Monday, December 5, 2022
HometechnologyTikTok is upending the music industry and Spotify may be next

TikTok is upending the music industry and Spotify may be next

  • Artists have soared to the top of the charts because of trends on TikTok, muddling the music industry's business model.
  • TikTok hasn't fully capitalized on the phenomenon, but its parent company filed a trademark application that suggests something may be in the works.
  • "I'm reaching a brand-new fan base," said singer-songwriter Jay Sean.

In this article

Benee performs at the Bonnaroo Music & Arts Festival on June 18, 2022 in Manchester, Tennessee.Josh Brasted | Wireimage | Getty Images

Zoi Lerma was working at a Los Angeles bagel shop in early 2020 when she first heard the song "Supalonely" by Benee. 

She liked it so much that she choreographed a dance to the tune and posted it on TikTok. Her video has since amassed more than 45 million views, turning her into a TikTok celebrity and helping to make Benee a global sensation.

As of Sept. 2, "Supalonely" has appeared in more than 5.7 million videos from thousands of TikTok users. Benee performed two sold-out arena shows in New Zealand in October 2020, and she was nominated for new artist of 2020 at the People's Choice Awards. Her hit song has gone platinum, meaning it's 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 picking up on TikTok, I would hear it on the radio or, you know, hear it in stores," Lerma, who's now 20, said in an interview with CNBC. "I would hear it everywhere."

Far from her days in a hot Southern California kitchen, Lerma now has 6 million followers on TikTok and makes a living by promoting music on the app and using her influence to partner with brands. She's also part of the TikTok Creator Fund, which pays popular contributors when their videos take off.

TikTok, owned by China's ByteDance, is turning the music business on its head by increasingly becoming a hit-making machine. Artists can go from obscurity to global superstardom, thanks to a viral video that could be posted by a complete stranger. Even Fleetwood Mac's "Dreams" reentered the charts in 2020 after a clip of a man drinking cranberry juice on a skateboard exploded on the app. 

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

While ByteDance is best known for its viral social media app TikTok, the Beijing-based company is now bolstering its ability in semiconductor design. ByteDance won't be manufacturing chips to sell to others, but it will be designing semiconductors that it requires for specific applications internally.Artur Widak | Nurphoto | Getty Images

"If a song is going viral on TikTok, and the artist is unsigned, and as a result, it's getting a million streams on Spotify, the labels are scrambling to sign that song or that artist," said Tatiana Cirisano, a music industry analyst and consultant at Midia Research. "They're obsessed with expanding their market share and making sure they don't lose any market share to independent artists."

TikTok's importance is undeniable. A year ago, the app topped 1 billion monthly users. Last month, a Pew Research Center survey found that 67% of teens in the U.S. use TikTok, and 16% said they are on it almost constantly.

The rest of the social media industry has been trying to play 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 because ByteDance is private, industry analysts say the app is winning a bigger piece of the online ad market, as brands follow eyeballs.

No. 1 stream driver

In 2021, over 175 songs that trended on TikTok charted on the Billboard Hot 100, twice as many as the prior year, according to TikTok's annual music report. 

"It's a household name and it's really effective," said Mary Rahmani, a former TikTok executive who last year founded the agency and record label Moon Projects. "It's still the No. 1 platform that drives to streams."

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

In 2021, Spotify paid out over $7 billion in royalties, according to a company report. The company pays record labels, artists and other rights holders based on their "streamshare," which is calculated monthly. An artist who receives one out of every 1,000 streams in the U.S. for the month would bring in $1 of every $1,000 paid to rights holders from the U.S. royalty pool. 

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