20 Music in Social Media

Most of this book concerns what we might call the “legacy” music economy, consisting primarily of consumers directly purchasing or streaming their preferred artists on demand, along with the use of music on radio, movies, television, and advertising. However, that legacy music economy is increasingly being overshadowed by a new music economy: the use of music in social media posts, particularly in short videos posted on TikTok, Instagram, and YouTube.

While the context of music in social media video posts might be new, the concepts and copyright laws governing this new economy are the same as we’ve learned for other contexts. For the short-form TikTok and Instagram style video posts, we are dealing with music-video synchronization (i.e., “synch rights”). It is critical to remember that when music accompanies any moving image (anything other than a still photo), the special rules of synch rights apply. Avoid making the common mistake of applying mechanical licensing concepts to situations involving video, where such concepts hold no sway. Video always demands a synch rights analysis, whether the context is animation, major motion pictures, television advertising, documentaries, or short-form social media video posts.

The second thing we should remember in approaching music in this context is the potential liability to the social media platforms. That inquiry leads us back to the “Safe Harbor” rules of the Digital Millennium Copyright Act of 1998 (DMCA) (see Chapter 36). Those rules provide legal protection for “internet service providers” (which includes social media companies such as Instagram and TikTok) for any copyright infringement occurring on their sites provided those companies abide by certain rules. Those rules include taking down any copyright-infringing material on user posts and policing the platform to discover any offending posts. As long as the social media platform abides by those rules, the DMCA shields the social media platform from legal action in a “safe harbor.” YouTube is the most obvious example of a company that relies on the safe harbor of the DMCA to shield itself from legal trouble when its users post copyrighted material (including music) without a proper license.

Keeping these two concepts in mind, we can apply them to gain an understanding of how social media companies ran afoul of copyright law during their early years of high-growth and have only recently made headway in putting themselves in a position to avoid threats of copyright infringement claims and music blockades by the large recording companies. Set forth below are a few of the highlights and milestones in that development:

The paradigm situation involves a user of a social media platform, such as TikTok or Instagram, posting a short-form video that contains copyrighted music. Because the music accompanies video, synch rights are involved, meaning that the right of the video creator to use that music requires a synch license negotiated with the copyright holder of the song and the recording (typically a record company and its affiliated publishing company).

In the early years of explosive growth of video-oriented social media platforms such as Instagram (founded in 2010), the primary concern of these companies was to attract new users. Without users, the platforms would not be able to sell advertising, which is their primary source of revenue. While TikTok and Instagram could have obtained safe harbor protection by taking down posts that used copyrighted music, that would have severely dampened the user experience and the business model would have failed. So the social media companies let users make copyright-infringing posts and assumed they could work through the copyright legal problems later after establishing themselves. They would also then have a better bargaining position with the recording companies by promising a volume of listeners for popular recordings used in user videos. 

This strategy has turned out to have been successful. Predictably, record companies and publishers threatened to sue social media companies and/or embargo their music from use on the sites unless the proper licenses were negotiated. Because social companies were able to point to their large and growing user bases, they were able to use that as leverage to negotiate more favorable terms with the rights holders. Social media companies were able to leverage the potential marketing power of their user base against the demands for high licensing fees. 

There are two primary types of licensing deals that social media companies ended up negotiating with record companies and other music rights holders. One type of license involves “revenue sharing” deals, in which the social media company agrees to share advertising revenue with the music rights holder in proportion to a song’s popularity on the social media platform. A second type of deal is a “buy-out” deal, in which the social media company pays a an up-front lump sum for the rights for its users incorporate a certain song in their videos over a certain time span (e.g., one year). 

As social media companies have seen their income increase exponentially in recent years, the “buy-out” model has become more common as it allows the social media platforms to limit the amount of money spent on songs that “blow up” on social media as they’ve locked in the rights to use those songs early in their popularity cycle. To get a sense of the newly powerful bargaining position these companies now enjoy, TikTok posted earnings of approximately $12 billion in 2022, which is triple the amount posted for the previous year. With their increasing financial power and leverage of a large user base, social media companies are now in a position to negotiate favorable licensing terms for their users to include even the most popular songs in their social media video posts. 

However, the financial and market-share power of social media companies brings increased concern among music rights holders that social media companies will be able to use that leverage to negotiate deals that limit the rights holders ability to be fairly compensated. This concern is heightened by the increased use of “buyout” licenses, in which the social media company pays a lump sum for the right to license a song for its users over a fixed time period. Rights holders have recently expressed concern that this type of license does not account for how frequently a song gets used on the social media site. Songs that “go viral” on a social media site will not be compensated for the frequency of their use, as the license includes as many (or as few) uses as may occur, with only one fixed payment. The songwriters and other rights holders of exceptionally popular songs will not see a corresponding increase in their earnings on a social media platform under such a “buyout” arrangement. The social media company is earning additional revenue from the use of the viral song in user videos (from increased ad revenue), but the songwriters, musicians, and even record companies do not see that same increase to their revenue. To put a concrete number to this, TikTok earned $4 billion in the United States in 2021, most of which came from ad revenue.

Of course, record companies and artists must acknowledge that TikTok and other social media sites provide more than just licensing revenue — they provide an extremely valuable marketing platform that can translate into plays on streaming sites, concert tickets, merchandise sales, etc. The social media companies leverage their role in marketing music when negotiating licensing agreements with record companies. As of the middle of 2022, the social media companies would seem to have the upper hand in these negotiations with their ability to enter into “buyout” agreements that do not require proportionate revenue sharing and instead rely on lump-sum license fees for unlimited use on the site.

In mid-2022, evidence emerged that record companies and publishers are attempting to even the playing field with social media companies by threatening to withhold licenses while simultaneously pointing out the unfairness of “buyout” licenses to music creators. In July of 2022, Kobalt Publishing (who hold the rights to over 700,000 songs) announced that they were restricting use of any of their songs on both Facebook and Instagram (both owned by umbrella company Meta). Within days of Kobalt’s embargo announcement, Facebook parent company Meta announced that, going forward, it would adopt a “revenue share” music licensing scheme rather than its previous “buyout” license. Meta’s new licensing scheme (which initially applies only to Facebook, not Instagram) will allocate 20% of the ad revenue to the video creator with the remaining 80% of revenue split between Meta and the copyright holder(s) of any music used in the video. (It was not clear from the announcement just how the 80% would be split.) There is no direct evidence that Meta was responding directly to Kobalt’s embargo action, but the close timing indicates that it was likely not a coincidence.

Another recent development with social media companies, particularly TikTok, is the possibility that they may actually leverage their popularity to usurp the functions of traditional record and streaming companies by offering those services themselves. In this scenario, social media companies might recruit musical acts among their own user base to record and distribute original musical content through the social media company, as well as offer a streaming service to its own users that could host exclusive musical content as well as mainstream musical selections. As an early example of this trend, in March of 2022, TikTok launched an in-house music distribution service it calls “SoundOn.” TikTok’s users can use this service to distribute their music to TikTok’s own streaming platform (“RESSO”) as well as more widely to mainstream platforms such as Spotify and Apple Music. TikTok’s SoundOn distribution service will also offer music marketing and other advice to TikTok users hoping to find an audience for their music. In other words, SoundOn would provide most of the services offered by legacy record companies, but with the benefit of a massive and growing user base (and audience) tied to the social media platform. TikTok’s user base (currently 1.4 billion as of August, 2022) provides a tremendous potential source of leverage and synchronicity for this new business model that record companies (and other independent music distributors such as SoundCloud) cannot match. At the moment, TikTok’s forays into music production and distribution are in the formative stages, but with the current rate of change in the music industry, social media companies could prove to be a transformative force moving forward, disrupting the large record companies in their current dominance of market share.

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