ByteDance, the Chinese parent company of the popular short-form video app TikTok, would rather shut down the platform in the United States than sell it if the company exhausts all legal options to fight legislation banning the app from U.S. app stores, according to four sources close to the company. The revelation comes as President Joe Biden signed into law the National Security Supplemental bill, which includes a potential TikTok ban.
The sources, who declined to be named due to not being authorized to speak to the media, said that ByteDance considers the algorithms TikTok relies on for its operations as core to the company's overall business, making a sale of the app with algorithms highly unlikely, according to Reuters. They added that TikTok accounts for a small share of ByteDance's total revenues and daily active users, so the parent company would prefer to have the app shut down in the U.S. in a worst-case scenario rather than selling it to a potential American buyer.
"A shutdown would have limited impact on ByteDance's business while the company would not have to give up its core algorithm," said one of the sources.
In a statement posted on Toutiao, a media platform owned by ByteDance, the company denied plans to sell TikTok, contradicting a report by The Information claiming that ByteDance was exploring scenarios for selling TikTok's U.S. business without the algorithm that recommends videos to users.
TikTok CEO Shou Zi Chew said on Wednesday that the company expects to win a legal challenge to block the legislation, which was passed overwhelmingly by the U.S. Senate on Tuesday. The bill is driven by widespread concerns among U.S. lawmakers that China could access Americans' data or use the app for surveillance purposes.
Biden's signing of the bill sets a January 19, 2025 deadline for a sale, with the possibility of a one-time 90-day extension if ByteDance proves it is making progress towards divestiture. However, legal experts anticipate that with TikTok threatening legal action, the ban could be postponed for even longer.
ByteDance, which is backed by investors such as Sequoia Capital, Susquehanna International Group, KKR & Co, and General Atlantic, was valued at $268 billion in December when it offered to buy back around $5 billion worth of shares from investors, Reuters reported at the time.
According to the sources, TikTok's algorithms are considered superior to those of ByteDance's rivals, such as Tencent and Xiaohongshu, and are shared with the company's domestic apps like Douyin, the Chinese equivalent of TikTok. They emphasized that it would be impossible to divest TikTok with its algorithms, as their intellectual property license is registered under ByteDance in China and thus difficult to disentangle from the parent company.
Moreover, the sources said that ByteDance would not agree to sell one of its most valuable assets - its "secret source" - to rivals, referring to the TikTok algorithm. China has also indicated that it would likely reject a forced divestment of the TikTok app, with a spokeswoman for the Ministry of Commerce stating in March 2023 that "the sale or divestiture of TikTok involves technology export and must go through administrative licensing procedures in accordance with Chinese laws and regulations."
