Royalties
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In September, “Dumb Dumb” — a song by mazie featured in the Netflix teen drama Do Revenge — caught a wave on TikTok, and listenership grew exponentially. Over the course of two weeks, “the record went from doing around 10,000 streams per day to around 1.4 million per day and has sustained since,” says Max Gredinger, who manages the 23-year-old artist. “We saw increases across the rest of her catalog as well, which showed new fans were sticking around to learn more about mazie and her music.”
Artists and executives compare success on TikTok to the lottery — it often seems just that random. But crucially, the payout on a winning ticket doesn’t come from TikTok itself. The financial rewards accrue outside the platform in the form of royalties from streaming surges or a label advance, with seven-figure deals routinely thrown at viral acts in recent years. TikTok, which has built a thriving business based largely on users syncing videos to music, pays “almost nothing,” according to one music distribution executive.
There isn’t a fixed rate for music on TikTok; labels and distributors negotiate licenses individually. But one thing appears constant: “The numbers are horrifying,” says one manager who has had several songs take off on the app and shared his royalty statements with Billboard. A marketer who oversaw the campaign for a single that was used in roughly half a million TikTok videos reports that his artist took home less than $5,000 from the platform, despite the views numbering in the billions. TikTok’s parent company, ByteDance, “doesn’t view music as a value add,” says another senior executive. “They just view music as a cost center they have to limit as much as possible.”
So far, ByteDance has been very successful in doing just that. One indie-label head shared several months of royalty information indicating that 1 million views on TikTok leads to about $8 — actually a better rate than the one exhibited on three other indie labels’ most recent statements that were shared with Billboard. In contrast, managers say that while payouts from YouTube vary, 1 million views will usually earn somewhere between $500 and $2,000.
It’s surely not a coincidence that music industry complaints about the money flowing from TikTok are gaining traction as the major labels are negotiating licenses with ByteDance, which is planning to expand its streaming service, Resso, beyond test markets in Brazil, India and Indonesia. Speaking at a recent industry conference in Singapore, Universal Music Group (UMG) CEO Lucian Grainge warned the music business of a value gap “forming fast in the new iterations of short-form video.”
Adding to that sense of a value gap: As TikTok’s business expands — gaining more users and selling billions of dollars in advertisements — labels and distributors do not participate in that growth.
In a statement, TikTok global head of music Ole Obermann said: “We’re proud of the partnerships we are building with the industry and artists, and we are confident that we are enhancing musical engagement.” He added, “That translates directly to more financial and creative opportunities for music creators.”
Part of the debate over how much artists should earn from TikTok stems from a debate about the nature of the platform itself. TikTok is video-based, and Obermann has pointedly said that it is “not a streaming platform.” He reiterated this in his statement to Billboard: “Our community comes to TikTok to watch videos, not to listen to full-length tracks.”
But the app is already threatening established streaming platforms, which must battle for ear time with TikTok’s additive clips. And some in the music industry dispute Obermann’s claim — they already see a generational shift where “some people have a TikTok playlist and just use it as their music service,” as one indie-label head puts it. “Much of the [music] ‘discovery’ that happens on TikTok is consumption,” Mark Mulligan, managing director for music consultancy MIDiA Research, wrote in a recent blog post.
Sources say that individual labels and distributors have different deals with ByteDance, which negotiates lump-sum upfront payments to use their recordings on TikTok for a set period of time. (Since users can upload their own videos — with the music of their choice — to TikTok, ByteDance has added leverage in these negotiations. If a label doesn’t come to an agreement with the company, it will have to devote a good deal of time and resources to issuing takedowns.) In addition, each label and distributor can make its own decision about how to parcel out those payments to artists.
Many of the sources who spoke for this story are paid by their labels or distributors according to the amount of individual videos uploaded that incorporate their songs. Reports from one indie-label executive showed that acts on his roster earned around $150 from TikTok for roughly 100,000 videos made with their music. A manager who works with several artists who have had successful TikTok songs shared reports for individual tracks: One single brought in around $100 after being used in about 60,000 clips, while another earned $350 from over 80,000 videos.
Other sources say they see only TikTok views, rather than video creations, on the royalty reports they receive from their label or distributor — or make the decision to rely on views to calculate TikTok payouts internally. “If you’re paying based on creations, that’s saying it doesn’t matter if a song is heard one time or 1 billion times, and that would really devalue music,” says the indie-label head.
When executives examine TikTok payouts compared with views on platform, the money made seems even more minuscule. “TikTok doesn’t pay out nearly what any other view pays,” says a head of a record company that is distributed by a major. “It’s astronomically lower.”
Some in the industry who value TikTok as a marketing tool note that money flowing to the music industry has improved over time. And several sources compared the current situation to the music industry’s combative early relationship with YouTube.
In Singapore, Grainge warned of “repeating past mistakes,” citing both MTV and YouTube. “We were given a lot of reasons why our artists shouldn’t get paid,” Grainge told attendees. “People said, ‘It’s great promotion,’ ‘Or you can use it as a platform for discovering new artists’ … technology platforms were built on the backs of the artists’ hard work.”
Grainge called on key players to protect music’s “cultural and commercial value.” And the senior executive who believes that ByteDance sees music as a “cost center” expressed a similar sentiment. ByteDance “needs to move to a more rational model that equates more value with what is driving their business,” he says. “Only pressure is going to get them there.”
This story originally appeared in the Nov. 5, 2022, issue of Billboard.
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Apple Music’s recent subscription price increase and a likely forthcoming price hike by Spotify would provide a boost to U.S. and global music revenues and likewise impact catalog valuations.
Higher prices for Apple Music and Spotify’s individual plan could be worth hundreds of millions in additional subscription revenue annually in the U.S. Incremental revenues resulting from these price increases have the potential to reach roughly $650 million a year for streaming services. That assumes 7% growth in subscribers in 2023, no additional churn, a full year of higher prices and higher prices for both self-paid and promotional subscription plans.
However, a small amount of churn is possible, and Spotify is unlikely to raise rates at the beginning of the year. Additionally, not all subscription plans are subject to increase. (Apple is not raising the price on Apple Music Voice, for example.) Thus, the actual impact is likely to be lower next year and in successive years.
Apple Music’s individual plans rose $1 from $9.99 to $10.99 per month, while its family plan price increased $2 from $14.99 to $16.99. Apple One, a bundle that includes Apple Music, Apple TV+ and other services, rose $2 for the individual plan and $3 for the family plan (which includes Apple Arcade and iCloud+) and premier plan (which adds Apple News+ and Apple Fitness+).
Spotify could follow with similar price increases in the U.S. of $1 per individual subscription, though it may not further raise its family plan price on top of the $1 increase, to $15.99, that it imposed in April. Spotify also has discounted plans for students that cost $4.99 per month. For these purposes, Billboard assumes those discounted plans will remain untouched.
Creators and rights owners effectively get a raise from a price increase. The same percentage of streaming services’ revenue would flow as royalties to labels and publishers. Higher prices wouldn’t impact listening habits — although some churn is possible — so the math is favorable to creators and rights owners: a larger royalty pool would be divided by the same number of streams to calculate the per-stream royalty owed to each track.
Higher rates from the two largest subscription services in the U.S. would make songwriting and recording catalogs more valuable, too. Price increases will add revenues to a catalog’s existing royalty income, and streaming growth has been positively correlated with higher valuations of music catalogs. As Billboard reported this week, a new paper by New York University professor Larry Miller found that streaming accounted for 62% of the average multiple paid for songwriting catalogs in 2021.
Spotify has not announced a broad price increase on its individual and family plan subscriptions, but CEO Daniel Ek signaled the company would likely follow Apple Music’s lead when speaking to investors during Spotify’s Oct. 25 earnings call. A U.S. price increase “is one of the things we would like to do,” Ek told investors, adding Spotify will have conversations with labels “in light of these recent developments with our label partners.”
Expect higher prices to become the norm. Amazon Music Unlimited raised its prices in May. Deezer raised its subscription prices in France, its largest market, in January and plans rate hikes in Germany and the U.S. in December. Apple Music’s decision to raise prices “opens the door for further price increases down the line,” Deezer CEO Jeronimo Folgueira said during its Oct. 28 earnings call. Exactly how much incremental revenue these price hikes will generate depends on many variables. In any case, creators and rights owners can expect more subscription royalties in 2023 and beyond.
Legendary lawyer Don Passman has likened the music biz and its transformation in the digital era to a Rubik’s Cube. It shifts so much that there have now been 10 editions of his industry bible, “All You Need to Know About the Music Business.”
The industry’s challenges, however, did not deter the lay economists at NPR’s Planet Money podcast after they heard an old song called “Inflation.” The funky, moody track with lyrics like “Inflation is in our nation… I can see a depression coming on” was written in 1975 when inflation was at levels slightly higher than today. A cassette tape of the song by Earnest Jackson‘s Sugar Daddy and the Gumbo Roux showed up in Planet Money hosts Sarah Gonzalez and Erika Beras‘ mailbox one day, and they “got a little obsessed” — so obsessed they embarked on an 8-month effort to start a record label and publish the song.
Gonzales and Beras discuss the challenges of creating a label, striking deals with different stakeholders and promoting the never-before-published song over two episodes of the podcast, this week.
Describing their reporting to Billboard, Gonzalez and Beras say that in the course of creating a contract that split revenue between the label and musicians, they came up with what Passman describes as “possibly the worst record deal I’ve ever seen, from a record company point of view.” (Passman was interviewed for the podcast.)
“We are not doing this to make money. We are really doing this because we want to explain the music industry,” Gonzalez says. “It’s just really difficult to make money in this industry, which we all knew. But it’s not until you get into it that you really understand it.”
If a typical deal gives 80% of revenues generated by a song to the record label and 20% to the musicians, Planet Money proposed giving 80% to the musician, namely singer and songwriter Earnest Jackson, and keeping 20% for their label. The hosts felt that was a fair deal given that even if the song was streamed 1 million times, they could only expect to collect around $4,000 total.
After much back-and-forth with Jackson’s old bandmates, which included Journey bassist and American Idol host Randy Jackson and others who went on to successful music careers, they landed on a deal that gives about 67% to Earnest Jackson, 15% to the bandmates and the remainder to the label and others.
Any revenue generated from the song that goes to NPR will go back into producing more shows, Gonzalez and Beras say. They say they do not plan to recoup expenses from publishing and promoting the song, which included at least $10,000 in legal fees.
Once they uploaded the track to TuneCore and started promoting their first, possibly only hit, they learned that “Inflation” had to be streamed 5,000 times in the first week for the label to be able to pay for promotion. Fortunately, the song crested 65,000 plays in its first few days, but it still has some way to go to reach 1 million plays.
“No one ever makes money on streaming,” Beras says, when asked what she learned from her reporting. “I feel like I’ve repeated that a thousand times and never understood what I said.”
“We put all of our effort behind this song and behind Earnest Jackson and are going all in,” Beras says.
Next, they plan to make it a ringtone — which earns a bit more than streams — and they are trying to land it in a Netflix documentary.
Since launching their label last week, Planet Money has received two more submissions from musicians, according to Beras. For now, they are focused on “Inflation” and have no aspirations to “become music moguls,” Beras jokes.
The Mechanical Licensing Collective held its second annual membership meeting this week in Nashville. In the presentation, the organization shared key insights into its second year of operation, including that it had distributed almost $700 million in blanket royalties to its members.
According to the meeting, the MLC, which has been operational since Jan. 1, 2021, now has 22,000 members, with 6,000 new additions in 2022 alone, and has over 17 million works registered to date, processing more than 98% of those registrations. To date, it has collected nearly $1 billion in mechanical royalties on behalf of songwriters and publishers, and rights holders have received more than $800 million in royalties, nearly $700 million of which were blanket royalties distributed directly by The MLC. About $120 million royalties were processed by The MLC but paid by digital service providers like Spotify, Apple Music, YouTube, and more, pursuant to voluntary licenses.
Since it began operations, The MLC says it has finished 19 monthly royalty distributions, all of which were completed on time or early. For the last six months in particular, the non-profit organization reported that its current match rate for all royalties processed through September’s royalty distribution is 89% and has exceeded 85% for six straight months.
“We are incredibly proud of these accomplishments,” says CEO Kris Ahrend. “Our team has worked hard to build robust data processing systems that allow us to distribute royalties accurately and on time. We have also released a suite of tools for our Members that enable them to manage their catalog data effectively and correct any missing or inaccurate data they find. While there is still more work to do, we are pleased with our progress and are deeply appreciative of all the support we have received from our Members and from the broader industry at large.”
During the meeting, the MLC also shared that Tim Cohan and Scott Cutler were elected to serve as board directors for a second three-year term, and Kara Dioguardi was elected as songwriter director of the board for a second three-year term.
The MLC was formed in response to the Music Modernization Act of 2018 to be exclusively responsible for administering blanket compulsory licenses for music compositions to streaming services.
The MLC was formed with designation from the the U.S. Register of Copyrights in response to the Music Modernization Act of 2018 to be exclusively responsible for administering blanket compulsory licenses for music compositions to streaming services. Operations began at the start of 2021, and it has been paying out royalties since April of that year, including money from Spotify, Apple Music, Pandora, and more.
Streaming platform Slacker owes SoundExchange nearly $10 million in unpaid performance royalties, according to a recent ruling by a federal judge, issued after settlement talks between the two broke down.
SoundExchange, which collects streaming royalties for sound recordings, sued Slacker and parent company LiveOne in June, claiming they had refused to pay millions over a five-year period. As recently as September, court documents indicated the two sides were having “meaningful settlement negotiations.”
But last week, SoundExchange played an unusual legal trump card: A pre-signed consent judgment, inked by execs at Slacker back in 2020 as part of a previous effort to get the streamer to pay its royalty bill. Under the terms of that earlier deal, if Slacker ever defaulted again, its executives agreed that a judge should enter a judgment against the company for the full sum owed.
On Thursday, Judge André Birotte Jr. did exactly that – ordering Slacker to pay $9,765,396 in unpaid royalties and late fees. He also permanently barred the company from using the so-called statutory license, a federal provision that makes copyright licenses for recorded music automatically available to internet radio companies like Slacker and Pandora at a fixed price.
Without access to the statutory license, Slacker will presumably need to negotiate direct licenses from rights holders for sound recordings, similar to what on-demand streaming services like Spotify must do.
A spokesman for Slacker and LiveOne did not return a request for comment on Tuesday. In a statement to Billboard, SoundExchange president and CEO Michael Huppe said the lawsuit demonstrated that the group “takes our role in defending fair compensation for creators seriously.”
“Despite a prior agreement, multiple promises, and repeated negotiations, Slacker and LiveOne failed to pay properly for the music – on which the companies built their business model,” Huppe said. “It is regrettable that this step became necessary, but we will not back down when it comes to protecting creators and ensuring they are well-represented and properly paid under the law.”
We Can[‘t] Work It Out
In its lawsuit, SoundExchange claimed Slacker stopped paying recording royalties way back in 2017, and that a subsequent audit revealed it had been underpaying for years before that. In 2020, the two sides entered into the repayment plan, which gave Slacker two years to pay its debts. But in the June lawsuit, the SoundExchange claimed that Slacker quickly failed to live up to the plan.
“By refusing to pay royalties for the use of protected sound recordings, Slacker and LiveOne have directly harmed creators over the years,” Huppe said at the time. “Today, SoundExchange is taking a stand through necessary legal action to protect the value of music and ensure creators are compensated fairly for their work.”
Though SoundExchange clearly had the earlier agreement as leverage, it appears the two sides tried again to work out a settlement. In early September, attorneys for Slacker asked for more time, saying that the two sides were engaged in “ongoing meaningful settlement negotiations with the expectation that a settlement would be reached.” But they said such talks had not been easy.
“The negotiations have proven to be complicated. There have been a number of offers, back and forth, and numerous emails, calls and discussions,” wrote Jeffrey A. Katz, Slacker’s outside counsel. “A final resolution appears promising but is not guaranteed. Defendants would like to remain focused on their pursuit of a negotiated resolution.”