TikTok’s latest venture: subscription music streaming

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

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TikTok recently launched a new competitor to the music streaming giant Spotify and an apple Music, as a popular app for short videos, is looking for new ways to grow.

TikTok Music said on Wednesday that it will test its service in Australia, Mexico and Singapore. This announcement was made shortly after the launch in Indonesia and Brazil earlier this month.

Last week, TikTok also announced an expansion of its licensing agreement with Warner Music Group as the company plans to grow its library of music content. Parent company ByteDance also recently dropped the free tier of Resso, another music streaming service it owns.

While the effort is still in its infancy, analysts say TikTok has key advantages that other music streamers don’t have that could help it capture market share.

“There is already a large installed base of users that TikTok can convert into paid TikTok Music subscribers — with a relatively low customer acquisition cost,” said Jonathan Wu, senior 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 is little incentive for users who already use Spotify or Apple Music to switch services, as brand loyalty among users of these premium platforms is also very strong.

Jonathan Wu

Phillip Securities Research Senior Analyst

“TikTok Music will facilitate this [users] to save, download and share your favorite viral tracks from TikTok,” said Ole Obermann, TikTok’s global head of music business development, during a presentation in Indonesia and Brazil.

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

If you’re already in the ecosystem and use TikTok so often, you might want to make the switch.

Tatiana Chirisano

Music Analyst, MiDIA Research

In a consumer survey conducted by MiDIA in the fourth quarter, 48% of respondents said YouTube was one of their top places to discover music, while 41% cited TikTok. 9,000 respondents from the US, UK, Australia, Canada, Germany, France, Sweden, South Korea and Brazil took part in the survey.

“Often people hear a lot of different songs on TikTok, but don’t jump to listen to them elsewhere or learn more about the artist,” said Tatsiana Chirizana, music analyst at MiDIA Research.

“The big potential for TikTok Music is that it can bridge that gap,” Chirisano said.

A certain share of the market

The music streaming market is currently dominated by Swedish giant Spotify and Apple Music.

Spotify controls nearly 31% of the global streaming market, followed by Apple Music at 13.7%, according to the International Music Summit 2023 Business Report.

But Chirisano said active TikTok users can convert to TikTok Music users if they use other services, such as Spotify. “If you’re already in the ecosystem and using TikTok so much, you might want to switch,” Chirisano said.

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Still, Phillip Securities Research’s Wu said TikTok Music represents “low risk” to Spotify and Apple Music.

“I really think it would be quite difficult to surpass Spotify and Apple Music in terms of market share given their position, but TikTok Music can definitely eat some of that,” Wu said.

“There really isn’t much incentive to switch services for users who already use Spotify or Apple Music, as brand loyalty among users of those premium platforms is also very strong,” Wu said.

He added that the monthly subscription prices for all three services are expected to “be at the same prices”. In Indonesia, Spotify Premium costs IDR 54,990 ($3.66) per month, while iOS users pay IDR 49,000 ($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 for free on Spotify, 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.

Increase growth?

TikTok is looking for ways to grow outside the US, where it faces mounting political difficulties. Its flagship app was banned in Montana, the first state to do so, as well as in India. Earlier, the CEO of TikTok said that the company will pour “billions of dollars” into Southeast Asia in the next few years.

TikTok Shop’s e-commerce market is actively expanding in Southeast Asia, competing with the sea‘s Shopee and AlibabaLozada. These e-commerce efforts also include live shopping.

In July, TikTok said live shopping wasn’t the only area it was looking at when asked if it was the “ultimate destination” for TikTok’s expansion areas.

“Shoppertainment is not the only destination, but it’s definitely one of the main areas, especially in Asia Pacific, which we lean heavily on,” said Shant Oknayan, TikTok’s head of business for Asia Pacific, Middle East, Africa and Eastern Europe, during a summit in Jakarta earlier this month.

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