AI: Political Football again with TikTok

...it's US China 'Threading the Needle' time again

The Bigger Picture, March 17, 2024

Regular readers here know my long-time position that the US and China need to carefully ‘Thread the Needle’ in this AI Tech Wave between their respective political passions, and both their true long-term interests. With the US House of Representatives just passing a ban on China Bytedance’s TikTok and sending that football to the Senate and potentially the White House, we’re off again to another exercise in threading that needle. Especially in a major political election year around the world. That is the Bigger Picture to keep in mind this Sunday. Let me unpack.

Politico has a useful summary of the political actions to date in the House:

“The measure earned wide bipartisan support, with backing from House Speaker Mike Johnson and former Speaker Nancy Pelosi.”

“The House passed a bill on Wednesday that would force TikTok’s Chinese owner to sell the app or face a ban on U.S. app stores — posing the most serious threat to the popular video-sharing platform to date.”

“The measure earned wide bipartisan support — passing 352-65 — with backing from House Speaker Mike Johnson and former House Speaker Nancy Pelosi (D-Calif.).”

“The bill would force Bytedance, TikTok’s Beijing-based owner, to sell the app within six months or face a ban on U.S. app stores and websites. It’s also directed at all apps controlled by any foreign adversary, including China, North Korea, Russia and Iran. The bill’s sponsors — Reps. Mike Gallagher (R-Wis.) and Raja Krishnamoorthi (D-Ill.) — say ByteDance poses a national security threat due to its alleged ties to the Chinese Communist Party.”

“Biden’s intelligence agencies support the bill and briefed House members this week — claiming TikTok accounts run by China’s government have already meddled in U.S. elections.”

The whole piece is worth reading to understand the tactical and strategic political objectives of key legislators on both sides of the aisle. The nuances and calculations that drove the vote to pass. Next steps:

“It now heads to the Senate, where its fate is unclear.”

“Senators from both parties have expressed some concerns about the bill, and Senate Majority Leader Chuck Schumer has not committed to bringing it to the floor. Schumer said in a statement Wednesday that his chamber will review the bill. President Joe Biden said he’d sign the measure if it reaches his desk.”

That the bill got to this level is itself a story worth understanding in the surprising twists and turns of US domestic politics, as this piece in Verge outlines:

“An unusually fast process. A classified briefing. Phone lines clogged with teenagers “in near tears.” The bill, meant to force the sale of TikTok, passed by a landslide.”

The piece documents how TikTok’s actions to fend off the legislation may have helped pass it in the House:

“But the clincher was an in-app congressional call-in campaign that backfired spectacularly. When TikTok rolled out notifications to its users urging them to call their representatives, phone lines immediately became clogged across Capitol Hill. Congressional staffers told The Verge about the calls of “students in near tears” with the “chatter of the classroom behind them.”

“Rather than convincing lawmakers of the affection their constituents have for the app, it seemed to prove to politicians how much power TikTok has as a service with direct access to 170 million US users. “

Unexpected consequences indeed.

Next up of course is the analysis of what all this means for investors public and private, both to date, and going forward. Axios has a good summary of the stakes at play to date:

“If China does the unexpected and allows TikTok to be sold, there are big questions as to who would want to buy it and for how much.”

“The big picture: TikTok's popularity hasn't translated into profits.”

“By the numbers: Wedbush analyst Dan Ives puts the value of TikTok's U.S. operations at $100 billion, although he says that plunges to $40 billion if a buyout doesn't include the company's addictive algorithm.”

• “TikTok's U.S. revenue reportedly was between $16 billion and $20 billion in 2023, but CEO Shou Zi Chew has said the company is in the red. Spending is heavy for moving data to servers and it's also paying out to grow its e-commerce business and a data security project with Oracle.”

• “The company touts 170 million U.S. monthly active users. That's nearly as many as Facebook, more than Instagram, and far more than either Snapchat or X, according to eMarketer.”

• “Moreover, it's a heavily engaged audience, with U.S. adults spending nearly an hour per day on the app, per eMarketer.”

The expectation by many is of course that TikTok will be sold to other stakeholders out of the ‘control’ of the Chinese government, as task that faces it own headwinds given the $100 billion plus potential price:

“Any TikTok suitor would need a strong stomach. Not only because it's still unprofitable, but also because of the migraine headaches inherent in owning and operating a popular social media company.”

“Look ahead: The most logical buyers for TikTok are ByteDance's non-Chinese investors, including General Atlantic, Sequoia Capital, and Susquehanna International Group.”

“Still, outside buyers are circling. Former U.S. Treasury Secretary Steven Mnuchin and former Activision CEO Bobby Kotick are both working to form investor groups, with Mnuchin saying he'd also welcome current investor participation.”

• “Do not expect a Big Tech company to bid, because it would be a nonstarter on antitrust grounds. And it's hard to see another Fortune 50 player that would have interest, outside of maybe Walmart.

  

As I said in Saturday’s AI Weekly Summary yesterday:

“TikTok/Bytedance US political tussles continue as House passes ban: TikTok political and financial debates continue in the US and China. The Chinese government has an initial response. Now the debate moves to the US Senate, and the White House. Implications for investors in the balance. My broader take on the US-China political dynamics here.”

The core issue here continues to be all sides both political and financial keeping in mind the broader game at play here for their longer-term interests. For the US of course the right actions and inactions at this time portend implications with potentially unanticipated consequences, for investors there both private and public.

Far beyond TikTok and Bytedance. That’s just the short-term ball in play. As in any game, the ultimate goals need always to be kept in mind. That is the Bigger Picture this Sunday. Stay tuned.

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)