners — not to mention the entire artist community — that its battle is a noble cause that benefits all. That won’t be easy if, as TikTok wrote in its own salvo back to UMG, it has already reached agreements “with every other label and publisher.”

In its statement, TikTok also emphasized that its agreements are “artist-first.” Must be true … right?

Alexei Barrionuevo contributed to this column.

The post Tech vs Content: Behind the TikTok Fight With UMG Over Music Rights appeared first on TheWrap.