TikTok on Wednesday faced a formidable threat to its business, with a new law signed by President Biden that could dramatically change the way the popular video app operates.
TikTok, which is owned by Chinese company ByteDance, has faced scrutiny from U.S. government officials over how it handles the data of its users here as well as its ties to China. The new law would require ByteDance, a tech company founded in China in 2012, to sell TikTok or the app will be banned in the U.S.
In a statement, TikTok said it has invested billions of dollars to protect the data of its U.S. users and that a ban would “devastate seven million businesses and silence 170 million Americans.”
The social media app, which has a large presence in Culver City, is a key platform for influencers, musicians and Hollywood talent.
“This unconstitutional law is a TikTok ban, and we will challenge it in court,” TikTok said in a statement. “We believe the facts and the law are clearly on our side, and we will ultimately prevail.”
Now that Congress has voted to ban TikTok, how soon could a sale occur?
The law requires ByteDance to sell TikTok’s U.S. operations in 180 days or face a ban. If the Biden administration grants an extension, ByteDance could have a year to sell.
This isn’t the first time the app has faced such a threat. The company confronted a similar fate four years ago when the Trump administration banned it in the U.S.
TikTok sued the federal government, arguing that a ban would violate free speech. Ultimately, the order was blocked by two federal courts, which ruled the administration had exceeded its authority.
“It’s obviously a disappointing moment, but it does not need to be a defining one,” TikTok Chief Executive Shou Zi Chew said in a video posted Wednesday on X. “It’s actually ironic because the freedom of expression on TikTok reflects the same American values that make the United States a beacon of freedom.”
Any sale of TikTok would also need the approval of the Chinese government.
How valuable is TikTok and who might buy it?
The most valuable aspect of TikTok is its algorithm, which surfaces videos that aim to consistently attract the attention of its users in the U.S.
“TikTok’s ability to serve up relevant and entertaining content to its users is unparalleled in the social media world,” Jasmine Enberg, a principal analyst with insights provider eMarketer, said in a statement.
Enberg noted that U.S. users spend 54 minutes on TikTok each day, compared with 35 minutes a day on Instagram’s app.
If ByteDance sells TikTok with its algorithm — which is unlikely — the platform would be worth $100 billion. Without the algorithm, TikTok would have a valuation of $30 billion to $40 billion, said Daniel Ives, a managing director with Wedbush Securities.
The most likely bidders? Computer software giants Microsoft and Oracle, analysts said.
“This would be a major strategic asset that would enable these tech stalwarts to have a massive consumer platform,” Ives said. “Data is gold, and TikTok would be like finding a gold mine for a tech stalwart.”
Microsoft declined to comment. Oracle did not immediately respond to a request for comment.
Microsoft in August 2020 had explored taking control of TikTok in the U.S., Canada, New Zealand and Australia, which would have helped the company expand its presence in social media. But in September 2020 Microsoft said that ByteDance had rejected its offer.
Instead, then-President Trump outlined a framework of a deal in 2020 that involved Oracle and Walmart, in which Oracle would host TikTok’s U.S. user data and TikTok would have a commercial partnership with Walmart. That transaction never materialized.
Other investors have also shown interest. Former Treasury Secretary Steven T. Mnuchin, who heads Liberty Strategic Capital, in March said he is assembling an investor group to bid for TikTok, telling CNBC, “This should be owned by U.S. businesses.”
TikTok will attract interest from other private equity players as well, Ives said.
What about Triller?
Triller, an L.A.-based social media company that attracted a lot of influencers to its app in 2020, had previously attempted to acquire TikTok with Centricus Asset Management.
But that deal was never consummated and Triller experienced its own legal issues. Earlier this month, Hong Kong financial services company AGBA Group Holding Ltd. said it planned to acquire Triller in a reverse merger.
“Triller is reviewing all options at this time to secure its position as the leading social video platform in the U.S.,” Triller Chief Executive Bobby Sarnevesht said in a statement.
Could Google or Meta acquire TikTok?
That’s unlikely. Google, which owns YouTube, and Meta, which owns Instagram and Facebook, are already big leaders in the digital advertising and social media space and could face significant antitrust concerns if they were to attempt to buy TikTok.
Both tech giants also already have their own competing products to TikTok and stand to benefit if the video app were to go away, or if influencers were to encourage their massive audiences to follow them on other platforms.
“The clock is already ticking, and any potential buyer must have deep pockets and a strong stomach,” Enberg of eMarketer said. “While many would want to get their hands on TikTok’s coveted algorithm, most of those who could afford to buy the app wouldn’t be able to clear antitrust hurdles.”
So what would a ban mean for the creator economy in L.A.?
Los Angeles is ground zero for TikTok content creation in the U.S., with huge numbers of full-time creators calling the city home and droves of influencers regularly flying in from around the world to film videos and attend industry events.
Communities and mini economies have formed around TikTok influencers, who employ talent managers, agents, stylists and personal assistants, and start their own businesses related to their fandom.
Many creators have become overnight sensations and near-instant millionaires, banding together to rent mega-mansions and spending lavishly on cars, clothes and products — and encouraging their huge follower bases to do the same.
They have enormous influence on trends and purchasing decisions. Take, for example, Erewhon: After TikTokkers made its Strawberry Glaze Skin Smoothie a thing, thousands of consumers poured into the luxury grocery chain’s stores to buy the $19 pink drink.
“The amount of money creators are spending on travel, on products, on creating brands — there’s just so much that’s tied to this app,” said Michelle York, 40, a lifestyle and beauty creator from Moorpark, Calif.
With 203,000 followers on TikTok, she quit her job as an executive at an insurance and technology firm last month after discovering that she was earning more money from the app. If TikTok is banned, “the blowback I think will be astronomical,” York said. “And also the financial losses.”