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Penny Fractions: TikTok: Another Story About Advertising

Hello, hello! I’d like to say thank you for the kind words I received about last week’s newsletter, I
Penny Fractions
Penny Fractions: TikTok: Another Story About Advertising
By David Turner • Issue #132 • View online
Hello, hello! I’d like to say thank you for the kind words I received about last week’s newsletter, I really appreciated it, as it did go a little bit off the range of normal programming. If you’re a new subscriber, do check out my back catalog of writing, especially since I’m taking a summer break. The next newsletter will be on July 15th and I should have a date for the next video call as well. Otherwise, if you enjoy this project, please consider recommending it to a friend or supporting via Patreon. Now let’s talk about advertising, I mean…TikTok.

So, I Guess We’re An Advertising Company
Over the weekend, I finally finished All The Rave: The Rise and Fall of Shawn Fanning’s Napster by Joseph Menn, which chronicles the history of Napster only a couple of years after the company’s collapse. A number of details stood out to me (like the sheer incompetence of investors), but one specific question never left my mind: What exactly was Napster’s business? The company was a failed money pit that never held a clear path towards profitability. That’s why the book can often struggle to explain why anyone would’ve thought to keep throwing money at a project that was going nowhere. When executives at Napster understood the reality of endless record industry legal battles, the company put any business model on the table just to keep afloat. Advertising, selling merchandise, subscriptions, anything sounded good if it allowed the business to eventually hit its big payday. If its business model was that fluid, what did the company really hold? Tens of millions of committed users, in other words: an audience.
That ephemeral output resulted in executives at Bertelsmann Music Group sparring with Thomas Middelhoff, then CEO of Bertelsmann, over the company’s investment in Napster. The music executives didn’t see value in an audience that wasn’t paying money and would be difficult to convert into paying users. Middelhoff disagreed. Ultimately, even with Middelhoff’s support, Napster failed to make good on an audience-first, business forty-third strategy but the model would eventually be fulfilled by Spotify and YouTube. Those companies followed Napster’s path and turned their rapidly-growing audiences into an advertising platform. Nearly two decades later, TikTok, a short-form video app, is primed to feed the same system.
TikTok is massively popular. The app reportedly got 315 million downloads in the first quarter, which put its total download number at 2 billion. Even if cumulative downloads inflate the sense of people actively using an app, other metrics are still looking good for TikTok. Its parent company, Bytedance, made over $17 billion in revenue in 2019, which Music Business Worldwide notes inched it over YouTube by nearly a couple billion. Anna Nicolaou at the Financial Times pointed out on Twitter that TikTok’s 2019 revenue of $200 to $300 million isn’t much better than that of a number of struggling media companies. TikTok, like YouTube and Amazon media platforms, as only one part of a massive firm, could lose money for years without much concern as it still holds onto an audience. The value of providing a mass advertising platform, at least for those funding the company, provides enough reason to keep it afloat, as long as advertisers can find an audience.
Casey Newton at The Verge also noted that many fears he held about TikTok in regards to American regulators appear, for the moment, to be subsided as the company has stepped up its Washington D.C. lobbying efforts and has appeared to have seen a boost in activity during the coronavirus pandemic. The company also bought over 200k square feet of office spaces in Times Square for a ten-year deal, just to solidify its physical footprint. If the business side of TikTok appears to be stabilizing, the cultural impact of the app only continues to expand. 
An evolution from the early days of YouTube, and to a lesser extent Vine, popular TikTok stars are quickly absorbed into the influencer economy. In January, the most popular TikTok star Charli D’Amelio (and the rest of her family) signed with United Talent Agency. New York Times reporter Taylor Lorenz chronicled that there’s a fairly straight line between amassing TikTok fame, moving out to Los Angeles, and suddenly being in endless meetings with brands and talent scouts. Even though there are lottery-like success stories, many more TikTok creators will see their lives mirror a Vice story about creators that achieve major social fame but little monetary compensation. The singular focus on advertising and brand collaborations is what makes music’s role within TikTok oddly familiar. 
The Record Industry Pulls Out An Old Playbook
After a decade-plus of new audio and visual platforms popping up, a script is starting to form. Lil Nas X’s “Old Town Road” is one story where a song goes viral and a major label is able to build upon that success into once a generation success. That desire to repeatedly capture lightning in a bottle can only last a few years before the process is fully professionalized. I’ve written in some capacity about “viral” songs across various platforms for years, and at this point, it’s harder to distinguish between authentic moments of genuine virality or a major-label backed hit. Even more important, the distinction is barely worth making when success is filtered through the same systems.
The reason is that similar to the early deals YouTube made with record labels, the solution for an emerging product platform (to borrow the term from Nick Srnicek’s Platform Capitalism) is to just embrace, not fight, copyright holders. (Yes, there will be public squabbling but it’s been years since a major label pulled their entire catalog from a platform, so it gets hard to envision it happening with each year.) TikTok and its creators can engage with major label music without too much hassle and major labels are able to pull off marketing campaigns that aren’t quite as blunt as buying a singular billboard spot in Times Square. Even the process of discovering artists via TikTok, shout to Chartmetric, is by now a familiar game of tracking emerging songs and looking for what might ride the algorithm to success. The playbook of Myspace, YouTube, Vine, and don’t forget Musical.ly., continues to remain ever-relevant. 
Last year, when I wrote about TikTok, much of the critique centered around the fact that a majority of its creators will not live in an L.A. hype house, nor get any of the deals that come along with such success. Certainly, that’s remained unchained. In fact, much of the reason that TikTok feels more legitimate as a platform for the advertisement industry, not just for music, is exactly because it follows established norms. Earlier in June, Digiday reported on how TikTok creators are looking to the record industry as a model for success. The reason is that traditional advertising on the platform hasn’t matured at the same pace as its overall growth, so that’s shifted the burden of advertisers’ friendly positioning onto creators. The reporting pointed out that TikTok holds 50+ job openings for talent management roles. Learning from the stumbles of YouTube, in particular, the company appears to have a more vested interest in building a slightly more high-touch relationship with its creators. The piece gets a bit coy in explaining how centering creators, not necessarily the brands can be seen as a positive. The end result will still be Coca Cola-sponsored TikTok content; whether that idea originated from the Coke or TikTok marketing department is inconsequential. The last twenty years of major online platforms have shown them ready, even eager, to contort towards advertising. TikTok might be a new face but it’s selling the internet’s oldest product.
Unheard Labor
My most recent newsletter explained why the current vision of #TheShowMustBePaused could potentially lead to black executives rallying for power. Unfortunately, the music industry did not listen to my suggestions, and instead, the Black Music Action Coalition, which feels like it was approved by one or a dozen different press teams, suddenly showed up. The group, which includes a number of big-name artists, made a primary demand to speak to CEOs and executives from major music players. Essentially, they’re demanding a seat at the table, which is again not being done in the interest of average music workers. If anyone reading this is in the Black Music Action Coalition, I’d love to see y'all fight for wage transparency and an industry-wide standard for internship payment. For a simple contrast, Pitchfork’s staff engaged in a work stoppage last week against Conde Nast’s attempt to fire one of the members of their union’s bargaining committee. The willingness to fight for your peers against management is what will change the industry, not having millionaires squabbling at each other.
A Note of Financialization
Last week, the Secretly Group bought the record label Ghostly International. Not exactly major news since Ghostly is a label of only eight people but it did make me wonder if there might be more consolidation of smaller still-indie labels during this crisis. I’m certainly not a fan of consolidation and would love to see more unionization or worker-owned cooperatives, especially for labels of this scale.
6 Links 2 Read
Just what is Tencent’s Endgame? - MIDiA (Music Industry Blog) 
Interesting question. Solid research and a questionable conclusion is where this article left me. The deeper examination of how Tencent is entering into the music industry and is in a way two steps ahead of American companies is explained very well here. However, I find the characterization of Chinese vs. American business a bit too Red Scare for my liking. I’ll write about Tencent later this summer but my gut read is that the outcome of a massive American or Chinese firm trying to extract profit from an industry really doesn’t look all that different in the end.  
Live Nation made ridiculous demands of artists and rightfully people got pissed. I certainly don’t expect Live Nation to not still fight against artists’ interests but at least good to know they’re a little bit more on alert to pushback. 
This piece reviews the upcoming Copyright Royalty Board fights that’ll determine how much songwriters get paid from streaming platforms. That this is a place where artists can actually see government-mandated increases on their income, so it would be nice to see some ground given to artists when things aren’t entirely left to the market. 
This is a fairly broad look at the current state of the American and British music industries. The murky future of live streaming, the still dire outlook for live music, and the surprisingly resilient power of streaming. I’ll say that it’s good to see a number of British groups making more concerted demands on the government; hopefully American music workers will follow such examples. 
Mat Dryhurst, Holly Herndon, and Liz Pelly on a single podcast! Too good to be true!! Sorry for the exclamation points but this is an unsurprisingly great conversation. Really appreciated hearing Herndon’s pushback against accepting that streams should be the primary way to compensate musicians for their labor, which is a point that I feel could really use some re-examination. If you enjoy this, do check out the podcast’s Patreon page
Matt Stoller lays out what could be a shift happening in how regulators across the globe may hold a bit more scrutiny towards American tech firms. He pushes his antitrust as a cure-all worldview, which I don’t quite subscribe to. Even still, Stoller explores the legitimate pushback against the monopolistic power held by Apple and Google.
Blog Roll
The Penny Fractions newsletter arrives every Wednesday morning (EST). If you’d like to support it, check out the Patreon page or follow it on Twitter. The artwork is done by graphic designer Kurt Woerpel whose work can be found at his website here. The newsletter is copy edited by Mariana Carvalho, with additional support from Taylor Curry. My personal website is davidturner.work. A list of my favorite 2020 albums, books, and mixes can be found here. My current job is Emerging Creator Lead at SoundCloud, so all thoughts here represent me, not my employer. Any comments or concerns can be sent to pennyfractions@gmail.com. 


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