When Universal withdrew from TikTok, the social media company was suddenly thrown back to its pirate-site roots, at least for the Universal catalog of all sound recordings and many, many songs. The eponymous TikTok is now on the clock to take down or mute Universal’s entire catalog. So tick tock baby.

Universal head Lucian Grainge made the case for the company’s approach to terminating its TikTok license because his negotiators were unable to reach a meeting of the minds with the other side. Pretty simple, really. This is not a big deal, it happens every day. Because in a free market capitalist system, “fair” is where we end up. Which means you have to end up somewhere, including nowhere.

Lucian made that case in an open letter to artists and songwriters as a community. There are some great nuggets in that letter, but I like this section to explain the casus belli:

The terms of our relationship with TikTok are set by contract, which expires January 31, 2024. In our contract renewal discussions, we have been pressing them on three critical issues—appropriate compensation for our artists and songwriters, protecting human artists from the harmful effects of AI, and online safety for TikTok’s users.

We have been working to address these and related issues with our other platform partners.  For example, our Artist-Centric initiative is designed to update streaming’s remuneration model and better reward artists for the value they deliver to platforms.  In the months since its inception, we’re proud that this initiative has been received so positively and taken up by a range of partners, including the largest music platform in the world.  We’ve also moved aggressively to embrace the promise of AI while fighting to ensure artists’ rights and interests are protected now and far into the future.  In addition, we’ve engaged a number of our platform partners to try to drive positive change for their users and by extension, our artists, by addressing online safety issues, and we are recognized as the industry leader in focusing on music’s broader impact on health and wellness.

With respect to the issue of artist and songwriter compensation, TikTok proposed paying our artists and songwriters at a rate that is a fraction of the rate that similarly situated major social platforms pay.  Today, as an indication of how little TikTok compensates artists and songwriters, despite its massive and growing user base, rapidly rising advertising revenue and increasing reliance on music-based content, TikTok accounts for only about 1% of our total revenue.

Let’s not forget that TikTok does not have some statutory or other legal or theoretical right to use Universal’s recordings or songs.  Their rights come from one place–their contract with Universal. No Universal contract, no Universal content. (Sorry copyright infringer apologists in the professoriate.).

Contracts have a duration, and when contracts end you negotiate an extension. If you can’t get an extension or a new agreement, remember the clock is ticking and time is running out–fair is where we end up, so one place to end up is nowhere. Stuff happens. Contracts frequently address what happens when the contract is over and the relationship must be unwound, sometimes called post-termination conditions which are just as much of a promise as anything else in the contract even if the duration (or the “term”) of the agreement is over.

The answer to what happened with Universal is simple: TikTok couldn’t close. Mr. TikTok may be a lot of things, but he’s no Blake.

Now that TikTok allowed their Universal deal to spin out of control, the termination clause(s) of their agreement no doubt become effective. If I had to guess, I would guess that TikTok must immediately stop any new uses of Universal content. Then it would not surprise me if TikTok has about 30 days to take it all down so they are on the clock…so to speak. I would also guess (or hope) that Universal has some post term conditions that will protect them from having to take TikTok’s rube deal on DMCA takedowns. The difference between a post term DMCA take down and a bald take down with no pre-existing contract should be that TikTok has a unilateral obligation to police their network for at least a period of time after termination. Failing to do so could leave them open to breach of contract for failing to satisfy post-termination conditions. Or something like that.

Let’s not forget that TikTok started out as a pirate social media site that got retroactive and prospective licenses in settlement of potential copyright infringement lawsuits. If licenses terminate, TikTok is essentially in the same position as it was before the license–at least as to the content that is covered by the terminating license. 

But of course TikTok won’t be in exactly the same position as the status quo ante bellum, because the company is dependent on passing itself off as this inevitable legitimate company, i.e., a licensed platform. That was not the case when TikTok began licensing to avoid mammoth copyright infringement lawsuits. And therein lies the rub. 

TikTok may have a Napster problem. Once you let unlicensed material into a platform, it’s deuced hard to get it out, even if you have license. And as Judge Patel said in granting an injunction against Napster, “I’m sure that anyone as clever as the people who wrote the [Napster] software…are clever enough, as there are plenty o[f] those minds in Silicon Valley to do it, [to] come up with a program that will help to identify infringing items as well.”  

Thank God for the smart people.

So what happens now? Looking to recent history, Spotify was in a similar pre-IPO position when David Lowery and Melissa Ferrick sued the company for massive use of unlicensed songs. This led Spotify to go to Congress to rewrite the copyright laws in order to stop future litigation (called the “Music Modernization Act” with its probably unconstitutional retroactive reach back safe harbor). They were able to do that because of compliant lobbyists and the hunger among the elites for cash money from a Spotify IPO (or more precisely DPO). Plus Congress got to hang out with famous people and generally felt good about it because dissenting views were strangely absent in the mainstream media.

What do you think will happen if TikTok also goes to Congress to change the law to protect their cash cow and undermine artists and songwriters like Spotify did? They may send lobbyists to Capitol Hill with some walking around money, but if you haven’t picked up on it yet, at least half of the Congress despises TikTok. How does TikTok thread that needle?

TikTok’s response reads like it was written by the editorial staff at the People’s Daily:

“It is sad and disappointing that Universal Music Group has put their own greed above the interests of their artists and songwriters.

Despite Universal’s false narrative and rhetoric, the fact is they have chosen to walk away from the powerful support of a platform with well over a billion users that serves as a free promotional and discovery vehicle for their talent.

TikTok has been able to reach ‘artist-first’ agreements with every other label and publisher. Clearly, Universal’s self-serving actions are not in the best interests of artists, songwriters and fans.”

No, that’s not a parody.

Note to Mr. TikTok and his PR bagmen, that “exposure” angle is not a winner. Not to mention that artists drive their fans to TikTok in huge numbers which is the real “free” promotion as in “uncompensated”. Also, newsflash, there is no free lunch so don’t embarrass yourself by starting the old “free promotion” okie doke. Mr. Tok needs to go home, think about his priorities and try again.

Also, don’t forget that TikTok has to do “blind check” licenses because it lacks the functionality to track and pay royalties, even the broken market centric royalty deal. Blind check licenses are the rough equivalent of an agreement not to sue TikTok rather than an industry standard royalty deal. Over time, it’s likely that the amount of the blind check must increase to compensate for the blindness.

The Universal episode is revealing, however. If TikTok thought they were going to get away with jamming artists because “exposure”, they need to go home and reconsider their life. The situation is completely out of control for one reason–TikTok underestimated Universal’s resolve. And they broke one of the cardinal rules of Business Affairs.

Never let it get to the point that you can’t just write a check.