TikTok is upending the music business and Spotify could also be subsequent

Benee performs at the Bonnaroo Music & Arts Festival on June 18, 2022 in Manchester, Tennessee.

Josh Brasted | Wireframe | Getty Images

Zoi Lerma was working at a bagel shop in Los Angeles in early 2020 when she first heard Benee’s song “Supalonely.”

She liked it so much that she choreographed a dance to the tune and posted it on TikTok. Her video has since racked up more than 45 million views, which has made her a TikTok celebrity and helped make Benee a global sensation.

As of September 2nd, “Supalonely” has appeared in more than 5.7 million videos from thousands of TikTok users. Benee performed in two sold out arena shows in New Zealand in October 2020 and was nominated for 2020 New Artist of the Year at the People’s Choice Awards. Her hit has been certified platinum, which means it has sold the equivalent of 1 million copies in eight countries and has more than 2.1 billion streams across all platforms.

“When it started trending on TikTok and picked up on TikTok, I heard it on the radio or, you know, in stores,” Lerma, who is now 20, said in an interview with CNBC. “I would hear it anywhere.”

A far cry from her days in a hot Southern California kitchen, Lerma now has 6 million followers on TikTok and makes a living promoting music on the app and using her influence to collaborate with brands. She’s also part of the TikTok Creator Fund, which pays popular contributors when their videos are successful.

TikTok, owned by Chinese company ByteDance, is turning the music business upside down as it grows into a hit machine. Artists can rise from obscurity to global superstardom thanks to a viral video that could have been posted by a total stranger. Even Fleetwood Mac’s “Dreams” re-entered the charts in 2020 after a clip of a man drinking cranberry juice on a skateboard blew up on the app.

Record labels, artists and creators are all trying to figure out how to capitalize in the new TikTok-dominated world and to make sure they are not left behind.

While ByteDance is best known for its viral social media app TikTok, the Beijing-based company is now stepping up its semiconductor design capabilities. ByteDance will not make chips to sell to others, but will develop semiconductors needed internally for specific applications.

Arthur Widak | Nurphoto | Getty Images

“If a song goes viral on TikTok and the artist isn’t signed and it gets a million streams on Spotify as a result, labels scramble to get that song or that artist signed,” said Tatiana Cirisano, a music industry analyst and consultant at Midia Research. “They’re obsessed with growing their market share and making sure they don’t lose market share to independent artists.”

The importance of TikTok is undeniable. A year ago, the app surpassed 1 billion monthly users. Last month, a Pew Research Center poll found that 67% of US teens use TikTok, and 16% said they use it almost all the time.

The rest of the social media industry has been trying to catch up. Facebook and Instagram parent Meta, for example, has been pumping money into its short video feature called Reels.

While TikTok’s financials are still confidential as ByteDance is private, industry analysts say the app is gaining a bigger chunk of the online advertising market as brands follow the eyeballs.

#1 stream driver

In 2021, over 175 songs that were trending on TikTok charted on the Billboard Hot 100, double the number from the previous year, according to TikTok’s annual music report.

“It’s a household name and really effective,” said Mary Rahmani, a former TikTok exec who founded agency and record label Moon Projects last year. “It’s still the #1 platform that leads to streams.”

In terms of the current dollar flow in the music industry, TikTok’s main influence lies in its ability to push listeners to services like Apple Music and Spotify.

According to a company report, Spotify paid out over $7 billion in royalties in 2021. The company pays record labels, artists and other rights holders based on their “stream share” billed monthly. An artist receiving one in 1,000 streams in the US for the month would bring in $1 out of every $1,000 paid to rightsholders from the US royalty pool.

TikTok is poised to capitalize on its role as the music industry’s tastemaker, but the company hasn’t announced its plans. But there are some clues as to the parent company’s mindset.

In May, ByteDance filed a trademark application for “TikTok Music” with the US Patent and Trademark Office. The service would allow users to play, share, buy and download music, according to the filing. A TikTok spokesman gave no further details, sending CNBC a general statement on the company’s role in the music industry.

“With hundreds of songs generating over 1 billion video views and dozens of artists signing deals as a result of success on the platform, TikTok is setting trends that resonate across culture, industry and charts,” reads the the explanation.

TikTok currently has partnerships and licensing deals with major labels like Universal Music Group, Warner Music Group, and Sony Music Entertainment, all deals signed between 2020 and 2021. Midia Research’s Cirisano said artists aren’t paid directly based on how often the music they make is viewed or used.

Music isn’t a new market for TikTok. In 2017, ByteDance acquired a startup called Musical.ly, a popular app that allowed users to create videos using other people’s music. ByteDance merged the service with its homegrown TikTok app the following year.

“Brand New Fanbase”

Singer-songwriter Jay Sean, whose 2009 hit single “Down” topped the Billboard charts, began posting on TikTok in 2019 as a fun way to express himself and be creative. He now has more than 460,000 followers on the app and said it introduced him to the younger generation.

“I’m reaching a brand new fan base,” Sean said in an interview. “I’ve been making music for 20 years, so some of them were kids when my music came out and they’re starting to discover my back catalogue. So it’s actually quite an intriguing tool for that.”

Like many big labels and executives, Sean has used TikTok as a tool to discover new artists. He signed singer Véyah after finding her on TikTok, where she has more than 470,000 followers.

“Now she’s transitioning from this girl who used to sing in her bedroom on TikTok to LA, working on an album and collaborating with massive mainstream producers who have produced mega hits for so many big artists,” Sean said.

Jeremy Skaller, co-founder of management, media and production company The Heavy Group, warned of the risks of skyrocketing fame that can come with TikTok’s virality. Not everyone is prepared for what comes next, he said.

“Once a label signs you for $1 million, the pressure to perform trumps art, which is why a deal too soon can ruin a nice, long career,” Skaller said.

Even established artists face challenges on TikTok.

Artist Halsey recently complained about the pressure to post on the app, writing in a TikTok video: “My record label says I can’t release [new music] unless they can fake a viral moment on Tiktok.”

Halsey’s label, Capitol Music, later released a statement on Twitter pledged its support for the singer.

Cirisano said artists relied on their label for marketing. But with the fame of TikTok, they now do much of their advertising themselves.

“It’s just a tremendously challenging thing for artists to do,” Cirisano said, “on top of everything else they’re already doing,” which is frustrating for a lot of them.

But there are advantages too. Some artists can take their TikTok following to greater wealth without the help of a label, a path that was almost impossible before social media.

Loren Medina, owner of Guerrera PR, said music marketing is a “different world” than it was 10 years ago. Medina, who worked at Sony from 2005 to 2009, now represents Latin American avant-garde artists such as Jessie Reyez and Omar Apollo. Historically, she said, in order for artists to make it, they had to be a priority for a label willing to back them financially.

Short videos are here to stay, says Shmulik von Bernstein

“It was just so different,” she said. “We actually had to hire street teams to go out on the streets and give people flyers, give people CDs. It was much more face-to-face, hand-to-hand.”

Labels are still very important in the industry, but they “are far from everything,” she said. Artists are now using the massive audiences they reach on TikTok to build a dedicated fan base that can end up buying lots of merchandise and filling bars and concert halls.

One of Medina’s clients is Kali Uchis, whose song “Telepatía” exploded on TikTok and now has over 700 million streams on Spotify. Although Uchis had an established career before going viral, Medina said that prominence on the app ultimately propelled her to global fame. She won Best Latin Song for “telepatía” and Best Latin Artist at the 2022 Billboard Music Awards.

“Her career really, really, really blossomed because of a song on TikTok,” she said. “This wasn’t going to be a single, so we had to flip everything and kind of restructure and put that song front and center because it blew up.”

Services like Zebr have emerged to try to streamline the work that comes with TikTok celebrities. Record labels and artists can use Zebr to pay creators to use a piece of music in their content. The app allows creators to choose which campaigns they want to work on and handles the payment process.

Josh Deal, CEO of Zebr, which made this year’s Forbes Europe 30 Under 30 list for Entertainment, said labels and artists have become a lot smarter with their marketing approach on TikTok.

“Most of the time they just threw money at the agencies and hoped they would place it with their influencers,” he said. “Now the strategy is getting much more sophisticated. They understand why tracks break and how they break. And that’s really just a kind of reverse engineering.”

Since choreographing the hit video for “Supalonely,” Lerma has worked with artists and labels to promote music. She’s hired to work on certain songs, but retains a lot of creative control over what she posts.

“They don’t really tell you what dance to do or what they want it to look like,” Lerma said. “You just have your own freedom with what you want to do.”

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