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Image Credit: Reuters

Universal Music Group NV, the world's biggest record label, has begun pulling its artists' music from TikTok after contract negotiations between the two companies failed to result in a new licensing agreement.

Videos featuring UMG-owned songs will be muted, and users will have the option to choose a new song to soundtrack their content. That means TikTok users, of which there are more than 1 billion, will have to find alternatives to songs from acts like Taylor Swift, Drake and Bob Dylan.

UMG is removing songs from the ByteDance Ltd.-owned short-form video app after months of fruitless negotiations. Talks broke down during one of the busiest weeks on the music industry's calendar, when all the labels and distribution companies descend on Los Angeles for the Grammy Awards.

TikTok has grown into one of the most powerful forces in the music industry over the last few years. It's one of just a few companies with the ability to make songs go viral, and record labels rely on the app to identify new artists and promote their work. TikTok has argued that it's helping artists reach a vast audience and serving as a discovery vehicle for their talent.

But music companies have long complained that the platform doesn't compensate artists fairly for their work. While ByteDance generated more than $110 billion in sales last year, revenue from TikTok accounted for only 1% of UMG's total, the music publisher said.

In 2022, labels began pushing the company to share the wealth with rights holders. When ByteDance looked to expand its Resso music streaming service into new territories that year, Sony Music Entertainment Inc. temporarily pulled its music from the service. Resso then eliminated its free tier and re-branded to TikTok Music. In February last year, the labels were especially concerned because TikTok had begun limiting the number of songs users in Australia could choose for their videos. The labels saw it as a way to test the value of music on the service and how its use impacts user behavior "- a data point that would become relevant in contract negotiations.

TikTok, which allows users to choose from licensed music to soundtrack short-form clips, sees itself as an invaluable promotional tool that drives new artist discovery and markets music. Unlike Spotify Technology SA, it doesn't allow listeners to play entire songs.

Record labels have clashed with almost every major online music distributor in recent years, but have seldom asked for their music to be taken down. The two other major record companies, Warner Music Group Corp. and Sony Music, have reached new licensing deals with TikTok. Warner Music Group did take its music off Alphabet Inc.'s YouTube in 2008, only to reach a deal nine months later.

UMG, however, has begun using its size to push for streaming services including Deezer and Spotify to change how they compensate artists. It is positioning TikTok as a more established service, akin to YouTube, which operates a valuable ads business. The company said TikTok pays "a fraction of the rate that similarly situated major social platforms pay." TikTok pays music rights holders for their work but doesn't offer a share of their revenue.

UMG made its dispute with TikTok public on Tuesday when it published an open letter. The company said conversations between the two stalled over proper compensation for artists and songwriters, protections against artificial intelligence tools, and online safety for TikTok users.

In response, TikTok issued its own statement saying UMG had put "their own greed above the interests of their artists and songwriters."