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60 million teens are crazy about this lip-sync app

Melody Hahm
Senior Writer
Source: ABC

Sixty million teens are obsessed with an app that lets you lip sync to songs like Drake’s “Hotline Bling” and Selena Gomez’s “Hands to Myself.”

The app, musical.ly, was founded by two Chinese entrepreneurs, Luyu Yang and Alex Zhu, in 2014, and it’s quickly become a platform for teens to showcase their lip syncing prowess. Think of the app as a mash up of Periscope, Dubsmash and YouTube and it’s looking beyond (and below) millennials, targeting the next crop of mobile-natives, or Gen Z-ers, as they’re affectionately known. The app is backed by venture capital firm GGV Capital, which invests in companies in both the U.S. and China.

The new social video network has users lip sync to 15-second tracks, ranging from top 40 hits, Japanese pop songs, and quotes from Harry Potter. You can then can add filters and edit the speed of the video before posting it directly to musical.ly or spread it across your other social channels.

The rapid success of musical.ly makes it a very attractive acquisition target for social network giants like Facebook (FB) and Twitter (TWTR).

Twitter is known for steadily scooping up social media darlings. In 2012 it acquired Vine, another short-form video app that allows users to make looping six-second videos. And last year, Twitter bought livestreaming app Periscope and social media talent agency Niche for $86.6 million.

Meanwhile, Facebook made a billion-dollar bet on Instagram in 2012 and it seems to be paying off. Instagram revenues hit $600 million in 2015 and are forecasted to grow by 149% this year, according to eMarketer.

Despite Facebook’s foray into live video, it’s far from the top destination for teenagers. In Piper Jaffray’s semi-annual survey of American teens, one-third said Instagram was their most important social network (Twitter finished second and Snapchat was a close third). Only 15% of teens said Facebook was the most valuable.

With 60 million teens on the app (Snapchat says 45% of its more-than 100 million daily active users are between 18 and 24 years old), musical.ly would fit into Twitter’s quest to snag younger users, or find good company in Instagram -- celebrities like Jane the Virgin’s Gina Rodriguez are posting musical.ly videos to their Instagram acocunts. Singers like Ariana Grande, Vanessa Hudgens and Jason DeRulo are getting in on the fun as well.

“When I find something that I feel like, I enjoy, that I think is dope, I want to share it and musical.ly is one of those things,” DeRulo told ABC in an interview last week. “It’s one of those things that I love personally -- if you’re not on it now then you’re going to be kind of late in the game.”

Musical.ly, of course, is benefitting from a huge upsurge in streaming video. According to the International Federation of the Phonographic Industries (IFPI), music streaming revenues were up 45% in 2015, primarily because of smartphones. Musical.ly’s interface is based entirely on your smartphone.

On Monday tech startup Sawhorse Media (which owns Muck Rack, a network for journalists) threw its eighth annual Shorty Awards, which recognize achievements in social media. Average age of attendees at the event: 23. A 12-year-old attendee and fan of musical.ly stars like 15-year-old Baby Ariel (who has 7.49 million fans) asked Yahoo Finance, “How do I become a famous musical.ly star quickly?” – a hint of the strong appetite for these bite-sized videos.

Despite teens’ obsession with the app, there are questions about potential copyright infringement. A Musical.ly rep told Yahoo Finance that the company has been in negotiations with rights owners and their representatives for many months, has already entered into multiple license agreements and expects to enter into additional license agreements in the coming weeks and months with both record labels and music publishers. Musical.ly is actively working with copyright owners to secure licenses for music made available on Musical.ly, according to the company.

Shimmeo is another app that lets users create music videos quickly and for free. However, the company is acting cautiously and waiting to get licenses before it puts hit tunes on its site. Co-founder and CEO Bjorn Roche says it is illegal to have the tracks available if musical.ly has not secured licensing deals. “If it’s used for commercial gain it is definitely not fair use. Their view is to ask for forgiveness, but our view is to ask for permission,” says Roche.

Musical.ly may be on the radars of social media giants, but the potential legal headaches might not be worth the teen eyeballs that all startups are fighting for.