ByteDance Would Rather See TikTok Closed in the US Rather Than Sold It: Source

The owner of TikTok, ByteDance, would sooner close its loss-making app than sell it, according to four sources, if the Chinese business uses up all of its legal options to oppose legislation that would remove the site from US app stores.

According to sources close to ByteDance, the algorithms TikTok uses to run its business are seen to be essential to ByteDance’s entire operations, making the sale of the app with algorithms very improbable.

In the worst situation, the parent company of ByteDance would prefer to have the app shut down in the US rather than sell it to a possible American buyer since TikTok only contributes a tiny portion of ByteDance’s overall income and daily active users.

The individuals, who wished to remain anonymous because they were not authorized to talk to the media, said that a shutdown would have little effect on ByteDance’s operations and that the firm would not have to give up its basic algorithm.

ByteDance chose not to respond.

In reaction to a story by The Information stating that ByteDance is investigating options for selling TikTok’s US business without the algorithm that suggests videos to TikTok users, the company said late on Thursday, in a statement published on Toutiao, a media platform it controls, that it has no plans to sell the app.

A TikTok spokesperson pointed to ByteDance’s Toutiao statement in response to Reuters’ request for comment.

CEO of TikTok Shou Zi Chew said on Wednesday that the social media business anticipates winning a court battle to overturn a rule signed by President Joe Biden that, among other things, outlaws the company’s well-known short video app, which is used by 170 million people in the United States.

The US Senate easily approved the measure on Tuesday, mostly due to legislators’ broad concerns that China would use the app for spying on Americans or getting their personal information.

One day before his tenure is about to end, on January 19, Biden’s signature sets a deadline for a sale. However, if he finds that privately held ByteDance is moving forward, he may decide to extend the date by an additional three months.

ByteDance does not make available to the general public the financial information of any of its divisions or its own performance. According to many reports, the firm still generates the majority of its revenue in China, mostly from its other applications like Douyin, which is TikTok’s Chinese version.

About 25% of TikTok’s total earnings came from the US last year, according to a different person with firsthand knowledge.

According to two of the four sources, ByteDance’s 2023 sales increased from $80 billion to about $120 billion. According to one of the sources, the daily active users on TikTok in the US make up just 5% of ByteDance’s DAUs globally.

Not-for-Sale Algorithms

According to three of the individuals, TikTok and domestic ByteDance products like the short video platform Douyin use the same underlying algorithms. One of them said that its algorithms are thought to be superior than those of ByteDance’s competitors, Tencent and Xiaohongshu.

According to the source, TikTok’s intellectual property license is registered under ByteDance in China, making it challenging to separate from the parent business. As a result, it would be hard to dispose the firm with its algorithms.

The four sources said that ByteDance would not consent to giving up one of its most precious assets—its “secret source”—to competitors, alluding to the TikTok algorithm.

The Trump administration attempted to outlaw Chinese-owned WeChat and TikTok in 2020, but the courts stopped them. Since then, the United States and other nations have tried and partially banned the short-form video app.

A mandatory TikTok app divestiture was hinted at by China during a US congressional hearing on March of last year, and the country most likely rejected the proposal.

“China will firmly oppose it [the forced sale of Tiktok],” a Ministry of Commerce spokesman said in late March 2023 at a press briefing in Beijing.

“The sale or divestiture of TikTok involves technology export and must go through administrative licensing procedures in accordance with Chinese laws and regulations.”

The Export Control Law, which China revealed in 2020, expanded the definition of “controlled items” from earlier versions in the final wording. The amendment makes sure that exports of algorithms, source codes, and comparable data are subject to permission procedures, according to state media.

According to two of the persons, TikTok’s primary assets, excluding algorithms, are user data and product operations and management.

In December, ByteDance, which was supported by Sequoia Capital, Susquehanna International Group, KKR & Co., and General Atlantic, among others, proposed to buy back around $5 billion worth of investors’ shares, valuing the company at $268 billion, according to a report from Reuters at the time.