The TikTok Follies

Congress has passed, and President Biden has now signed, a bill requiring ByteDance to sell TikTok to an American buyer or American-controlled company within 270 days (possibly extendable to a year), or face having the app banned from the U.S.

Things are not likely to work out quite as neatly as that forced choice would have it.

TikTok CEO Shou Zi Chew issued a defiant statement in response to the bill’s passage proclaiming “we aren’t going anywhere,” and vowing to challenge the law in court. “We are confident, and we will keep fighting for your rights in the courts,” he said. “The facts and the Constitution are on our side, and we expect to prevail again.”

That “prevail again” refers to TikTok’s success in blocking a Montana law banning the app in that state, at least for now, after a state judge found the law “likely violates the First Amendment.” Any challenge in federal court would likely raise a similar argument. Congressional drafters of the federal law reportedly worked closely with the Department of Justice to try to shield the bill from constitutional challenges, but given the earlier ruling TikTok could still be granted a temporary injunction stopping the 270-day clock pending further proceedings.

TikTok creators could also become plaintiffs against the law, perhaps in the form of class action litigation.

Apart from the likely legal challenges, it’s not clear that a sale even would or could take place. TikTok globally is estimated to account for roughly half of ByteDance’s value, so a sale of the entire operation seems unlikely. Yet it’s not clear what the effect on the U.S. operation would result from separating it from the rest of the world. TikTok’s secret sauce, what allowed it to so quickly grab eyeballs from YouTube, Instagram and other shortform video apps, is its secret and closely guarded algorithm that keeps viewers glued to the app.

ByteDance regards the algorithm as a core asset and has made it clear it has not intention to parting with it, leaving it unclear what the app would be worth to a buyer without it. Any potential buyer might also find itself inheriting significant liability if Universal Music Group decides to escalate its current feud with TikTok over the fees it pays for music, which already has resulted in UMG-owned recordings and songs being pulled from the app.

In any case, ByteDance says it has no intention of selling TikTok, to an American or anyone else. While TikTok has over a billion avid users worldwide, its U.S. operation, with roughly 170 million users, represents only about one-tenth of its total audience, and CEO Shou Zi Chew has indicated it would rather shut the app down in the U.S. than give in to the pressure.

Any shutdown of TikTok in the U.S., moreover, would be highly disruptive to several media industries, which have developed an uneasy symbiosis with the app. Notwithstanding UMG’s current feud with the app, viral exposure on TikTok has become integral to the music industry marketing system, as evidenced by Taylor Swift’s willingness to defy her label to launch an elaborate promotional campaign for her new album on the app.

Many lesser-known UMG artists and songwriters are already despairing of their absence from TikTok. An outright shutdown or ban of the app could leave a major hole in artists’, managers’ and label marketers’ ability to get crucial exposure for their releases at a time when the superabundance of tracks and platforms has made it extremely difficult for artists to break through to listeners.

The publishing industry would also be severely impacted by the loss of TikTok. At a time when newspapers and magazine are cutting back on reviews (or disappearing altogether) and Amazon and other e-commerce platforms are being flooded with fake reviews and AI-generated clutter, informal “BookTok” reading groups and influencers have emerged as critical channels for writers and publishers to reach readers and for readers to find new books.

Crucially, in both music and publishing, the emergence of TikTok as a vital marketing platform has been almost totally organic, and largely free of cost. Neither industry took proactive steps to create or initially nurture the phenomenon; it was developed by the app’s users and embraced by artists and authors grateful for the exposure. Even now, despite TikTok’s obvious influence, the industries’ embrace of the platform is an uneasy one, whether over questions of rights and royalties, or over relinquishing a measure of control over what catches the audience’s interest and what doesn’t. But that doesn’t mean they’d like to see it go away.

It’s possible, of course, that the courts ultimately will find the new law too constitutionally infirm to stand, rendering it moot. Yet if not, it’s unlikely to play out as its drafters envision. Any forced sale would be fraught, for the reasons discussed above, and unlikely to result in business-as-usual. But a ban or shutdown would have repercussions beyond what the drafters reckoned.

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