Time's Up, TikTok: Labels, Publishers Eye Better Licensing Deals With the Buzz-Making App

The Chinese-owned video-sharing site helps promote songs like “Old Town Road.”

Video-sharing app TikTok, which consumers use to post their own takes on viral dance challenges and memes, helped propel Lil Nas X's "Old Town Road" to the top of the Billboard Hot 100, where it has remained for five weeks in a row. But just as the music industry is embracing the service as a valuable promotional vehicle, some of its most important licensing deals are expiring -- and labels and publishers are trying to negotiate new ones that will generate more revenue.

Most digital services arrange their licensing deals with major labels to ensure they don't all end at the same time. But until recently, TikTok used deals that were grandfathered in when it acquired the startup Musical.ly in late 2017, and they have expired, according to industry sources. The company is now using music under short-term deal extensions, which puts TikTok's Chinese parent company ByteDance in the unusual position of renegotiating with all the major labels at about the same time. 

TikTok, which launched in 2016 in China as Douyin and then under its current name in Japan and South Korea the next year, might best be described as YouTube meets Short-Attention-Span Theater of the Absurd. Consumers use it to create and share short videos, from makeup tutorials to dance routines. Like YouTube, it's not billed as a music service, but music has emerged as a key feature: Many of the most popular videos involve singing, lip-syncing or dancing to popular songs. The app has been downloaded more than 1 billion times -- and over 100 million times in the United States -- according to analytics company Sensor Tower, though it presumably doesn't have that many active users.

Unlike YouTube, TikTok doesn't directly compete with paid streaming subscription services like Spotify: Most clips run only 15 seconds and focus more on users than the songs themselves. (As a service that relies on material uploaded by users, TikTok operates under the Digital Millennium Copyright Act, which obliges it to respond to takedown notices filed by rights holders -- but both sides would prefer to reach licensing deals.) However, its negotiating dynamic with the major labels is similar in that both YouTube and TikTok boast of the exposure they provide, while rights holders want revenue that reflects the value of music to the platform.

ByteDance has said that TikTok -- which is free and doesn't run ads -- is not yet profitable, although users spent nearly $7.4 million in April on virtual goods so they could tip creators, according to Sensor Tower. Investors are bullish enough about its prospects that ByteDance, which also owns popular Chinese news platform Toutiao, was reportedly valued at $75 billion when it raised financing in October 2018. Labels and publishers, which declined to comment on the record, say the deals they made with Musical.ly were intended for a much smaller service. And although TikTok isn't a music platform, industry sources say their content drives its popularity. (TikTok would not share information about the popularity of music videos on the platform.) If it acts like a music service in that it licenses content to drive consumer engagement, say industry executives, shouldn't it pay like one, too?

What's indisputable is the app's promotional value. While it's best known for driving the success of "Old Town Road," it also helped break Japanese singer-songwriter Joji's song "Slow Dancing in the Dark," which hit No. 96 on the Billboard Hot 100 nearly six months after its release thanks to the Microwave Challenge, which involved TikTok users filming themselves spinning on an invisible tray, timed to a "ding" in the song. (In the first full tracking week after the original challenge video arrived, "Slow Dancing" jumped 68.3% in streams to 9.7 million, according to Nielsen Music.)

More recently, "iSpy" rapper KYLE's latest song with Lil Yachty, "Hey Julie!," got a streaming boost from another TikTok dance challenge, which increased its weekly plays 207% to 1.5 million in April and further in subsequent weeks. The promotion was "a gift from God," says Nolan Smith, KYLE's manager. The track now gets 6 million streams a week with support from major playlists, and Atlantic is pushing it to radio. "There's so much noise and content being created that in order for songs to break, they have to have some sort of cultural moment," says Smith. "People need a reason to care."

What's been key to these songs' success on the platform is that users have used them to create compelling visual content where video and audio are equally important, says Mary Rahmani, director of music content & artist relations at TikTok. It's that partnership that's key to breaking out on the app. 

"When we hear a song that lends itself to unique content creation, our team wants to help amplify the music and trend," she says. "TikTok is not solely about a song, it's about the blend of both visual elements and sound being unique. We look at the trends in order to help us determine what to amplify."

Additional reporting by Tatiana Cirisano

A version of this article originally appeared in the May 11 issue of Billboard.