April 18, 2024

TikTok’s latest venture: subscription-based music streaming

With one billion users, TikTok has quickly become one of the most important players in the music industry, and now it hopes to revolutionize the way artists are discovered and paid.

Akmen Sofa | Afp | Getty Images

TikTok recently launched a new rival to music streaming giants Spotify and Apple Music, as the popular video app looks for new ways to grow.

TikTok Music said on Wednesday that it will be testing its service in Australia, Mexico and Singapore. That notice comes shortly after it was sent in Indonesia and Brazil earlier this month.

Last week, TikTok also announced extended licensing agreement with Warner Music Group, as it seeks to expand its library of music content. Parent company ByteDance has ended the free tier of Resso, another music streaming service it owns.

While these efforts are in their early days, analysts said TikTok has key advantages that other music streaming entrants don’t have that could help it capture market share.

“There’s already this large installed user base that TikTok can convert into paying subscribers of TikTok Music – with a relatively low customer acquisition cost,” said Jonathan Woo, senior research analyst at Phillip Securities Research.

According to DataReportal, Indonesia and Brazil are TikTok’s second and third largest markets, behind only the US, with 113 million and 84.1 million active TikTok users aged 18 and over, respectively. Meanwhile, Mexico is TikTok’s fourth largest market with 62.4 million TikTok users.

There really isn’t that much incentive to switch services for users who are already on Spotify or Apple Music because brand loyalty among users on these premium holder platforms is also very strong.

Jonathan Woo

Senior analyst, Phillip Securities Research

“TikTok Music will facilitate it [users] to save, download and share their favorite viral tracks from TikTok,” said Ole Obermann, global head of music business development for TikTok, during the Indonesia and Brazil launch.

TikTok is the second most popular source of music discovery for 16- to 19-year-olds, behind YouTube, according to details from MIDiA Research shared with CNBC. MiDIA Research is a UK-based research firm covering entertainment and media.

If you’re already in the ecosystem, and you’re using TikTok so much, you might be willing to switch over.

Tatiana Cirisano

Music analyst, MiDIA Research

I MiDIA fourth quarter consumer survey, 48% of respondents said that YouTube is among their main places to discover music, while 41% pointed to TikTok. The survey included 9,000 respondents across the US, UK, Australia, Canada, Germany, France, Sweden, South Korea and Brazil.

“A lot of times people hear a lot of different songs on TikTok, but they don’t make the leap to listen to it elsewhere or learn more about the artist,” said Tatiana Cirisano, music analyst at MiDIA Research.

“The powerful ability of TikTok Music is that it can close that gap,” said Cirisano.

Some market share

Currently the Swedish giant Spotify and Apple Music dominate the music streaming market.

Spotify commands nearly 31% of the global streaming market and Apple Music follows with 13.7%, according to the International Music Summit Business Report 2023.

But Cirisano said heavy TikTok users could convert into TikTok Music users if they are using other services like Spotify. “If you’re already in the ecosystem, and you’re using TikTok so much, you might be willing to switch over,” Cirisano said.

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Still, Woo of Phillip Securities Research said TikTok Music offers “low risk” to Spotify and Apple Music.

“I think it would be quite difficult to surpass Spotify and Apple Music in terms of market share given their role, but TikTok Music could definitely eat into some of it,” Woo said.

“There really isn’t that much incentive to switch services for users who are already on Spotify or Apple Music because brand loyalty among users on these premium holder platforms is also very strong,” Woo said.

He added that monthly subscription prices for the three services are expected to be “at similar price points”. In Indonesia, Spotify Premium costs 54,990 Indonesian Rupiah ($3.66) monthly and iOS users pay 49,000 Indonesian Rupiah ($3.26) per month for TikTok Music.

“As a consumer, why should I pay a monthly fee to listen to TikTok Music, when I can listen to Spotify for free, albeit with ads?”

TikTok declined to comment on TikTok Music’s expansion plans. Spotify and Apple Music did not respond to CNBC’s requests for comment.

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