Spotify is in the music industry’s sights, but TikTok is getting a Free Pass [Bill Werde]

TikTok, which is touted as the #1 place for music discovery, pays creators and rights holders a fraction of what Spotify does, yet the streamer is under constant pressure to pay more,

By Bill Werde. A version of this essay appeared in his free weekly Full price without cap E-mail.

Groans from the music industry that Spotify should raise its price have grown louder lately.

Earlier this summer, Sony Music Group Chairman Rob Stringer was quoted at a Sony investor event: “Do we think [the streaming business] in mature markets can withstand price increases? We do.”

And on Sept. 12, at a Goldman Sachs event, outgoing Warner Music Group CEO Stephen Cooper had this to say.:

“When you look at the value proposition of music versus video, [it’s] unbelievable. This leads us to conclude that – especially with stickiness and almost non-existent churn – [music streaming] can easily increase their monthly subscription by a fraction, and they can do so on a regular basis.

“We hope that given the historical, current and, I am sure, future discussions, the [music] DSPs will eventually see the need to raise prices, raise them steadily, and have a more rational relationship between price and the value that is delivered.

He added: “When I look at the DSP models, I would conclude, fingers crossed, that those increases will come sooner rather than later.”

Cooper strikes me as a man bent on killing the industry’s goose.

His motives are uncomplicated. As I explained in last week’s FRNC, streaming revenue growth is slowing and major labels (and their stock prices) want to keep the growth going. But the idea of ​​raising prices under current market conditions is folly. A new survey showed that 25% of Netflix subscribers plan to cancel their subscription this year. The reason given by nearly half of them? The rising cost of Netflix.

So guess me this: why are the majors so determined to put the screw on Spotify, when they’re essentially giving TikTok a free ride? Goldman Sachs (with a little mathematical help from Music Business Worldwide) estimates that TikTok paid global music rights holders a paltry $179 million in 2021. Contrast that with YouTube, the similar advertising-focused business that TikTok works with. is increasingly competitive. In 2021 (12 months ending June 2021), YouTube paid $4 to global music rights holders billion. And YouTube just announced that their payout for the 12 months ending June 2022 was $6 billion. YouTube is now breathing down Spotify’s neck to be the global music industry’s most important revenue partner, and that’s amazing news.

In fairness to TikTok, YouTube has around 2.5 billion monthly active users, while TikTok accounts for around 40% of that number (just over 1 billion monthly active users). The ad revenue ratio is surprisingly similar. YouTube generated $28.8 billion in ad revenue in its last full year and expects modest growth; TikTok is expected to hit $12 billion in 2022. Again, around 40% of YouTube. Last time I checked my math, 40% of the $6 billion that YouTube gave to the music industry is $2.4 billion. That’s 13 times what TikTok paid. If we want to be more charitable to TikTok, we can use the $2 billion figure that Lyor Cohen, head of YouTube Music, claims his company has paid the music industry in advertising revenue solely from content generated by users. And 40% of that figure is still $800 million, more than four times what TikTok paid.

TikTok represents a double-edged sword in slicing the music industry’s potential growth.

For one thing, TikTok would obviously have to pay a lot more for music than it currently is. Think of it this way: if TikTok makes $12 billion in 2022, what would that number be without music? Does the platform even exist? And as others have discussed, the window of leverage the music industry has to demand concessions from TikTok could be shrinking. TikTok is probably already far too powerful for the music business to go away. In addition to this dynamic, TikTok seems to be building a lot of infrastructure that will make them compete even more directly with the majors.

And at the same time, the growth of TikTok is quite clearly at the expense of YouTube — again, the world’s second largest music partner. Even more troubling than the general trend of ad dollars migrating? 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 in the mid to late 90s — are the foundation of TikTok.

All this to say that the music industry, which loves to talk about how it learned its lesson when it gave away 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 iPods. music so the music business saw no upside… maybe about to get uh, educated Again.

Bill Werde is a former Editorial Director of Billboard and Director of the Bandier Program for Music and Entertainment Industries at Syracuse University’s Newhouse School of Public Communications. A version of this essay first appeared in its free weekly Full price without cap E-mail.

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