What will happen to TikTok in America. Economist Report
In the event of a ban from the United States, TikTok would have to evaluate various options for its future. Here are the ones. The Economist article
Listen carefully and you can hear the influencers wailing. On March 13, the US House of Representatives passed a law that prevents app stores and providers from distributing "foreign-controlled applications." The target is clear: TikTok, a successful application for short videos to which 170 million Americans are glued for an average of 56 minutes a day.
TikTok's position in America has long been precarious. While headquartered in Los Angeles and Singapore, the company is a subsidiary of ByteDance, a much-loved Chinese technology company. This has fueled bipartisan fears that the Chinese government could use it to spy on American citizens or influence public opinion.
TikTok has denied that the Chinese government exerts any influence over it and has sought to allay concerns by enlisting Oracle, an American software giant, to fence American users' data into local servers and inspect its source code. The company points out that American investors, such as Carlyle and General Atlantic, are among ByteDance's largest shareholders.
If it becomes law, the proposal would force ByteDance to sell TikTok's U.S. operations within six months or shut them down. Pressure for such a move has been growing since TikTok chief Shou Zi Chew was hauled before Congress last March. The company was, however, taken by surprise by the speed with which typically sleepy American lawmakers acted – writes the Economist .
THE TRUMP FACTOR IN THE TIKTOK CASE
The proposal has gained momentum partly as a result of disquiet over the app's handling of misinformation and anti-Semitic content following Hamas' attack on Israel in October. TikTok's efforts to block the bill failed spectacularly. On March 6, it sent out a notification encouraging users to lobby Congress against the law. This appears to have backfired: Some undecided lawmakers have become convinced that TikTok actually exerts influence on voters. In the end, 352 of them supported the law; only 65 opposed it.
But before President Joe Biden can sign the bill, which he has said he wants to do, the bill must first pass the Senate. Given his bipartisan popularity, one might think this is a formality. It is not so. Donald Trump, who as president almost forced TikTok to be sold in 2020, has changed his mind. On March 8, he complained that banning TikTok would benefit Meta, the social media giant that owns Facebook and Instagram and which, inexcusably, exiled Trump from its platforms after his supporters stormed Congress in January 2021. The motivation for his speech may not be entirely public. A week earlier, Trump met with Jeff Yass, a hedge fund billionaire and potential donor whose investment firm, Susquehanna, owns a stake in ByteDance.
Senate Republicans could follow the lead of Trump, who after all just won his party's nomination for November's presidential election. Lindsey Graham, who is both a vocal critic of TikTok and a Trump-worshipper, said on March 10 that he wasn't sure how he would vote.
BEIJING'S POSSIBLE REACTION TO THE BAN OF THE APP
If the bill becomes law, it is likely to be challenged in court, likely on free speech grounds. However, there is a reasonable chance that TikTok will have to close its doors in America. A year ago the Chinese government said it would oppose the sale. A few hours before the House vote he denounced America for having "resorted to hegemonic moves when it was not possible to succeed in fair competition."
ByteDance, which reportedly generated $110 billion in revenue last year, is believed to make about four-fifths of that in China, where it operates TikTok's sister app Douyin and Toutiao, a news aggregator. Even if its investors would push to allow a sale, the Chinese government could prove intransigent, condemning the American company. It may also feel the need to retaliate against American companies operating in mainland China.
THE CONSEQUENCES OF THE CLOSURE OF TIKTOK
If advertisers were forced to shift their spending away from TikTok, American social media companies would find themselves in a money-making situation. Not everyone will benefit equally. According to research firm Kepios, 82% of global TikTokers use Facebook, 80% scroll through Instagram and 78% watch YouTube, which is owned by Google's parent company Alphabet. Only 53% use X, the discussion forum formerly known as Twitter, and a paltry 35% use Snapchat, a messaging app. If Americans redirect the roughly 3 trillion minutes of attention they devoted to TikTok last year to other apps already on their phones, Meta and Alphabet, the dominant duo in online advertising, will be the winners.
Despite his hatred of Meta, Trump may be right when he grumbles that the company will be the biggest beneficiary. Reels, a TikTok-like offering built into Instagram, has gained more traction than similar offerings from YouTube and Snapchat. Many TikTok influencers already post their content on the Meta app. After India banned TikTok (and dozens of other Chinese apps) in 2020 following a border skirmish with China, Instagram saw a surge in the country. In 2019, it was the sixth most downloaded app in India. In 2021 it was at the top of the charts.
POPULAR TIKTOK BUYERS
Meta won't be so lucky if ByteDance investors manage to convince the Chinese government to authorize the sale. The American company would undoubtedly be prevented from acquiring TikTok on antitrust grounds, as would Alphabet.
The list of other potential suitors is limited by TikTok's price, which could reach 12 figures if ByteDance, fearing a crackdown elsewhere, snaps up TikTok's operations in other countries.
Amazon, the American e-commerce champion, might take a look, given TikTok's growing focus on incorporating shopping into its app (though it too would face backlash from trustbusters).
Apple and Netflix, which both passed when TikTok was probing a sale in 2020, may have second thoughts, given slowing growth in iPhone sales and streaming subscriptions, respectively. At the time, Oracle had teamed up with Walmart, a retail giant, to buy minority shares of TikTok. But the deal fell through after Trump left office. After its $28 billion acquisition in 2022 of Cerner, a medical records company, Oracle is likely too indebted to make an offer.
Microsoft, another titan of American technology, may step up. Its bid four years ago to acquire TikTok's businesses in America, Australia, Canada and New Zealand ended after ByteDance refused to give it full control of the app's data and source code. But the company has long wanted a greater presence in consumers' lives, which could lead it back to TikTok – if ByteDance were to ease its terms. Other mashups have also been proposed. Bobby Kotick, former head of Activision Blizzard, a video game studio that Microsoft acquired last year, reportedly floated the idea of a TikTok bid to various partners, including Sam Altman of Openai, maker of Chatgpt.
A TIKTOK UNLINKED BY BYTEDANCE?
However, as the race for artificial intelligence heats up, it doesn't appear that China is willing to cede TikTok's data or intelligent algorithm to any American interests. An alternative would be to sell TikTok as a standalone company, rather than merging it with an existing company. This would avoid antitrust concerns.
But the size of the operation could be another issue. The largest amount ever raised in an initial public offering was for a $26 billion stake in Saudi Aramco, a state oil leviathan, in 2019. The largest leveraged buyout in history was that of Txu , a utility company, for $45 billion in 2007. TikTok's value would exceed even that, although ByteDance's American investors could trade their shares for a slice of the new company.
Assuming it can extricate itself from Bytedance, an independent TikTok would have to hire many technicians to replace those in Beijing. However, a separation could be beneficial. Mark Shmulik of Bernstein, a brokerage, believes the firm has become less aggressive in expanding its business than it could have, trying to keep a low profile. It could do more to connect its servers with those of advertisers to track the effectiveness of their spending, as Meta has done, and speed up the launch of TikTok Shop, its e-commerce platform. In less than a decade, a China-linked TikTok has managed to disrupt the social media business in America and beyond. An untethered TikTok would continue to be disruptive, if it were allowed to exist.
(Excerpt from the foreign press review edited by eprcomunicazione )
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/innovazione/che-cosa-succedera-a-tiktok-in-america-report-economist/ on Sat, 16 Mar 2024 06:39:28 +0000.