TikTok’s Fate Coming to a Head

(WSJ) This weekend could be pivotal for TikTok and its partners, who are working to avert a looming U.S. ban on downloads of the popular video-sharing app and see through a deal that meets the approval of the American and Chinese governments.

A week after that preliminary deal was struck, it is still hard to predict what happens next. TikTok and other participants are continuing to fine-tune the agreement, in which it would partner with Oracle Corp. and Walmart Inc. to become a U.S.-based company with its data secured by Oracle. TikTok also is working in the U.S. courts to win an emergency order blocking a Commerce Department ban on app downloads—which, if the company fails, would take effect Sunday night. And TikTok’s Beijing-based parent, ByteDance Ltd., is awaiting word from Chinese regulators after having submitted the deal for their approval on Thursday.

President Trump, who last Saturday said he had approved in principle TikTok’s deal with Oracle and Walmart, on Thursday reiterated that any final deal will need to meet his administration’s national security concerns. 

“They’re working to see if they can make a deal,” Mr. Trump told reporters. “If they make a deal, that’s fine. And if they don’t, that’s OK, too.”

Mr. Trump has said that potential Chinese government access to TikTok’s data on U.S. users could pose a national security threat, and that TikTok must either find an American buyer or face a ban. TikTok has said it doesn’t give user data to Chinese authorities.

Under the preliminary deal that Mr. Trump blessed, Oracle and Walmart would take a combined 20% in TikTok Global, a new U.S.-based company that would run the global service. Details of the structure are still in flux, people involved with the deal talks have said, as the companies try to ensure that it will win final approval from governments on both sides.

One point of confusion has been the exact ownership breakdown, with the TikTok side and Oracle having issued contradictory messages since the preliminary deal was announced. A spokesman for ByteDance has said that it would directly hold an 80% share of TikTok Global, while Oracle has said publicly that Americans will be the majority owners and ByteDance will have no ownership in TikTok Global.

One way those claims could square, according to some people familiar with the talks, is to have ByteDance initially own its majority stake in TikTok when the deal is completed, and then have it reduced soon afterward. That could come by distributing ByteDance’s stake to existing shareholders, many of which are U.S. investors, and through a fundraising round ahead of a U.S. initial public offering that deal participants have said would come within a year.

But another person close to the situation disputed that theory and said Americans will be the majority owners as soon as the new company is formed.

China’s government also is weighing whether the deal accords with recent export limits. China’s ministries in charge of commerce, science and technology in August added restrictions to exports of data-processing technologies such as content-recommendation algorithms, in a move widely seen as aimed at TikTok.

Under the preliminary agreement in the U.S., TikTok’s algorithm won’t change hands, but Chinese media have criticized the outlines of the deal, and Beijing could still object, which would jeopardize the deal’s projects for completion. 

The most urgent issue for TikTok, though, is heading off the Trump administration’s planned download ban, which is slated to go into effect after 11:59 p.m. Eastern time on Sunday and would bar new app downloads and updates in the U.S. TikTok on Wednesday asked a federal judge to halt the order, saying it violates constitutional provisions for free speech and due process.

Judge Carl Nichols of the U.S. District Court in Washington, D.C., plans to hold a hearing Sunday for both sides to argue their cases before determining whether to temporarily block the ban at TikTok’s request.

Judge Nichols indicated he finds persuasive TikTok’s argument that a download ban could cause harm to the company.

TikTok lawyers have laid out in court papers the damage they say the ban has done even before taking effect.

They said that prominent TikTok content creators and their fans fled to other platforms over uncertainty over TikTok’s availability and that several top job candidates have rejected employment offers, citing the U.S. government’s actions.

While existing users would still have access to TikTok, a ban on downloads would lead to “loss of TikTok’s user base and long-term erosion of market share,” they said. “Continued growth is the lifeblood of a social-media company like TikTok and essential to maintain its competitive market position.”

The Commerce Department plans a full ban for Nov. 12 if an American deal for TikTok isn’t completed by then. TikTok officials stressed that a full ban, even temporarily, would be devastating, estimating in court papers that a two-month blackout of the app would lead it to lose 40% to 50% of daily active users in the U.S.

At a court hearing on Thursday, both sides declined to provide the judge with new information about the status or terms of the deal.

Source: Wall Street Journal by Georgia Wells and Katy Stech Ferek

TikTok’s Fate Coming to a Head TikTok’s Fate Coming to a Head Reviewed by TechCO on 9/28/2020 Rating: 5

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