“Some of the short-form video providers are relatively new… it doesn’t take a scientist to realize that we are being underpaid by [them]” – Rob Stringer, Sony Music Group Chairman.
The untrained eye might not notice that these recent comments from major music company leaders (and more like them) are specifically laser-targeted toward TikTok.
TikTok doesn’t even get a direct mention in any of them. But those who know, know.
One individual who understands precisely what these music execs are saying-without-saying is ByteDance‘s Global Head of Music Business Development (and therefore TikTok’s de facto global head of music), Ole Obermann.
Obermann spent 13 years at major record companies – a decade at Sony Music/BMG and then three years at Warner Music Group – before joining ByteDance in 2019.
Today, he is principally responsible for TikTok’s licensing relationship with music rightsholders both large (major labels) and small (indie artists).
Before sitting down with MBW for the below interview, Obermann is pre-warned that we’re going to fire a number of gnarly questions his way – most of them informed by grumbles-over-a-drink we’ve heard in Record Label Land.
Obermann is relaxed about that idea. Sure enough, he smiles as the heat gets turned up during our questioning – even chuckling on the occasions we spritz a few molecules of hyperbole into proceedings.
For Obermann, this Q&A isn’t only a chance to set the music industry straight on – as he sees it – misplaced gripes over the size of the checks being paid by TikTok to labels and publishers. It’s also an opportunity to amplify his view that TikTok will birth lucrative new areas of business for music rightsholders – cumulatively worth billions of dollars – via ‘sync’ licensing for ads by brands on TikTok, and via real-time e-commerce.
Obermann is clearly cognizant, however, of key tension points that exist today between ByteDance and the major music companies.Namely:
The launch of TikTok’s in-house indie artist distribution-and-services platform SoundOn – and the fact it’s recently started locking down exclusive contracts with successful unsigned acts;
The fact that TikTok’s in-house ContentID equivalent isn’t as thorough or advanced as YouTube‘s music rights-detecting software;
TikTok’s controversial recent “test” in Australia, which saw the platform remove access to major record company-signed music for some users, and the industry backlash that ensued;
And, yes, the size of those checks landing on the doormats of major record companies and publishers. Especially considering ByteDance’s reported annual revenues of USD $80 billion (!) in 2022.
There are other big talking points to cover, too, including Resso: TikTok’s sister-music-streaming app that, so far, remains locked to three international territories (India, Indonesia, and Brazil) and is miles behind Spotify in terms of both global subscriber reach, and in terms of public brand recognition.
It’s been an eventful few weeks for Resso: Earlier this month, ByteDance cut Resso’s free tier entirely, making it a subscription-only platform. Meanwhile, last week ByteDance’s team served up a curveball – inking a trial deal with Apple Music that will see TikTok actively push users to that service (instead of Resso) when they watch a music-driven video in certain territories.
Sitting in the background of this narrative: The immense power of TikTok to boost the popularity of songs online. TikTok itself claims that 13 or the 14 No.1 records on the Billboard Hot 100 in 2022 were “driven by significant viral trends” on its platform.
This, no doubt, is what gives Ole Obermann the confidence – while stressing the vast opportunities TikTok presents for major record companies – to make the fiery statement: “If we were forced to take down a [music] catalog or part of a catalog, we are pretty confident that we could still remain a compelling service for our users.”
(Additional context: Sony Music’s catalog, having been pulled from Resso in September last year, still hasn’t resurfaced on the platform. Elsewhere, MBW understands that Universal Music Group, for one, is currently engaged in active re-licensing discussions with TikTok.)
A lot to talk to Obermann about, then. Let’s get into it…
Credit: ShutterstockWhy has TikTok recently started experimenting with linking out to tracks on Apple Music?
Most cases of music discovery at this point start entirely or in large part on TikTok. So we have a lot of conversations with our partners – labels, publishers, artists, managers – about how we can do a better job of linking everything together when discovery happens on TikTok, and we don’t have our premium music subscription service [aka Resso] live around the world yet.
It’s early days, but [this Apple partnership] is a nice move for us to provide a link from the discovery [on TikTok] to the consumption and monetization that happens on other DSPs.
It’s still in a test phase; it went live in early May, in a pretty limited way. But so far, so good. We will expand it and we’re talking to other DSPs.
Boyd Muir, CFO of Universal Music Group, recently told analysts that UMG was dead-set on “right-sizing” its deals with certain social platforms that use music. He was clearly talking about TikTok. Do you feel that your deals with the major music rightsholders are ‘right-sized’ today?
Yes, we do.
The first point I’d make is that we’re still in a relatively early stage of building our relationship with the music industry and its rightsholders. And while I can’t share any specific [financial payout] numbers with you, I can tell you that they are growing a lot – as they should be.
Another really important point: you can look at the value that a platform brings to rightsholders in terms of the hard dollars that are paid out [for music usage], or you can look at it in terms of the hard dollars that are paid out in addition to new business that you can grow together. I think that is what really differentiates TikTok from every other [service in music].
“We are really bullish on e-commerce, and we are really bullish on opening up a commercial music library that has all the world’s music in it.”
We are really bullish on e-commerce, and we are really bullish on opening up a commercial music library that has all the world’s music in it – where a small business can choose to use any song that they want at the click of a button, and then pay out a sync fee, but not have to jump through the hoops of weeks or months of clearances, legal fees, and everything else.
There are a bunch of areas where I think we will create really big lines of business [for music rightsholders that are additional to royalties]. So when you ask: “Is it is it right-sized?” I think you have to look at it through a broader lens than maybe traditionally the industry has.
We know that TikTok writes advance checks to music rightsholders for – I believe – two-year blanket licensing agreements for their music. Some have called for a move away from that into a set revenue share agreement, where a certain percentage of advertising revenue is shared with the rightsholders behind music in each video. Is there any desire to get to a place where you move away from just writing a check for an estimated amount of music usage, and towards something more granular?
Our negotiations are confidential and in various stages. But, without talking in detail about the structure of our [music licensing] deals, we believe our core deal works well as it [is structured today].
But as we bolt on [new] areas of business – for example, commercial music being used in TikTok ads – if it’s a transactional use case, we should be able to consider paying that out via a revenue share.
But with the creations and views that go into TikTok [user videos], it’s a lot trickier [to do that considering] the way the feed works, to even ascertain which ad revenue you might attribute to which use of music.
It was the Ivor Novellos in London the other week and many top music publishing executives were in town. A few of them I saw remarked on their concern over TikTok’s ability – or lack of ability – to say, ‘This song was played this many times, in this many user-generated videos’. One told me that they saw the match rate for music usage on UGC videos on TikTok at around 10%. On YouTube, they said, the equivalent match rate is 90%-plus thanks to that platform’s Content Id technology. Is this something you’re aware of?
I’m really surprised by those numbers. We think it’s significantly better than that.
However, we’d definitely agree that there is room for improvement. There are a couple of things to be said here: First, when you make a comparison to YouTube, remember that YouTube has been operating with ContentID for 10-plus years. We have a system here called MediaMatch and we’ve been at it for three-plus years. We actually get very positive feedback from rightsholders overall, in that we’re very fast in how we’re developing MediaMatch. But we agree that it is not perfect yet, and that we’ve got work to do.
“there is also a known issue around [the metadata] that comes in from publishing data is not very good. We have to do all kinds of scrubbing, data hygiene, to even make [it] effective within our system.”
It’s a big priority; there’s a lot of engineering resource dedicated to building this thing, and to making it more and more accurate. We are fully determined and dedicated to fixing the problem. But I do think the [match rate] numbers are a hell of a lot higher than what you were told.
That being said, I don’t want to go completely off-piste here, but there is also a known issue around [the metadata] that comes in from publishing data is not very good. We have to do all kinds of scrubbing, data hygiene, to even make [that data] effective within our system.
So I’d push back a little, [and note] that the way the black box of music publishing rights works is really challenging.
Last year in its annual ‘Music In The Air’ report, Goldman Sachs made an estimate of what TikTok paid out to recorded music rightsholders for the use of their music on ad-supported UGC on the platform in 2021. That number, according to MBW’s calculations based on the Goldman data, was USD $179 MILLION. What’s your response to that number?
We can’t disclose our numbers, but that figure is not accurate.
We anticipate that soon there will be a new Goldman [‘Music In The Air’] report. We’ll see if they break it out again, but if they do [we’re confident] it will be a much higher number.
Credit: ShutterstockLet’s talk about Resso – which many of us expect to be rebranded as ‘TikTok Music’ at some point. You recently shut its free tier.There’s an obvious link-up potential between TikTok’s main service pushing users to Resso to pay for music subscriptions, but for the time being you’ve dOne a deal that pushes people to Apple Music. What’s going on?
We decided that Resso going premium-only makes sense, because we already have TikTok where music discovery is happening.
As we get more creative and innovative about how we link the user experience around music across TikTok and [our] premium subscription service – which hopefully we will have with us [in multiple markets] in the future – we can build that bridge, and we won’t need a [Resso] advertising tier to sit in the middle of it.
We don’t comment on geographies or products that haven’t launched yet. So I can’t go on record and say anything about those plans. But what I can tell you is there’s an ambition to make [Resso] a ubiquitous service, in the same way that TikTok is a ubiquitous service. We want to be everywhere. And we really want to build that link between TikTok and Resso.
Resso is still only in three markets, despite reports emerging last year that ByteDance was planning to expand it into multiple new territories. How far along are you in terms of meeting some of that ambition?
We’re not far away from more news. But having a full global footprint takes time. If you think back to YouTube, even Spotify, it takes a long time to get into every single market around the world.
We have some rationale for why we roll out into certain markets [before] others, why we phase it, because we can look at TikTok user behavior, we can study the penetration of other streaming services and how we’re going to sit side-by-side with that.
There is a roadmap and a plan that we’re tracking to, but it will take some time.
Let’s talk about the Australia ‘experiment’. For my first question, imagine me standing in the shoes of a major music rightsholder. What were you thinking?!
We were a little surprised this became a [big] story, because this is what tech platforms do to better understand user behavior – to build new functionality, built new product, get things optimized in terms of programming, or whatever the case may be.
We saw data afterwards that suggested young people in Australia who were denied access to major music rightsholder content started to reduce their activity on TikTok and even leave the app entirely. So did the Australia experiment fail? What did you learn from it?
It was not a test that resulted in success or failure. It was a test that resulted in us gaining insight around how people, how our users and creators, interact with music on TikTok.
“This was not a test that resulted in success or failure.”
We gained insights that we were looking to gain by doing this.
I mean, the objective for any experiment like this has to be, though, to see wHether your platform can live or die without licensed major label music. So to that degree, it can only succeed or fail.
But that was not the objective. The objective was to see, depending on which cohort [they were] in – or what content is made available – how does the user behave? How do they search? What happens if one song that they were looking for isn’t there? What do they do then?
It was about how users behave when they are presented with different options around which music is made available to them.
Okay. YOU are locked in negotiations with at least one major music company right now, as I understand it. If they pull their catalog, would TikTok crumble?
When we are in the cycle of deal renewals, the objective is 100% to remain fully licensed, and to have all the world’s music for TikTok’s users. We are going to do everything that we can to make that happen, including paying a lot of money to the music industry.
But… if we were forced to take down a catalog or part of a catalog, we are pretty confident that we could still remain a compelling service for our users.
“If we were forced to take down a catalog or part of a catalog, we are pretty confident that we could still remain a compelling service for our users.”
I’m careful in how I say that. [But] we have to do scenario planning for ourselves; we have to consider all the different options.
So, again, the guiding principle is we get fully relicensed with every single music rightsholder out for any song on TikTok. But we also think about if we were put in a position where we had to take down a catalog or a partial catalog: how do we still make the user experience compelling enough for our creators and users?
Let’s talk about SoundOn – TikTok’s in-house distribution service. A recent article from The Information noted that you were striking more committed and exclusive deals with independent artists, which I presume includes an element of financing. People have made comparisons between that and you becoming a record label. In reality, what does it mean?
This is one where we have to set the record straight a little bit.
SoundOn was really born from one of the main objectives [we have] at TikTok, which is to work with our creator community, to allow them to make money, get discovered, and to strike partnerships and relationships with brands. SoundOn is the answer to all of those, as well as: How do we address the fact that so many unsigned, unknown, or unidentifiable pieces of music are coming on to TikTok? And how do we make that better for the community?
“It does not fit into TikTok’s strategy to become a record label.”
There is no intention of TikTok becoming like a record label. I’m happy to say it again: we have lots of people [working at TikTok] who came from record labels and publishers and societies, and we understand how complicated, how capital-intensive, and how specialized that business is. It does not fit into our strategy to become a record label.
But there is a quote out there from a TikTok executive suggesting that 80%-plus of plays on the platform are driven by its algorithm. Some record labels I’ve spoken to put that figure at 90%+. You must understand why that power to drive plays, combined with SoundOn’s exclusive deals with artists, has labels feeling a little paranoid about your intentions?
Every single user on TikTok gets a different feed. And our creators, our influencers, the community on TikTok decides what happens in the algorithm. It really does work that way.
I understand that the algorithm resides with TikTok, but the users are the ones who give the signals to the algorithm, both [as an] individual [and] as a community.
Every single individual user ends up getting a different feed, because they’re giving [individual] signals. The algorithm is different for everyone.
You recently expanded the commercial library of music for advertisers on Tiktok to OVER 1 MILLION TRACKS, including recordings from companies like Believe, DistroKid, Downtown, Songtradr, Vydia and others. This is pre-cleared music that small businesses can use – and pay for – for their short-video ads on the platform. How big do you think this business can get?
If we can get the use of commercial music to really flow freely, it will be in the billions of dollars of revenue.
I don’t know about many-multiple billions, but [Obermann forsees] a couple of billion to $3 billion of [annual] business here. I’m fully convinced of it. Whereas today, the entire [music sync industry] is usually sized at six or seven hundred million dollars, somewhere in that range. [The recorded music sync industry generated around $600 million in trade revenues in 2022, according to IFPI data.]
“It will be in the billions of dollars of revenue.”
We are now working with small and large publishers and labels, pitching them on the potential here. Some say, ‘I’m putting my whole catalog in’, some of them put in small amounts of music and are seeing how it goes.
We’re starting to pay out real money and it’s growing at a very fast clip. But it’s nowhere near the size that we think it will get eventually.
There have been two big changes at the major music companies since January this year. The first is Sir Lucian Grainge switching UMG’s dominant company narrative to ‘artist-centric’ payment models, which seems to encompass the idea of ‘upselling’ fans to spend more money on higher tiers of music. The second big change has been the arrival of Robert Kyncl as the new CEO of Warner Music Group.
I think those are both positive developments. The first one is quite in line with exactly what I’m telling you we’re focused on.
There’s a quote from last year where Lucian [in reference to TikTok’s payouts to music rightsholders vs. UMG’s experience with YouTube] said: “I’ve seen this movie before, and I know how it ends.”
We have a very strong conviction for how that movie ends – and it ends with all of us being in a great place together, because we’ve just grown the size of the music industry by billions of dollars, through all these new lines of business that we’re opening up.
“We have a very strong conviction for how that movie ends.”
I also think it’s really positive that Robert Kyncl [who spent 12 years at YouTube] is now at Warner Music Group
My career trajectory is having worked for major record labels for many, many years – working for a DSP for a few years in-between, and now being on this side.
I think it’s crucial we have leadership in our industry that doesn’t just understand both sides, but has done both sides. That’s how you end up building better things together because you really understand what both sides need and want, and what the limitations and the opportunities are.Music Business Worldwide
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