TikTok faced a formidable threat to its business on Wednesday, with a new law signed by President Biden that could dramatically change the way the popular video app works.
TikTok, owned by Chinese company ByteDance, has faced criticism from U.S. government officials over its handling of its users’ data here and its ties to China. The new law would require ByteDance, a technology company founded in China in 2012, to sell TikTok or the app would be banned in the US.
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In a statement, TikTok said it has invested billions of dollars to protect the data of its US 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 major 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 that the facts and the law are clearly on our side, and that we will ultimately prevail.”
Now that Congress has voted to ban TikTok, how quickly can a sellout happen?
The law requires ByteDance to sell TikTok’s U.S. operations within 180 days or face a ban. If the Biden administration grants an extension, ByteDance could have a year to sell.
This is not the first time the app has faced such a threat. The company faced a similar fate four years ago when the Trump administration banned it in the US
TikTok sued the federal government, arguing that a ban would violate free speech. Ultimately, the order was blocked by two federal courts, which ruled that the government had overstepped its authority.
“It’s obviously a disappointing moment, but it doesn’t have to be defining,” TikTok CEO Shou Zi Chew said in a video posted to X on Wednesday. “It’s actually ironic because the freedom of speech on TikTok reflects the same American values that make the United States a beacon of freedom.”
Any sale of TikTok would also need Chinese government approval.
Read more: The Biden administration’s threat to ban TikTok: Here’s what you need to know
How valuable is TikTok and who could buy it?
The most valuable aspect of TikTok is its algorithm, which surfaces videos aimed at consistently capturing the attention of its users in the US.
“TikTok’s ability to deliver relevant and entertaining content to its users is unparalleled in the world of social media,” Jasmine Enberg, a principal analyst at insights provider Emarketer, said in a statement.
Enberg noted that US users spend 54 minutes on TikTok every day, compared to 35 minutes per day on the Instagram 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, managing director of Wedbush Securities.
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The most likely bidders? Computer software giants Microsoft and Oracle, analysts say.
“This would be a major strategic asset that would enable these technology heroes to have a massive consumer platform,” Ives said. “Data is gold, and TikTok would be like finding a gold mine for a techie.”
Microsoft declined to comment. Oracle did not immediately respond to a request for comment.
Microsoft had explored acquiring TikTok in the US, Canada, New Zealand and Australia in August 2020, which would have helped the company expand its social media presence. But in September 2020, Microsoft said ByteDance had rejected its offer.
Instead, then-President Trump outlined a framework for a 2020 deal involving 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 came to fruition.
Other investors have also shown interest. Former Treasury Secretary Steven T. Mnuchin, head of Liberty Strategic Capital, said in March that he is putting together an investor group to bid for TikTok. He told CNBC: “This should be owned by American companies.”
TikTok will also attract interest from other private equity players, Ives said.
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What about Triller?
Triller, an LA-based social media company that attracted many influencers to its app in 2020, had previously attempted to acquire TikTok with Centricus Asset Management.
But that deal was never consummated and Triller faced its own legal troubles. Earlier this month, financial services firm AGBA Group Holding Ltd. said. of Hong Kong that it planned to acquire Triller through a reverse merger.
“Triller is currently evaluating all options to secure its position as the leading social video platform in the U.S.,” Triller CEO Bobby Sarnevesht said in a statement.
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Could Google or Meta take over TikTok?
That’s unlikely. Google, which owns YouTube, and Meta, which owns Instagram and Facebook, are already big leaders in digital advertising and social media and could face significant antitrust challenges if they tried to buy TikTok.
Both tech giants also already have their own competing products for TikTok and would benefit if the video app were to disappear, or if influencers encouraged their huge audiences to follow them on other platforms.
“The clock is already ticking and any potential buyer must have deep pockets and a strong stomach,” said EMarketer’s Enberg. “While many would like to get their hands on TikTok’s coveted algorithm, most people who can afford to buy the app would not be able to overcome the antitrust hurdles.”
Read more: The US could ban TikTok. Record labels are cutting ties. What is music’s plan B?
So what would a ban mean for LA’s creative economy?
Los Angeles is home to TikTok content creation in the US, with large numbers of full-time creators calling the city home and large numbers 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 almost instant millionaires. They banded together to rent mega-mansions and spend lavishly on cars, clothes and products – and encouraged their huge follower base to do the same.
They have a huge influence on trends and purchasing decisions. Take Erewhon, for example: After TikTokkers made its Strawberry Glaze Skin Smoothie a thing, thousands of consumers flooded the luxury supermarket chain’s stores to buy the $19 pink drink.
“The amount of money that creators spend on travel, on products, on creating brands — there’s so much that ties into this app,” says Michelle York, 40, a lifestyle and beauty creator from Moorpark, California.
With 203,000 followers on TikTok, she quit her job as an executive at an insurance and technology company last month after discovering she was making more money on the app. If TikTok is banned, “I think the backlash will be astronomical,” York said. “And also the financial losses.”
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This story originally appeared in the Los Angeles Times.
