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TikTok Has Gen Z Hooked — Can Its Streaming Service Get Them to Pay for Music?

As owner Bytedance plans an expansion of its Resso music streaming service, the industry watches with a wary — and, potentially, hopeful — eye.

Ask music business executives to characterize their relationship with TikTok and the response is typically a variation of, “It’s complicated,” as one major-label executive puts it.

As the short-form video streaming platform continues to dominate pop culture — last September, it claimed 1 billion monthly active users globally, a figure that has surely ballooned in the 13 months since — it has continued to draw the ire of the music industry for its low payouts to rights holders, even as labels, managers and publishers increasingly rely on the platform to market singles and break artists. But as TikTok’s parent company ByteDance explores an expansion of its fledgling music streaming service Resso — currently only available in India, Indonesia and Brazil — into new territories, another response has begun to emerge: cautious optimism.

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Over the past year, ByteDance has signaled, rather cryptically, an intention to dive headfirst into the music streaming world that is currently dominated by Spotify, Apple Music, Amazon Music and YouTube. (A TikTok representative declined to comment.) This past spring, the company registered the handles @TikTokMusic on both Twitter and Instagram; in May, it filed a trademark application with the U.S. Patent and Trademark Office for a service under that name. And in October, The Wall Street Journal reported, and Billboard has confirmed, that ByteDance is in conversations with all the major music rights holders to launch its music streaming service in additional countries in Latin America, Southeast Asia, Australia and New Zealand. According to industry sources, at least one of those deals is close to being finalized.

The possibility of TikTok going all-in on music streaming has already caught the attention of some of music’s biggest power players. “It has been formidable to watch [TikTok’s] growth and how well they’ve been executing throughout the years,” said Spotify CEO Daniel Ek, during a third-quarter earnings call in October. Later that month, during Universal Music Group’s earnings call, chairman/CEO Lucian Grainge expressed a determination to get more from the company’s use of music: “When you look at the funnel that TikTok has, when you look at the billions of views, the rate at which the company has grown…” he said. “We will fight and determine how our artists get paid and when they get paid in the same way that we have done throughout the industry for many years.”

One of the biggest pain points for major rights holders — and a potential barrier to ByteDance’s entry into music streaming — is the flat-fee licensing agreements that TikTok has with major rights holders. Negotiations are ongoing to get TikTok to return more value for the music it uses — including a cut of the advertising it generates. “No one right now wants to help ByteDance expand into significant material marketplaces without them fixing the TikTok situation,” says an executive from the indie sector.

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Other executives pointed to YouTube as a potential model for the relationship with TikTok moving forward. In that same October earnings call, Grainge noted that “YouTube recently announced that they were paying out to rights holders $6 billion over a yearlong period… [and] have stated they want to be the No. 1 contributor of revenue to the music industry by 2025.”

Were those licensing issues resolved, a new major player in the streaming ecosystem could bring in enormous value with such a user-friendly funnel. There’s also the possibility that a TikTok music streaming service could shake up what has become a fairly staid, predictable marketplace. “TikTok is where the actual cultural fandom is happening,” says Tatiana Cirisano, music industry analyst/consultant at MIDiA Research. “Spotify and [other streamers] still benefit from this because people hear songs on TikTok and go stream them on those platforms. But if those people can just stay within the ByteDance ecosystem to do that and have their music delivered to them alongside the cultural context, I think that they will. That should really start to make Spotify and Apple Music and the other platforms a lot more nervous.”

Music industry sources say that a TikTok music streaming play could be welcome, provided it follow its predecessors by pushing for paying subscribers as opposed to an ad-supported model. “Their plans in subscription are something we definitely want to encourage because we love to see that huge funnel of a billion consumers connected to a value-creative experience,” says another major label executive, adding that their company is still looking for commercial terms to be significantly improved moving forward. But several of those sources also point out that TikTok has no record of converting users to subscribers and if it employs the same business model with a music streaming service, artists and the recorded-music industry will not see much of a financial benefit. “TikTok has obviously been focused on scale for a very long time and not necessarily on ads or subscription or [average revenue per unit] in any real way,” says one major-label executive. “That concerns me.”

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There are additional issues looming over TikTok’s streaming plans. Most notably, Sony Music’s contract with Resso, which expired in September. The two sides have yet to reach a new agreement, and that means Sony’s catalog — including songs by global superstars Beyoncé, Adele, Harry Styles, Doja Cat and Shakira — is no longer available on the service. (A Sony representative declined to comment.)

Others say another hurdle is the perception that ByteDance’s music strategy, including its music distribution business SoundOn, lacks coherence. There is also the threat of U.S. government intervention for the Chinese-owned company, which has come under fire in recent years over data-privacy issues that nearly got the service banned by the Trump administration in 2020. That issue has popped up again in recent weeks, with Brandon Carr, one of the five commissioners at the Federal Communications Commission, telling Axios in November that he doesn’t “believe there is a path forward for anything other than a ban” over TikTok’s handling of user data. China’s potential invasion of U.S.-allied Taiwan could be an additional catalyst in this debate. (TikTok has said it is negotiating with the U.S. government to satisfy any national security concerns.)

Those are not insignificant concerns. But if TikTok can get it right, the upside for the music business is potentially massive, given TikTok’s appeal to Gen Z and its penetration in global territories where streaming saturation remains low. One major-label executive says of the licensing conversations, “We know the difference between hard and impossible, and we think this is in the category of hard.”

Additional reporting by Elias Leight.

This story will appear in the Nov. 19, 2022, issue of Billboard.