ByteDance's Contract with Record Companies are Expiring
The contract between ByteDance and the record companies will be expired by the end of April.
On April 8, 2019, according to the Wall Street Journal, the contract between ByteDance and the record companies will be expired by the end of April. However, whether ByteDance could successfully renew the contract with the record companies is still under negotiation.
Tik Tok, the short-video App published by ByteDance, allows its users to add music to their short videos. However, the users cannot do that legally unless the record companies authorize ByteDance to use it. Currently, ByhteDance is cooperating with Universal Music Group (UMG.XX), which belongs to Vivendi S.A. (VIV.FR, VIVDY), Sony Music Entertainment and Warner Music Group. These 3 companies occupy around 80% of the total music market share in the whole world.
After the expiration, if ByteDance does not renew the contract or sign a new one, billions of videos would be deleted from Tik Tok, and users will not be allowed to use the music from these 3 companies. According to Wall Street Journal, Todd Schefflin, who is in charge of the global music development of Tik Tok, said that the service which users could apply music to their videos does not require every music company to provide the full catalog of the music. Schefflin said the music service should be a part of “creative DNA”, and Tik Tok is a production which helps with the short-video creating and watching, not for music consumption.
According to people familiar with the matter, the valuation of ByteDance depends on the popularity of its video service. Currently, the latest valuation of ByteDance is USD 78 billion and in 2018, the revenue of ByteDance reached USD 7.4 billion. Tik Tok, with its 700-800 million monthly active users, generated almost USD 1 billion of revenue.
ByteDance keeps being benefited from the low operating cost of Musical.ly. In 2017, ByteDance acquired Musical.ly, which is a low service-providing company located in Shanghai. There are only 5 million of users of Musical.ly, and its valuation is not large. The record companies would provide music allowance service with a lower price for start-ups and help it to develop into a more valuable company. Musical.ly enjoyed the lower cost of using music from the record company and after its acquisition by ByteDance, the cost didn’t change.
In Aug 2018, ByteDance merged the Musical.ly with its own short-video business. However, due to the success of Tik Tok, the previous price for using the music may change, and the record companies are expecting to increase the charge. Tik Tok became one of the Apps which owns the largest download volume in the U.S. by the end of 2018. With AI technology, Tik Tok could recommend the short-video resources to users intelligently, and previously, Tik Tok announced that it would update its “teenager mode” in order to guide the teenager to use the app healthily. Under the “teenager mode”, the using time for teenagers would be limited, and the contents would be adjusted. ByteDance uses technology to recognize the teenager users and would automatically change the App into “teenager mode” for young teens.