ByteDance May Shut Down TikTok in US if Legal Options Fail

According to sources, ByteDance would rather shut down TikTok than sell it off if the China based company exhausts all legal options in fighting legislation to remove the site from app stores in the United States.

TikTok’s algorithms are considered crucial to ByteDance’s entire operations, making a sale of the app with algorithms extremely difficult, according to people close to the business.

TikTok represents for a small portion of ByteDance’s total revenue and daily active users, thus the company would prefer to shut down the app in the United States rather than sell it to a potential American buyer, they claimed.

According to the sources, a shutdown would have little impact on ByteDance’s revenue and would not require the company to give up its fundamental algorithm.

It said late on Thursday in a statement posted on Toutiao, a media platform it owns, that it had no plans to sell TikTok, in response to an article in The Information claiming that ByteDance is exploring scenarios for selling TikTok’s U.S. business without the algorithm that recommends videos to TikTok users.

In response to a Reuters request for comment, a TikTok spokesman cited ByteDance’s Toutiao statement.

TikTok CEO Shou Zi Chew said on Wednesday that the social media business expects to win a court fight to legislation signed into law by President Joe Biden that would ban the popular short video app, which is used by 170 million Americans.

TikTok Bill Passes Senate

The bill, which was passed unanimously by the US Senate on Tuesday, is motivated by widespread concerns among US senators that China could access Americans’ data or use the app for monitoring.

Biden’s signing establishes a Jan. 19 deadline for a sale, one day before his tenure expires, but he might extend it by three months if he believes privately owned ByteDance is making progress.

ByteDance does not publicly reveal its financial performance or the financial data of its subsidiaries. According to many sources, the firm continues to make the majority of its money in China, primarily from its other apps such as Douyin, the Chinese equivalent of TikTok.

According to a separate source with direct information, the United States accounted for approximately 25% of TikTok’s total earnings last year.

According to Reuters, almost half a dozen investment bankers found it difficult to determine TikTok’s value in comparison to competitors like Meta Platforms (META.O), Facebook and Snap (SNAP.N) launch new tabs. TikTok’s financials are not widely known or easily accessible.

ByteDance in China

According to two of the four sources, ByteDance’s revenue for 2023 would be almost $120 billion, up from $80 billion in 2022. According to one of the reports, TikTok’s daily active users in the United States account for approximately 5% of ByteDance’s DAUs worldwide.

TikTok uses the same underlying algorithms as ByteDance’s domestic products, such as the short video platform Douyin, three individuals added. According to one of them, its algorithms outperform ByteDance rivals such as Tencent and Xiaohongshu.

According to the sources, it would be impossible to divest TikTok and its algorithms because its intellectual property licensing is filed under ByteDance in China, making it difficult to separate from the parent firm.

Furthermore, separating the algorithms from TikTok’s U.S. assets would be a highly complex process, and ByteDance is unlikely to consider it, the sources said.

According to the four individuals, ByteDance would not agree to sell one of its most important assets – its “secret source” – to rivals.

China Opposes Forced Sale of TikTok

In 2020, the Trump administration attempted to prohibit TikTok and Chinese-owned WeChat, but the courts blocked it. The short-form video app has since faced partial and attempted bans in the United States and elsewhere.

During a March 2018 congressional hearing in the United States, China indicated that it would likely reject a forced divestment of the TikTok app.

“China will firmly oppose it (the forced sale of TikTok),” a spokesman for the Ministry of Commerce stated during a news conference in Beijing in late March 2023.

“The sale or divestiture of TikTok involves technology export and must go through administrative licensing procedures in accordance with Chinese laws and regulations.”

ByteDance may struggle to find buyers

China released the Export Control Law in 2020, and the final text expanded on previous drafts’ definitions of “controlled items”. According to official media, the modification requires consent before exporting algorithms, source codes, and similar material.

TikTok’s major assets, excluding algorithms, are user data, product operations, and management, according to two sources.

Former US Treasury Secretary Steven Mnuchin has expressed interest in forming an investor group to try to acquire TikTok. ByteDance may struggle to find buyers for TikTok’s U.S. assets, excluding algorithms, according to the sources.

ByteDance is a 2012-founded Chinese technology business. It is mainly known for TikTok, an extremely popular short-video platform. In addition to TikTok, ByteDance operates multiple other content platforms, including Toutiao, a news recommendation app, and video platforms such as Xigua Video and Huoshan.

The startup uses artificial intelligence and machine learning to analyze user preferences and provide personalized content recommendations. ByteDance has developed swiftly, raising billions of dollars from investors like SoftBank.

It became one of the world’s most valuable businesses, but tensions between the United States and China have hampered TikTok’s global expansion.

Source: Reuters