TikTok Don’t Need No Stinkin’ Music

Plus Live Nation, Netflix, and more.

TikTok Don’t Need No Stinkin’ Music

TikTok once depended on the music industry to provide the soundtrack for its viral lip-syncing and dancing videos. But TikTok’s leaders have decided the app just doesn’t need those relationships the way it once did.

Let’s recap.

According to four people who formerly worked for TikTok, executives at the company repeatedly informed employees in charge of music on the platform that one of the app's record label deals was about to expire within weeks. However, each time, the parties involved managed to extend the contract for a short time. But at the end of last month, TikTok's negotiations with Universal Music Group, the largest record company in the world, came to an end, leading TikTok to remove UMG's music from the library of songs available for soundtracking new videos. TikTok also muted preexisting videos that used UMG's music.

TikTok has also started removing any songs whose publishing copyrights Universal Music Publishing Group holds, widening the impact to include many songs from other record labels.

So now the two parties can’t agree on how much TikTok should pay UMG for using snippets of its songs on the platform. They are also clashing over TikTok's proposal to use a royalty pool, shared by Universal, to pay creators who create their music with AI.

Aggressive Negotiations

TikTok’s point person for dealing with the music labels is a former Warner Music and Sony Music Entertainment executive, Ole Obermann, who is ByteDance’s global head of music business development and intellectual property rights.

But the real power in music matters is above Obermann. He reports to Zhen Cao, ByteDance’s global head of music, an engineer and product manager who has never worked in the music industry. And it is Cao who gives Oberman direction on what he can offer the labels, according to four people familiar with ByteDance’s music strategy.

ByteDance executives have told Obermann he should aim to spend a similar percentage of revenue on music as Meta Platforms, which in 2021 was estimated to have spent hundreds of millions of dollars on music licenses—less than 1% of its roughly $120 billion in revenue that year.

In discussions with the labels, Obermann has presented his budget and refused to budge, leading to a widespread perception within TikTok and among record labels that he has no autonomy in the negotiations.

The standoff is no accident, at least from TikTok’s point of view.

TikTok's and ByteDance's executives have been trying to expand the app beyond short-form dancing and lip-syncing videos to attract more users, and it’s safe to say they’ve succeeded. As of this month, only 15% of views on TikTok fell into traditional categories like singing, dancing, and lip-syncing, while the rest were on topics such as lifestyle, education, and culture.

Consequently, music company deals may be much less important to TikTok.

TikTok is pushing for profitability, and this strategy includes expansion into e-commerce and live streaming, both areas that are less dependent on music. This drive for profitability has made TikTok and ByteDance executives reluctant to pay more for music rights. TikTok executives have also been unwilling to share advertising revenue with record labels, which the labels pushed for, rather than a flat fee.

Users and creators have complained about their videos containing UMG music being muted. Additionally, TikTok's changes have led to user complaints about how aggressively TikTok has promoted TikTok Shop, with some creators feeling pushed to the sidelines. Despite these grievances, TikTok Shop is still hitting its targets, with daily order volumes ranging from $10 million to $15 million in the United States.

So far, the gamble may be paying off. TikTok's user engagement metrics (active users, new users, and session time) have remained stable or better since removing UMG's music. If this trend continues, it’s unlikely that user complaints will change TikTok's course.

The Media Revolution Will Be Prompted

Credit: Netflix

Netflix, a company that relies almost entirely on human storytelling—is clearly paying attention to that new-fangled AI stuff.

In a new risk factor included in its annual report to the Securities and Exchange Commission for 2023, Netflix said, “the development and use of generative artificial intelligence [is] rapidly evolving. If our competitors gain an advantage by using such technologies, our ability to compete effectively and our results of operations could be adversely impacted.” With the disclosure, Netflix is conceding that it foresees substantial AI competitors.

More competitors will mean more competition for attention (a problem Netflix shares with Spotify and YouTube). Netflix has long acknowledged in letters to shareholders that its users have “a vast number of entertainment choices” and that its share of the overall market for entertainment is “very small.” Creators using AI tools are positioned to generate an enormous library of competing videos, adding to the 500 hours of video YouTube says are uploaded every minute. The longer the long tail of competition, the harder it is for Netflix to win the attention and engagement of its 261 million subscribers.

Netflix also has a baby (but developing) advertising business that needs to grow beyond its current 23 million subscribers. Success in programmatic advertising requires scale, and Netflix is competing with Spotify’s 574 million and YouTube’s 2.5 billion monthly active users worldwide. They’ve ruled out user-generated content, so its next best cost-effective solution is AI-generated content. In fact, Netflix used AI to help generate artwork for an anime video in Japan last year, Motherboard reported.

But that sparked a backlash from human artists.

And Netflix acknowledged in its SEC filing that “the use or adoption of new and emerging technologies may increase our exposure to intellectual property claims.” It faces a complex set of choices regarding the need to embrace AI or face being replaced.

Text-entry search boxes on platforms like Netflix and YouTube have conditioned users for text-to-video AI-generated content. There are only a few steps between searching for a title using text and creating a video with a text prompt.

If you think I’m kidding, you haven’t seen OpenAI’s Sora.

From OpenAI:

Sora is able to generate complex scenes with multiple characters, specific types of motion, and accurate details of the subject and background. The model understands not only what the user has asked for in the prompt, but also how those things exist in the physical world. The model has a deep understanding of language, enabling it to accurately interpret prompts and generate compelling characters that express vibrant emotions. Sora can also create multiple shots within a single generated video that accurately persist characters and visual style.

One of the more memorable Sora videos came from the prompt “Photorealistic closeup video of two pirate ships battling each other as they sail inside a cup of coffee.” That was it. That was the prompt.

This is astounding, particularly the rendition of water and especially light: it is only in the past few years that video games have been able to deliver something similar, and even then, I would argue Sora has them beat.

But a 2nd or 3rd viewing reveals clear flaws; just follow the red flag flying from the ship on the right and how the ship completely flips directions:

More from OpenAI:

Sora is a diffusion transformer. Transformers have demonstrated remarkable scaling properties across a variety of domains, including language modeling, computer vision, and image generation.

In this work, we find that diffusion transformers scale effectively as video models as well. Below, we show a comparison of video samples with fixed seeds and inputs as training progresses. Sample quality improves markedly as training compute increases.

This suggests that the flag on the ship in the coffee cup (what a phrase!) can be fixed.

Sora’s emergence has accelerated the likelihood that we’ll see these entertainment platforms in the next few years. If flooding doesn’t destroy the video platforms we know today, it will force them to develop additional, text-to-video AI-generated content-only alternatives.

The next media revolution won’t be televised—it will be prompted.

Live Nation’s Superfan Strategy

Can you guess what it is?

Live Nation has discovered that superfans are the key to unlocking unprecedented revenue streams. The company is capitalizing on these dedicated fans' unwavering loyalty and deep pockets. The past year’s record-breaking success has emboldened Live Nation to innovate further charge more; potentially reshaping the concert landscape by bringing megastars to more intimate venues. This shift promises a unique experience for concert-goers but, more importantly, sky-high profit margins.

$uperfan Experience Elevated 

Live Nation isn’t just rolling out the red carpet for superfans; it’s transforming it into a runway of exclusive, high-value experiences. The company is doubling down on its commitment to these ardent supporters by introducing a slew of premium options. Live Nation-owned venues, particularly smaller venues, will be prioritized. Dynamic pricing strategies will again be employed to optimize seat sales, while VIP clubs and Rock Boxes offer faux exclusivity. These smaller, company-owned venues may lack the size of stadiums, but they more than make up for it with their ability to drive up per-capita spending.

Investing in Intimacy 

Michael Rapino (Live Nation CEO) is confident that a significant investment in these smaller spaces will pay off handsomely. By allocating $150 million to enhance these venues, Live Nation aims to increase its revenue from premium offerings from a modest 9% to an ambitious 35%. It’s a bold move that could redefine the concert-going experience and set a new standard for fan engagement the cost to see a show. Here in Chicago, the Aragon Ballroom now has fancy bathrooms upstairs, and they don’t flood. I guess that’s progress, but I miss the days of trying to guess if the puddle on the floor was condensation or recycled beer. But I’m just a sentimental romantic at heart.

Beyond Live Nation 

The ripple effect of this superfan-centric approach is being felt industry-wide. Spotify’s CEO, Daniel Ek, hinted at introducing "superfan clubs," and Warner just announced their destined-to-fail “superfan app,” signaling a broader trend toward catering to the most passionate fans. As the live entertainment sector evolves, it’s clear that no company wants to miss out on the potential windfall that superfans represent. I remain extremely skeptical that any of these mega-corporations will get it right.

Still, based on how many idiots I see wandering around at shows with fake laminates, I’ll probably be proven wrong.

THE NEWS DESK

Media, Music, & Entertainment

• Spotify announced it paid indie labels $4.5 billion last year. A record total – not just for its service, but "the highest amount indies have ever generated from a single retailer in one year" – and that it's the first time independent music has accounted for 50% of its payouts. Read More → billboard

• Universal Music Group continues to spend money on everything but the artists.. and has acquired a majority stake in Mavin, one of Africa's most influential Afrobeats labels known for breaking talent.
  Read More → variety

• BeScene hopes to be the Tinder of entertainment industry networking… without the STDs.

  Read More → techcrunch

Fashion & E-Commerce

• Klarna is exploring a US public offering that would value the Swedish fintech firm at $20 billion.

  Read More → bloomberg

• MLB players aren’t happy with Nike’s new uniforms, which rip easily and are nearly see-through in all the places you don’t want them to be.
  Read More → wsj

• Mercedes-Benz is opening a 67-story, mixed-use tower in Miami to expand into branded real estate. Huh?

  Read More → hypebeast

Tech, Web3, & AI

• The typical TikTok user posts seldom, if ever, and about half of all U.S. adults on the site have never posted a video themselves. And the typical user has not added any information to their account's “bio” field.

  Read More → pew

• London-based publisher Financial Times has launched a venture arm to start investing in tech and media companies. Read More → axios

• The University of Waterloo removes vending machines after a student discovers they use facial-recognition tech. Read More → insider

Creator Economy

• Redditors aren’t happy about the company’s upcoming IPO… which may spell serious trouble for its stock performance. Read More → theverge

• KLIQ, a creator-focused business development tool, has completed a $1.8 million pre-seed round led by Serena Williams’ Serena Ventures.

  Read More → tubefilter

• BookTok isn’t just organizing online but also now meeting in person.
  Read More → WSJ

Deep Reads

• An Oral History of a Masterpiece

  Revisiting the making of "Schindler’s List" 30 years after the film about the German businessman who saved 1,200 Jews from the Nazis during World War II won the Oscar for best picture. 

  Read More → hr

• Managed by Mom and Stalked by Men

  Parents seeking social media fame for their underage daughters can expose them to a disturbing online reality, where sex offenders can pay to see more. These parents are disgusting.
  Read More → nyt