What If TikTok Loses Its Fight Over the Ban in the US
(Bloomberg) -- TikTok is barreling toward a nationwide ban in the US.
President Joe Biden signed bipartisan legislation in April that will soon shut down the social media app in the US unless its Chinese owner gives up control of it. TikTok’s parent, ByteDance Ltd., was given until Jan. 19, 2025, to find an American buyer and agree to a sale, which the tech giant has said it’s unwilling to do.
TikTok, ByteDance and content creators have been waging a legal battle to block the law from taking effect but have so far not been successful. After the US Court of Appeals in the District of Columbia heard TikTok’s arguments challenging the law in September, the court issued a ruling in December ultimately upholding the divest-or-ban law. TikTok is expected to fight that ruling with an appeal to the Supreme Court as the late January deadline approaches.
Why did Congress act against TikTok?
The concern among lawmakers is that TikTok poses a security threat to US users because China requires its companies, upon request, to share any national security-related data with the government. There are fears that the Chinese government could abuse the data of TikTok’s users, for example by developing profiles of them and subjecting them to blackmail, and that it could influence the content American users see on the app.
What’s TikTok’s response?
TikTok has pushed back vehemently on these concerns and spent more than $2 billion on a project it says cordons off US users’ data from China. In a May 5 court filing challenging the law as unconstitutional and a violation of the First Amendment, it said: “For the first time in history, Congress has enacted a law that subjects a single, named speech platform to a permanent, nationwide ban, and bars every American from participating in a unique online community with more than 1 billion people worldwide.”
If it loses in court, would ByteDance actually sell TikTok?
ByteDance has every reason to push back against separating from TikTok’s incredibly valuable (and growing) business. The Chinese government would also need to approve any divestiture plan and has said publicly that it would oppose a forced sale. Additionally, untangling TikTok’s operations from ByteDance is, technologically, nearly impossible.
Complicating matters further is that President-elect Donald Trump has said he is against a sale, reversing the stance he took when he was first in office. Trump’s opposition could now play a factor in the app’s fate, particularly given his ties to some of ByteDance’s biggest American investors, including Susquehanna International Group Co-Founder Jeff Yass, a Republican megadonor who has held a $15 billion stake in the Chinese tech giant.
Who would buy TikTok?
ByteDance has emphasized it’s unwilling to sell its US TikTok business.
But anyone buying the company would also need a fat pocketbook. ByteDance, which is privately traded, has an estimated valuation of about $268 billion, and while TikTok’s US business would certainly be much smaller, it could still fetch a price of around $40 billion to $50 billion. By comparison, Elon Musk paid $44 billion for X, the social media platform formerly known as Twitter, in 2022.
A price tag that high eliminates most potential buyers from the outset. Meta Platforms Inc. and Alphabet Inc. might seem logical acquirers, but they are mired in regulatory concerns over monopolization, which would essentially rule them out.
Oracle Corp. was initially seen as a likely landing spot, as the enterprise software company is already a TikTok partner in the US. It houses the app’s US user data and was interested in possibly buying the app when then-President Trump tried to force a sale in 2020. However, Oracle has around $89 billion in debt, including from another large acquisition in 2022, making it unlikely the company could afford TikTok on its own.
Microsoft Corp. was one of the other leading candidates to buy TikTok’s US business in 2020, but that deal ultimately fell apart. Former Treasury Secretary Steven Mnuchin has also said he’s interested in buying the US operation. But with ByteDance’s apparent opposition to such an agreement, none of these possibilities have come to materialize.
Could TikTok survive without the US market if it’s ultimately banned?
Probably. On its website, TikTok boasts that it is the No. 1 downloaded app in more than 40 countries. Even though the US is a very big audience, its more than 170 million monthly users are still a small fraction of TikTok’s total billion-plus users. ByteDance already operates a TikTok clone in China, called Douyin, with hundreds of millions of users.
Still, as other platform operators have learned, the US is the most valuable market for social networks because of the prevalence of large advertisers willing to pay to reach US audiences. And ceding the US to a competitor would put the rest of TikTok’s global markets at risk, as there would be real concern that the network effects in the US could lure people away from TikTok to other US-focused alternatives.
A ban would also kill TikTok’s big ambition to expand the US version of TikTok Shop, its e-commerce arm that combines online entertainment with impulse buying. Even amid intense regulatory scrutiny, Shop has remained one of the fastest-growing parts of the company — a big bet where it continues to invest heavily, angling to grow the business 10-fold in 2024.
Who stands to benefit from a TikTok divestiture?
The most obvious answer here is Meta, which owns Instagram, an app that is already popular and features a TikTok rival product known as Reels. If TikTok was sold to another company and mishandled, or banned for any significant amount of time while the logistics of a divestiture were worked out, Reels would be the most obvious alternative for US users.
Trump said he opposed forcing TikTok’s sale because it would benefit Meta, which suspended him from its platforms for two years in January 2021 after concluding that some of his posts encouraged his supporters to violently riot at the US Capitol. But as of late, Meta chief executive officer Mark Zuckerberg may be coming back into Trump’s good graces. They dined together at Mar-a-Lago in Florida the night before Thanksgiving, and before the two spoke by phone earlier this fall, Zuckerberg called Trump’s reaction to an assassination attempt “badass.”
It’s possible that other video-focused services could also benefit, including YouTube, which is owned by Alphabet and offers YouTube Shorts, another TikTok lookalike. In addition to gaining users, Meta and YouTube would likely capture advertising dollars from TikTok if the app is no longer able to operate. The value of both Meta and Alphabet shares leaped after the divestiture bill passed the US House of Representatives.
X could also see an uptick in users and advertising if TikTok disappears, though billionaire X owner Elon Musk — whom Trump has tapped as an adviser — has spoken out against a TikTok ban.
What are the politics involved?
Trump’s flip-flop on what to do about TikTok has complicated matters for Republicans. While wealthy Republican donors like Yass have major financial incentives for TikTok to stay, Republicans appointed to Trump’s cabinet have helped lead the charge for TikTok to go. Trump’s pick for secretary of state, Marco Rubio, was the lead senator on bipartisan legislation to ban TikTok, for example. And Representative Mike Waltz, who Trump tapped to be national security adviser; FCC Commissioner Brendan Carr, his nominee for chair of the agency; and South Dakota Governor Kristi Noem, his choice to lead the Department of Homeland Security, are all longtime anti-TikTok crusaders.
Banning TikTok is also politically unpopular in a country where half the population is on the app, and it’s beloved in particular by the powerful Gen Z voting bloc. Support for a TikTok ban has declined among US adults, according to Pew Research Center data from this past summer. But now that Trump, who joined TikTok this year to reach voters, has won the White House, there are questions about whether he still needs the app.
Then there’s China’s reaction to consider. It’s unclear how the government would respond to a forced sale, but US-China trade and diplomatic relations would likely be affected. When the Trump administration pressed for TikTok’s sale years ago, China’s foreign ministry said that the precedent of acquiring a company under the pretense of protecting national security could lead to foreign countries targeting US companies, calling it the opening of a “Pandora’s box.”
Read More
--With assistance from Alexandra S. Levine.
©2024 Bloomberg L.P.
