Earlier this year, when TikTok and Universal Music Group locked horns over their licensing agreement — and the world’s largest music company removed nearly all of its artists and songwriters’ work from the platform — UMG faced challenges making its case in the court of public opinion.
“TikTok proposed paying our artists and songwriters at a rate that is a fraction of the rate that similarly situated major social platforms pay,” UMG chairman CEO Lucian Grainge wrote in an open letter dated Jan. 30. “Ultimately TikTok is trying to build a music-based business, without paying fair value for the music.”
Fair points. However, UMG had just trumpeted robust earnings, had approved a $150 million bonus for Grainge, and was silencing its artists and songwriters — who’d been pressured for years to find ways to “go viral on TikTok” — on the most-influential platform for music of the last five years. The ban, which began in February and lasted for three grueling months, affected songs by everyone from Harry Styles to Elton John and Ice Spice — but most affected were the non-superstar artists, many of whom had invested significant time and money in promoting their music on the platform.
Rather than joining the fight, UMG’s competitors rushed their artists’ music into the gap left by the ban, admitting privately that it was “great for us!” to have so much superstar competition out of the picture. But after a few weeks, music by UMG artists like Ariana Grande and Camila Cabello began quietly returning to the platform, and when Taylor Swift (who owns her masters and licenses them to UMG, and thus was not bound by its stance) began promoting her upcoming album “The Tortured Poets Department” on TikTok, UMG swiftly (sorry) announced a new agreement that it claimed will “deliver improved remuneration for UMG’s songwriters and artists, new promotional and engagement opportunities for their recordings and songs and industry-leading protections with respect to generative AI.” Call it a draw, at best.
But four months later, Universal’s stance seems a lot more urgent, because now TikTok is putting the squeeze on a much more vulnerable target: independent labels.
Apparently with no advance notice, TikTok announced that it is ending its deal with Merlin — the 500-plus member nonprofit independent-label trade group that was created to place indies on more-equal footing with the majors — and instead will negotiate with each label individually. While TikTok claims that this move is due to what it describes as rampant “fraud” that Merlin has been unsuccessful in combating, multiple sources scoff at that characterization and say the platform is using a divide-and-conquer strategy to break Merlin’s collective power.
“No matter what they say, this is purely about money,” one indie label source says.
Reps for Merlin declined comment for this article, but a letter to members sent last week (and first reported by Billboard) reads in part: “We believe the most likely reason that TikTok did this is that TikTok does not want to pay a fair rate for the music that powers their platform. If this is right, then TikTok does not value independent music, the independent labels and distributors who support that music, nor the diverse artists who create it… Their approach suggests that they believe their objectives can be better served by fragmenting the Merlin membership, in order, we believe, to minimize their pay out.”
In basic terms, Merlin operates like a union for more than 500 companies, many of which are distributors that in turn represent more than 30,000 individual labels, including artists like Phoebe Bridgers, Shaboozey and Mitski. It uses its collective strength to “protect and maximize the value of our members’ music,” according to the letter, which continues: “We have worked productively and collaboratively with TikTok on this [fraud] issue, and until now, no concerns have been raised about the approach Merlin is taking. We have implemented measures to address illegitimate activity and content; automated systems to detect suspicious activity; and a dedicated team to address issues and impose sanctions, including ultimately, termination of membership for bad actors.” These claims were seconded by other sources.
As noted by Music Business Worldwide, TikTok’s fraud claims primarily center around companies or individuals in South America, Eastern Europe and Southeast Asia that it says are uploading hundreds of illegal recordings of songs by Beyonce and other superstars, which are in some cases slowed down or sped up in order to evade the company’s detection software. Why would this benefit Merlin? So it could falsely increase its market share and thus be on more-equal footing with the majors, TikTok sources speculate — to fierce denials from Merlin — adding that cutting out Merlin will allow indie labels to negotiate deals with the platform that are “as good or better” than the ones Merlin negotiated in the past. (In some cases, that may be possible: In a different but related situation, the National Music Publishers Association ended its blanket agreement with TikTok earlier this year, leaving its members with the option to negotiate their own deals. Sources tell Variety that at least one large publisher did get an improved deal, although two smaller ones said they did not.)
TikTok sources also maintain that even though the company has laid off dozens of staffers — including members of its music team — without backfilling positions, it will do a better job of policing fraud on its platform than it could in partnership with Merlin.
Multiple sources in the independent-label community dispute those assertions.
While unable to share those documents due to non-disclosure agreements, sources say they are aware of at least three different TikTok contracts that have been offered to various labels, with drastically different terms — one said the rate it is being offered is “less than half” of the previous Merlin deal — and that TikTok’s reps are imposing a take-it-or-leave-it style of negotiation that one characterized as a “veiled threat,” leaving the labels with little choice but to sign or see their music removed from the site by the time the Merlin deal expires on Nov. 1. They also note the abruptness of the move and the short time span TikTok is giving independent labels to sign new agreements: Labels were given one week to sign a non-disclosure agreement, sent on Sept. 27, attached to the new deal, although TikTok insists labels have until Oct. 25 to sign without disruption.
As for how TikTok’s diminished staff will negotiate individual contracts with more than 500 companies (comprising 30,000-plus labels), realistically, it won’t. Sources believe the company will focus primarily on the largest ones — such as Beggars, Empire and Secretly — and send the majority take-it-or-leave-it standardized contracts. It seems likely that many smaller independent labels will decline to sign and see their music disappear from the platform and its 170 million users in the U.S. (The country’s total population is just under 335 million, according to the U.S. Census Bureau.)
TikTok’s battle with UMG was a relatively evenly matched. But TikTok’s 2023 revenue in the United States alone was some $16 billion, according to the Financial Times, and its China-based parent company ByteDance posted $120 billion. Independent labels, on the other hand, comprised around 31.5% of recorded music’s total global market revenue of $35.1 billion in 2023, according to Midia Research — just over $10 billion. In other words, the entire global recorded-music industry posted slightly more than double the revenue TikTok earned in the U.S. alone. And by cutting out Merlin, TikTok turns a single, unified entity into hundreds of significantly smaller ones.
“It’s a classic divide-and-conquer situation,” one source says.
In a statement, a TikTok rep said: “TikTok has the utmost respect for the independent music community and artists and is committed to offering all the world’s music on the platform… We have had operational challenges with Merlin in the past where music that is not quality controlled for copyright is delivered” — in other words, it claims fraudulent activity was detected on a large but unspecified percentage of Merlin-member labels. “It presents a big burden, and doing direct deals allows us to exercise better control and also to forge closer relationships with Merlin members.”
However, three independent-label sources tell Variety that the rates they have been offered on the new contract drafts are lower than the soon-to-expire Merlin deal. TikTok always has paid considerably less in royalties than streaming services — “almost nothing,” according to a 2022 report in Billboard — claiming that because it is not a traditional digital service provider and users only experience a portion of an entire song, the company shouldn’t have to pay a full rate (it also pays less than analogous platforms like YouTube, Snap and Meta). But more valuable are the promotional opportunities the platform offers, such as placement and “ad credits” that can be used to boost songs’ visibility. The sources note that many of these assets are missing from the new proposed deals, as are many “protections and guardrails” for artists and rights-holders.
The sources also say that Merlin had been asking for more assistance from TikTok in policing fraud but that it declined to collaborate, claiming that it didn’t have the resources. They also say that TikTok’s fraud-detection technology is subpar at best, and that many of the violations were noticed by the company’s music staff or the labels themselves.
Fraud is a very real threat in the streaming business, and like scalping in the ticketing world, it’s a never-ending game of whack-a-mole. Yet “TikTok has shown no willingness to cooperate or collaborate, and they’re eliminating their number-one partner” in combating fraud, one indie label source says. “I feel like we’ll sign the deal and then never hear from them again. It’s going to be the wild west.”
Some speculate that the motivation for this move — as well as TikTok’s combative negotiations with Universal and, earlier, Warner Music — is due to a company-wide mandate to cut costs at every opportunity in advance of a partial or entire sale, which is at least partially related to the upcoming presidential election and longstanding pressure from factions in the U.S. government for ByteDance to sell TikTok’s U.S. division, such as the lawsuits filed Monday by attorneys general from 14 states alleging that the platform has “addicted” young people and harmed their mental health. Reps for TikTok strenuously denied those claims.
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