Universal Music says that it will pull its song catalog from TikTok tomorrow at midnight, as the companies are unable to reach a deal on rights. Huge implications.

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I don't use TikTok, do creators buy music fron TikTok to put in videos?

No, the music overlay music offered in the app is licensed and can be added. Creators who are performing covers, I believe, generally have the license held by TikTok or have their videos muted/taken offline. Special arrangements are made for intentional or encouraged content . That is a guess, but things like Megan Trainor’s “Gucci” where she is both the original artist and a participant would be a case like this. I would think Grace Kelly and sing alongs on arrangement-bound copyright material like Pentatonix doing public domain carols (or even Roger’s and Hammerstein) are negotiated licensing if outside of their pre-negotiated license.

No, they just put it as background music in their videos, but didn't actually pay for it. I would guess it constitutes fair use?

No

Fair use is context based. There is no simple yes or no answer.

In this case there is. Background music is not fair use.