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Well, which is it?
Does Merlin have a streaming fraud issue, driven by a minority of less-than-virtuous members?
Or, by walking away from recent licensing discussions, has TikTok created a scenario in which it will commercially benefit by breaking up Merlin’s negotiating block of indie members?
Guess what? Two things can be true at the same time.
I’m sure that TikTok doesn’t hate the prospect of union-busting Merlin.
TikTok is now essentially forcing all of Merlin’s member labels and distributors to accept direct agreements, or lose their ability to monetize music on the platform. (The fact TikTok runs its own indie artist distribution platform, SoundOn, a rival to many Merlin members, is an additional factor worth considering.)
However… this alone doesn’t negate the merit of TikTok’s core accusation in this bust-up: that some Merlin-repped parties have been uploading significant volumes of manipulated (i.e., sped up or slowed down) versions of existing recording copyrights to TikTok and claiming royalties on them.
Behind the scenes over the past two years, TikTok has warned Merlin on multiple occasions that hundreds of active tracks in the org’s repertoire – i.e. tracks uploaded by its members – have been flagged as copyright-infringing.
A recent example: I understand that in Q1 2024, Merlin was sent an itemized list of over 1,000 tracks from TikTok/ByteDance that had been internally flagged as suspicious (i.e. likely ‘manipulated’).
The main culprits in this list? Independent, ahem, ‘artists’, pushing their works through distributors who are Merlin members. (A particular red flag: over 500 of these 1,000+ tracks in Q1 were credited to various uploaders whose name began with ‘DJ’.)
Meanwhile, one source with evidence of the communication says that in 2022, TikTok warned Merlin that hundreds of tracks within its repertoire had been flagged as “invalid or infringing”, or highly likely to be. These tracks racked up over a billion plays on TikTok across a six-month period.
To understand how this is possible in association with Merlin — a proud participant in the fight against streaming fraud — one first needs to appreciate some key background notes.
First: It’s understood that some larger Merlin members, including Beggars Group and EMPIRE, already directly license TikTok and other DSPs through their own deals.
Every few years, Merlin wrestles with a digital service (like TikTok) for a new deal on behalf of its 500+ members. Merlin then offers said members the opportunity to opt-in to said agreement.
In some cases, larger indies opt in (for example, in deals with DSPs in China); in other cases, they opt out, choosing instead to strike their own unilateral contracts.
Inevitably, when the likes of Beggars opt out of any given Merlin deal, it reduces the market share of so-called ‘premium’ indie labels within the repertoire that Merlin represents on that particular DSP.
In tandem, it increases the market share of indie distribution companies and, erm, less ‘premium’ labels… who may not view streaming fraud/manipulation with the same disdain as Beggars, EMPIRE et. al.
That all being true, it still doesn’t adequately explain what’s suddenly accelerated TikTok’s scorn for alleged illegitimate activity among Merlin members – to the point that ByteDance has walked away from licensing negotiations with the indie collective.
I repeat: one factor could well be TikTok spying a commercial opportunity to de-fang Merlin’s negotiating block.
But perhaps another important catalyst can be found in Universal Music Group‘s recently-inked deal with TikTok, which followed a fallout that shook the music world earlier this year.
When UMG confirmed its fresh TikTok deal in May, the major music co. claimed that, as part of the agreement, TikTok had pledged “protections provided to [UMG’s] industry-leading roster on their platform”.
The biggest endangerments to that (human) roster? AI-made and AI-manipulated music being uploaded to TikTok without restriction.
Through this lens, TikTok’s decision to end its discussions with Merlin may have been accelerated by recent commitments made to other premium music players – particularly UMG.
How Merlin’s membership has changed
At the root of this story is the changing face of Merlin’s constituency and how, in recent years, the organization has welcomed a string of DIY distribution platforms into its membership alongside its core founding group of premium indie labels.
When Merlin was created in 2008, it was, by and large, a collaboration of premium independent labels — Beggars, Secretly, Epitaph, amongst them — looking to create a powerful negotiating block that could become, in essence, the ‘fourth major’.
Since then, Merlin has faced some existential threats to this proposition, not least the acquisition or part-acquisition of key members by non-Merlin players.
A sample of those acquisitions:
These deals, and others like them, have eliminated key players from Merlin’s membership, threatening to weaken its negotiating leverage with music DSPs.
Yet Merlin hasn’t allowed its ranks to shrink. In fact, its membership has more than doubled over the past 16 years.
In 2008, when Merlin was formed, it had around 300 members (i.e. labels and distributors) representing approximately 12,000 labels/copyright holders in total.
This membership base, Merlin said at the time, constituted around 10% of global digital music market share.
Today, the org reps over 30,000 labels/copyrights holders via agreements with over 500 labels and distributors.
According to Merlin, this expanded base now represents 15% of global digital music market share.
There is a question mark, however, over the cost this expansion has imposed on Merlin’s cohesion as a membership organization.
The incentives and principles of a Beggars Group, for example, will be very different from those of VC-backed DIY distribution services like DistroKid or Amuse, which have both joined Merlin over the past decade.
Meanwhile, the incentives/principles of Beggars-type labels will obviously be very different from those of labels/’artists’ whose primary goal is to game platforms via illegitimate means to siphon royalties from music’s digital ecosystem.
To put that in simpler terms, Merlin’s represented membership, and the ‘non-major’ independent sector more generally, has become an awkward arranged marriage of parties with vastly different incentives. And, in some cases, vastly different ethics.
Beggars boss Martin Mills — a principal architect of Merlin’s original formation — called out this exact issue in an interview on Merlin’s website earlier this year.
“Lots of people turned up on our doorstep that we weren’t expecting, in addition to the premium indie labels that were our core,” said Mills of Merlin’s evolution.
“Lots of people turned up on [Merlin’s] doorstep that we weren’t expecting, in addition to the premium indie labels that were our core.”
Martin Mills, speaking earlier this year
“Now our world is occupied not just by what you would traditionally call an independent label, but by artist services companies and people whose job is delivery rather than the creation of value, and who don’t necessarily have the same interests, or business philosophy.”
Mills added: “We’ve ended up with more of a mixed bag of members than we anticipated, and that creates its own tensions.”
Accepting this helps explain why Beggars, along with Secretly Group, Domino, !K7, Partisan, Ninja Tune, and others, recently created the breakaway ‘think tank’ ORCA.
Tellingly, ORCA’s mission statement notes that its members are “dedicated to investing in and fostering the development of music as both culture and commerce”.
Clearly, these are not companies happy to sit back and harvest illegitimate royalties from streaming services. To steal from each other, in blunter terms.
In fact, these are businesses that are ardently – and publicly – opposed to doing so.
A broader church… with a bigger budget
Merlin’s membership growth has been of direct commercial benefit to the organization, and its ability to fund the expansion of its presence in the music business.
A little-known fact: When Merlin was founded in 2008, it classed itself as a “not-for-profit agency” owned by its members via a Netherlands-based incorporated entity.
This changed in 2020, when Merlin re-registered as an Eire-based company: Music and Entertainment Rights Licensing Independent Network Ltd.
Today, Merlin says it “operates like a not-for-profit”, and we can see how: its financials since 2020 are available to peruse via UK Companies House.
These financials represent a company that, partly due to the rapid multiplication of its member base, has seen its collections on behalf of members grow 20+% annually.
Merlin continues to pay over 98% of the royalties it collects to its members.
However, its own annual expenditure has also grown substantially, roughly doubling between 2020 and 2022; in the latter year, it spent GBP £8.95 million (USD $9.7m) on administrative costs.
The money Merlin uses to pay these admin costs each year is generated by a commission structure.
Under this structure, Merlin charges each member 1.5% to 3% of their digital royalties for deals they’ve opted into.
[Merlin charges you 3% unless you also agree to become a member of your local indie trade body, in which case Merlin’s commission is reduced to 1.5%. While said local indie trade bodies have made a number of tenable criticisms about TikTok in recent days, one wonders how motivating this commercial association has been in them rallying around Merlin. The past two weeks have seen TikTok-bashing comments issued in support of Merlin from – count ’em – IMPALA (Europe), A2IM (US), CIMA (Canada), BIMA (Belgium), AIM (UK), UFPI (France), LIAK (Korea), ABMI (Brazil), IMICHILE (Chile), IMNZ (New Zealand), WIN (global) and more.]
In a way, Merlin – as a licensing representative of the ‘non-major’ music sector – has never been more powerful.
It’s collecting more money, on behalf of more members, than at any previous point in its history.
But welcoming 30,000+ different copyright holders into its union hasn’t come without risk.
Professional practices that may be unacceptable to one Merlin member may now be at the center of another Merlin member’s business plan.
Finding solidarity amid all of that potential disharmony can’t be easy – especially when powerful digital services use it as justification to vacate the negotiating table, and walk out the door.Music Business Worldwide