Category: TikTok

The AI Safe Harbor is an Unconstitutional Violation of State Protections for Families and Consumers

By Chris Castle

The AI safe harbor slavered onto President Trump’s “big beautiful bill” is layered with intended consequences. Not the least of these is the affect on TikTok.

One of the more debased aspects of TikTok (and that’s a long list) is their promotion through their AI driven algorithms of clearly risky behavior to their pre-teen audience. Don’t forget: TikTok’s algorithm is not just any algorithm. The Chinese government claims it as a state secret. And when the CCP claims a state secret they ain’t playing. So keep that in mind.

One of these risky algorithms that was particularly depraved was called the “Blackout Challenge.” The TikTok “blackout challenge” has been linked to the deaths of at least 20 children over an 18-month period. One of the dead children was Nylah Anderson. Nylah’s mom sued TikTok for her daughter because that’s what moms do. If you’ve ever had someone you love hang themselves, you will no doubt agree that you live with that memory every day of your life. This unspeakable tragedy will haunt Nylah’s mother forever.

Even lowlifes like TikTok should have settled this case and it should never have gotten in front of a judge. But no–TikTok tried to get out of it because Section 230. Yes, that’s right–they killed a child and tried to get out of the responsibility. The District Court ruled that the loathsome Section 230 applied and Nylah’s mom could not pursue her claims. She appealed.

The Third Circuit Court of Appeals reversed and remanded, concluding that “Section 230 immunizes only information ‘provided by another’” and that “here, because the information that forms the basis of Anderson’s lawsuit—i.e., TikTok’s recommendations via its FYP algorithm—is TikTok’s own expressive activity, § 230 does not bar Anderson’s claims.”

So…a new federal proposal threatens to slam the door on these legal efforts: the 10-year artificial intelligence (AI) safe harbor recently introduced in the House Energy and Commerce Committee. If enacted, this safe harbor would preempt state regulation of AI systems—including the very algorithms and recommendation engines that Nylah’s mom and other families are trying to challenge. 

Section 43201(c) of the “Big Beautiful Bill” includes pork, Silicon Valley style, entitled the “Artificial Intelligence and Information Technology Modernization Initiative: Moratorium,” which states:

no State or political subdivision thereof may enforce any law or regulation regulating artificial intelligence models, artificial intelligence systems, or automated decision systems during the 10-year period beginning on the date of the enactment of this Act.

The “Initiative” also appropriates “$500,000,000, to remain available until September 30, 2035, to modernize and secure Federal information technology systems through the deployment of commercial artificial intelligence, the deployment of automation technologies, and the replacement of antiquated business systems….” So not only did Big Tech write themselves a safe harbor for their crimes, they also are taking $500,000,000 of corporate welfare to underwrite it courtesy of the very taxpayers they are screwing over. Step aside Sophocles, when it comes to tragic flaws, Oedipus Rex got nothing on these characters.

Platforms like TikTok, YouTube, and Instagram use AI-based recommendation engines to personalize and optimize content delivery. These systems decide what users see based on a combination of behavioral data, engagement metrics, and predictive algorithms. While effective for keeping users engaged, these AI systems have been implicated in promoting harmful content—ranging from pro-suicide material to dangerous ‘challenges’ that have directly resulted in injury or death.

Families across the country have sued these companies, alleging that the AI-driven algorithms knowingly promoted hazardous content to vulnerable users. In many cases, the claims are based on state consumer protection laws, negligence, or wrongful death statutes. Plaintiffs argue that the companies failed in their duty to design safe systems or to warn users about foreseeable dangers. These cases are not attacks on free speech or user-generated content; they focus specifically on the design and operation of proprietary AI systems. 

If you don’t think that these platforms are depraved enough to actually raise safe harbor defenses, just remember what they did to Nylah’s mom–raised the exceptionally depraved Section 230 as a defense to their responsibility in the death of a child.

The AI safe harbor would prohibit states from enacting or enforcing any law that regulates AI systems or automated decision-making technologies for the next 10 years. This sweeping language could easily be interpreted to cover civil liability statutes that hold platforms accountable for the harms their AI systems cause. This is actually even worse than the vile Section 230–the safe harbor would be expressly targeting actual state laws. Maybe after all the appeals, say 20 years from now, we’ll find out that the AI safe harbor is unconstitutional commandeering, but do we really want to wait to find out?

Because these wrongful death lawsuits rely on arguments that an AI algorithm caused harm—either through its design or its predictive content delivery—the companies could argue that the moratorium shields them from liability. They might claim that the state tort claims are an attempt to “regulate” AI in violation of the federal preemption clause. If courts agree, these lawsuits could be dismissed before ever reaching a jury.

This would create a stunning form of corporate immunity even beyond the many current safe harbors for Big Tech: tech companies would be free to deploy powerful, profit-driven AI systems with no accountability in state courts, even when those systems lead directly to preventable deaths. 

The safe harbor would be especially devastating for families who have already suffered tragic losses and are seeking justice. These families rely on state wrongful death laws to hold powerful platforms accountable. Removing that path to accountability would not only deny them closure, but also prevent public scrutiny of the algorithms at the center of these tragedies.

States have long held the authority to define standards of care and impose civil liability for harms caused by negligence or defective products. The moratorium undermines this traditional role by barring states from addressing the specific risks posed by AI systems, even in the context of established tort principles. It would represent one of the broadest federal preemptions of state law in modern history—in the absence of federal regulation of AI platforms.

• In Pennsylvania, the parents of a teenager who committed suicide alleged that Instagram’s algorithmic feed trapped their child in a cycle of depressive content.
• Multiple lawsuits filed under consumer protection and negligence statutes in states like New Jersey, Florida, and Texas seek to hold platforms accountable for designing algorithms that systematically prioritize engagement over safety.
• TikTok faced multiple class action multidistrict litigation claims it illegally harvested user information from its in-app browser.

All of such suits could be in jeopardy if courts interpret the AI moratorium as barring state laws that impose liability on algorithm-driven systems and you can bet that Big Tech platforms will litigate the bejeezus out of the issue. Even if the moratorium was not intended to block wrongful death and other state law claims, its language may be broad enough to do so in practice—especially when leveraged by well-funded corporate legal teams.

Even supporters of federal AI regulation should be alarmed by the breadth of this safe harbor. It is not a thoughtful national framework based on a full record, but a shoot-from-the-hip blanket prohibition on consumer protection and civil justice. By freezing all state-level responses to AI harms, the AI safe harbor is intent on consolidating power in the hands of federal bureaucrats and corporate lobbyists, leaving ordinary Americans with fewer options for recourse, not to mention a clear violation of state police powers and the 10th Amendment.

To add insult to injury, the use of reconciliation to pass this policy—without full hearings, bipartisan debate, or robust public input—only underscores the cynical nature of the strategy. It has nothing to do with the budget aside from the fact that Big Tech is snarfing down $500 million of taxpayer money for no good reason just so they can argue their land grab is “germane” to shoehorn it into reconciliation under the Byrd Rule. It’s a maneuver designed to avoid scrutiny and silence dissent, not to foster a responsible or democratic conversation about how AI should be governed.

At its core, the AI safe harbor is not about fostering innovation—it is about shielding tech platforms from accountability just like the DMCA, Section 230 and Title I of the Music Modernization Act. By preempting state regulation, it could block families from using long-standing wrongful death statutes to seek justice for the loss of their children and laws protecting Americans from other harms. It undermines the sovereignty of states, the dignity of grieving families, and the public’s ability to scrutinize the AI systems that increasingly shape our lives. 

Congress must reject this overreach, and the American public must remain vigilant in demanding transparency, accountability, and justice. The Initiative must go.

[A version of this post first appeared on MusicTechPolicy]

by Trichordist Editor

TikTok Sale Extended…Again

By Chris Castle

Imagine if the original Napster had received TikTok-level attention from POTUS?  Forget I said that.  The ongoing divestment of TikTok from its parent company ByteDance has reached yet another critical point with yet another bandaid.  Congress originally set a January 19, 2025 deadline for ByteDance to either sell TikTok’s U.S. operations or face a potential ban in the United States as part of the Protecting Americans from Foreign Adversary Controlled Applications Act or “PAFACA” (I guess “covfefe” was taken). The US Supreme Court upheld that law in TikTok v. Garland.

When January 20 came around, President Trump gave ByteDance an extension to April 5, 2025 by executive order. When that deadline came, President Trump granted an extension to the extension to the January 19 deadline by another executive order, providing additional time for ByteDance to finalize a deal to divest. The extended deadline now pushes the timeline for divestment negotiations to July 1, 2025.

This new extension is designed to allow for further negotiation time among ByteDance, potential buyers, and regulatory authorities, while addressing the ongoing trade issues and concerns raised by both the U.S. and Chinese governments. 

It’s getting mushy, but I’ll take a stab at the status of the divestment process. I might miss someone as they’re all getting into the act. 

I would point out that all these bids anticipate a major overhaul in how TikTok operates which—just sayin’—means it likely would no longer be TikTok as its hundreds of millions of users now know it.  I went down this path with Napster, and I would just say that it’s a very big deal to change a platform that has inherent legal issues into one that satisfies a standard that does not yet exist.  I always used the rule of thumb that changing old Napster to new Napster (neither of which had anything to do with the service that eventually launched with the “Napster” brand but bore no resemblance to original Napster or its DNA) would result in an initial loss of 90% of the users. Just sayin’.

Offers and Terms

Multiple parties have expressed interest in acquiring TikTok’s U.S. operations, but the terms of these offers remain fluid due to ongoing negotiations and the complexity of the deal. Key bidders include:

ByteDance Investors:  According to Reuters, “the biggest non-Chinese investors in parent company ByteDance to up their stakes and acquire the short video app’s U.S. operations.” This would involve Susquehanna International Group, General Atlantic, and KKR. ByteDance looks like it retains a minority ownership position of less than 20%, which I would bet probably means 19.99999999% or something like that. Reuters describes this as the front runner bid, and I tend to buy into that characterization. From a cap table point of view, this would be the cleanest with the least hocus pocus. However, the Reuters story is based on anonymous sources and doesn’t say how the deal would address the data privacy issues (other than that Oracle would continue to hold the data), or the algorithm. Remember, Oracle has been holding the data and that evidently has been unsatisfactory to Congress which is how we got here. Nothing against Oracle, but I suspect this significant wrinkle will have to get fleshed out.

Lawsuit by Bidder Company Led by Former Myspace Executive:  In a lawsuit in Florida federal court by TikTok Global LLC filed April 3, TikTok Global accuses ByteDance, TikTok Inc., and founder Yiming Zhang of sabotaging a $33 billion U.S.-based TikTok acquisition deal by engaging in fraud, antitrust violations, and breach of contract. TikTok Global LLC is led by Brad Greenberg the former MySpace executive and Internet entrepreneur. The factual allegations in the complaint start in 2020 with the executive order in Trump I, and alleges that:

This set the stage for what should have been a straightforward process of acquisition and divestment, but instead, it became a twisted tale of corporate intrigue, conspiracy, and antitrust violations….Plaintiff would soon discover, the game was rigged from the start because ByteDance had other plans, plans that circumvented proper procedures, stifled competition, and maintained ByteDance’s control over TikTok’s U.S. operations – all under the guise of compliance with the executive order.

The fact-heavy complaint alleges ByteDance misled regulators, misappropriated the “TikTok Global” brand, and conspired to maintain control of TikTok in violation of U.S. government directives. The suit brings six causes of action, including tortious interference and unjust enrichment, underscoring a complex clash over corporate deception and national security compliance. Emphasis on “alleged” as the case is pretty fact-dependent and plaintiff will have to prove their case, but the well-drafted complaint makes some extensive claims that may give a window into the behind the scenes in the world of Mr. Tok. Watch this space, it could be a sleeper that eventually wakes up to bite, no pun intended.

Oracle and Walmart: This proposal, which nearly closed in 2024 (I guess), involved a sale of TikTok’s U.S. business to a consortium of U.S.-based companies, with Oracle managing data security and infrastructure. ByteDance was to retain a minority stake in the new entity. However, this deal has not closed, who knows why aside from competition and then there’s those trade tariffs and the need for approval from both U.S. and Chinese regulators who have to be just so chummy right at the moment.

AppLovin: A preliminary bid has been submitted by AppLovin, an adtech company, to acquire TikTok’s U.S. operations. It appears that AppLovin’s offer includes managing TikTok’s user base and revenue model, with a focus on ad-driven strategies, although further negotiations are still required.  According to Pitchbook, “AppLovin is a vertically integrated advertising technology company that acts as a demand-side platform for advertisers, a supply-side platform for publishers, and an exchange facilitating transactions between the two. About 80% of AppLovin’s revenue comes from the DSP, AppDiscovery, while the remainder comes from the SSP, Max, and gaming studios, which develop mobile games. AppLovin announced in February 2025 its plans to divest from the lower-margin gaming studios to focus exclusively on the ad tech platform.”  It’s a public company trading as APP and seems to be worth about $100 billion.   Call me crazy, but I’m a bit suspicious of a public company with “lovin” in its name.  A bit groovy for the complexity of this negotiation, but you watch, they’ll get the deal.

Amazon and Blackstone: Amazon and Blackstone have also expressed interest in acquiring TikTok or a stake in a TikTok spinoff in Blackstone’s case. These offers would likely involve ByteDance retaining a minority interest in TikTok’s U.S. operations, though specifics of the terms remain unclear.  Remember, Blackstone owns HFA through SESAC.  So there’s that.

Frank McCourt/Project Liberty:  The “People’s Bid” for TikTok is spearheaded by Project Liberty, founded by Frank McCourt. This initiative aims to acquire TikTok and change its platform to prioritize user privacy, data control, and digital empowerment. The consortium includes notable figures such as Tim Berners-Lee, Kevin O’Leary, and Jonathan Haidt, alongside technologists and academics like Lawrence Lessig.  This one gives me the creeps as readers can imagine; anything with Lessig in it is DOA for me.

The bid proposes migrating TikTok to a new open-source protocol to address concerns raised by Congress while preserving its creative essence. As of now, the consortium has raised approximately $20 billion to support this ambitious vision.  Again, these people act like you can just put hundreds of millions of users on hold while this changeover happens.  I don’t think so, but I’m not as smart as these city fellers.

PRC’s Reaction

The People’s Republic of China (PRC) has strongly opposed the forced sale of TikTok’s U.S. operations, so there’s that. PRC officials argue that such a divestment would be a dangerous precedent, potentially harming Chinese tech companies’ international expansion. And they’re not wrong about that, it’s kind of the idea. Furthermore, the PRC’s position seems to be that any divestment agreement that involves the transfer of TikTok’s algorithm to a foreign entity requires Chinese regulatory approval.  Which I suspect would be DOA.

They didn’t just make that up– the PRC, through the Cyberspace Administration of China (CAC), owns a “golden share” in ByteDance’s main Chinese subsidiary. This 1% stake, acquired in 2021, grants the PRC significant influence over ByteDance including the ability to influence content and business strategies.

Unsurprisingly, ByteDance must ensure that the PRC government (i.e., the Chinese Communist Party) maintains control over TikTok’s core algorithm, a key asset for the company. PRC authorities have been clear that they will not approve any sale that results in ByteDance losing full control over TikTok’s proprietary technology, complicating the negotiations with prospective buyers.  

So a pressing question is whether TikTok without the algorithm is really TikTok from the users experience.  And then there’s that pesky issue of valuation—is TikTok with an unknown algo worth as much as TikTok with the proven, albeit awful, current algo.

Algorithm Lease Proposal

In an attempt to address both U.S. security concerns and the PRC’s objections, a novel solution has been proposed: leasing TikTok’s algorithm. Under this arrangement, ByteDance would retain ownership of the algorithm, while a U.S.-based company, most likely Oracle, would manage the operational side of TikTok’s U.S. business.

ByteDance would maintain control over its technology, while allowing a U.S. entity to oversee the platform’s operation within the U.S. The U.S. company would be responsible for ensuring compliance with U.S. data privacy laws and national security regulations, while ByteDance would continue to control its proprietary algorithm and intellectual property.

Under this leasing proposal, Oracle would be in charge of managing TikTok’s data security and ensuring that sensitive user data is handled according to U.S. regulations. This arrangement would allow ByteDance to retain its technological edge while addressing American security concerns regarding data privacy.

The primary concern is safeguarding user data rather than the algorithm itself. The proposal aims to address these concerns while avoiding the need for China’s approval of a full sale.

Now remember, the reason we are in this situation at all is that Chinese law requires TikTok to turn over on demand any data it gathers on TikTok users which I discussed on MTP back in 2020. The “National Intelligence Law” even requires TikTok to allow the PRC’s State Security police to take over the operation of TikTok for intelligence gathering purposes on any aspect of the users’ lives.  And if you wonder what that really means to the CCP, I have a name for you:  Jimmy Lai. You could ask that Hong Konger, but he’s in prison. 

This leasing proposal has sparked debate because it doesn’t seem to truly remove ByteDance’s influence over TikTok (and therefore the PRC’s influence). It’s being compared to “Project Texas 2.0,” a previous plan to secure TikTok’s data and operations.  I’m not sure how the leasing proposal solves this problem. Or said another way, if the idea is to get the PRC’s hands off of Americans’ user data, what the hell are we doing?

Next Steps

As the revised deadline approaches, I’d expect a few steps, each of which has its own steps within steps:

Finalization of a Deal: This is the biggest one–easy to say, nearly impossible to accomplish.  ByteDance will likely continue negotiating with interested parties while they snarf down user data, working to secure an agreement that satisfies both U.S. regulatory requirements and Chinese legal constraints. The latest extension provides runway for both sides to close key issues that are closable, particularly concerning the algorithm lease and ByteDance’s continued role in the business.

Operational Contingency:  I suppose at some point the buyer is going to be asked if whatever their proposal is will actually function and whether the fans will actually stick around to justify whatever the valuation is.  One of the problems with rich people getting ego involved in a fight over something they think is valuable is that they project all kinds of ideas on it that show how smart they are, only to find that once they get the thing they can’t actually do what they thought they would do.  By the time they figure out that it doesn’t work, they’ve moved on to the next episode in Short Attention Span Theater and it’s called Myspace.

China’s Approval: ByteDance will need to secure approval from PRC regulatory authorities for any deal involving the algorithm lease or a full divestment. So why introduce the complexity of the algo lease when you have to go through that step anyway?  Without PRC approval, any sale or lease of TikTok’s technology is likely dead, or at best could face significant legal and diplomatic hurdles.

Legal Action: If an agreement is not reached by the new deadline of July 1, 2025, further legal action could be pursued, either by ByteDance to contest the divestment order or by the U.S. government to enforce a ban on TikTok’s operations.  I doubt that President Trump is going to keep extending the deadline if there’s no significant progress.

If I were a betting man, I’d bet on the whole thing collapsing into a shut down and litigation, but watch this space.

[This post first appeared on MusicTech.Solutions]

by theinvisiblestagehand

Understanding Trump’s TikTok Trolling: Crazy or Crazy Like a Fox?

By Chris Castle

Let’s be honest–it may look like things are getting weird with TikTok and Bytedance, but let me suggest things are maybe even weirder than they appear. New information has come to light.

First of all, I think it’s clear that at least as of January 19, the Protecting Americans from Foreign Adversary Controlled Applications Act will make it unlawful for companies in the United States to provide services to distribute, maintain, or update the social media platform TikTok, unless U. S. operation of the platform is severed from Chinese control which basically means owned by Bytedance. It’s potentially clear–although the situation is changing daily in Trump time–that the statute may also ban a number of other data-scraping apps owned and distributed by Bytedance that have problems and addictive properties similar to TikTok.

After TikTok’s faux shut down, President Trump immediately got into the act to “Save TikTok”. His first move was to post on social media that he would issue an executive order today “delaying” the effectiveness of the Act. Mr. Trump’s statements may have seemed a bit disjointed because from a statutory point of view, the President does not have the authority to “delay” the effectiveness of the Act. In fact, that is exactly what the Supreme Court just refused to do.

But “Saving TikTok” may not mean saving TikTok if you catch my drift. Saving it for whom exactly?

This may all seem rather bizarre, but if you read President Trump’s “Friend of the Court” brief filed during the Supreme Court’s review of TikTok’s request for a delay in enforcing the Act, it would all be clear–maybe–because that is exactly what he asked the Supreme Court to do–delay the effective date so the could apply Art of the Deal principles to the situation. This is, of course, not what the Supreme Court really is about, but it does reveal what was on his mind. The President says:

In light of this Court’s well-placed concerns about the “highly expedited” resolution of novel, difficult, and “very significant” constitutional questions…the Court should consider staying the statutory deadline for divestment and taking time to consider the merits in the ordinary course. Such an approach would allow this Court more breathing space to consider the merits, and it would also allow President Trump’s Administration the opportunity to pursue a negotiated resolution that, if successful, would obviate the need for this Court to decide these questions.

When a statute has been duly passed by Congress and signed into law by the then-sitting President (Biden) and upheld by the Supreme Court, the next President as chief magistrate must likely enforce the law under the “Take Care” clause of the Constitution (“take care that the laws be faithfully executed” in Article II, Section 3 for those reading along at home).

Of late there has, of course, been an unfortunate reliance on what I think is a misinterpretation of “prosecutorial discretion” that I personally find loathsome and flat out wrong. Prosecutorial discretion historically has been decisions based on resources and the strength of the evidence in particular cases; doing otherwise often results in the prosecutor getting unelected (see, e.g., Chesa Boudin and George Gascon). We’ll see if this dubious practice will continue.

Without getting into the entire history of executive orders that exceed presidential authority, there isn’t a clear precedent for a presidential executive order actually limiting the enforcement of an act of Congress that has been upheld by the Supreme Court (like the TikTok divestment). One notable and frequently cited case is Youngstown Sheet & Tube Co. v. Sawyer (1952), where the Supreme Court struck down then-President Harry Truman’s executive order to seize control of steel mills during the Korean War. The Court ruled that President Truman lacked the constitutional or statutory authority to issue such an order in a somewhat but not entirely similar situation to TikTok. In general, executive orders are subject to judicial review, and it is pretty old news that the Supreme Court has the power to strike down executive actions that exceed presidential authority or violate the Constitution. That principle of US law was established in 1803 by our first Chief Justice of the Supreme Court.

Having said that, I do understand why President Trump is trolling TikTok, or at least I think I do today. As he said in a speech to his supporters regarding a solution for TikTok’s problem (and has repeated a number of times since his inauguration):

So I said very simply, a joint venture. So, if TikTok is worth nothing, zero without an approval, you know you don’t approve, they’re out of business, they’re worth nothing.

If you do approve, they’re worth like a trillion dollars, they’re worth some crazy number. So I said, I’ll approve, but let the United States of America own 50% of TikTok. I’m approving on behalf of the United States.

So they’ll have a partner, the United States, and they’ll have a lot of bidders and the United States will do what we call a joint venture. And there’s no risk, we’re not putting up any money. All we’re doing is giving them the approval without which they don’t have anything.

As I’ve said before, President Trump has all the leverage that anyone could have in a situation where the Chinese Communist Party has their eye fixed on an IPO on the New York Stock Exchange. Not to be conspiratorial, but I do find it interesting that shortly before the Supreme Court decision, Softbank’s CEO committed to investing $100 billion in the US–Softbank being a major investor in TikTok and a beneficiary of that IPO and the same CEO just committed a portion of $500 billion to the Stargate AI infrastructure investment alongside Oracle and OpenAI.

I do think that someone might challenge any executive order that is inconsistent with the Truman precedent in the Youngstown Supreme Court case. The Supreme Court could probably strike down such an executive order. In the meantime, President Trump will likely be trying to close a deal to sell TikTok and destroy the CCP’s connection to user data. At some point, Congress may have to get involved again to bless whatever the final deal is.

So could Trump pull this off? Oh, yes, he could. It would be unusual, but not impossible in my judgement. Murky, yes. But when the dust settles, it looks like TikTok doesn’t have much of a choice. They will either hand over 50% of its company to the US (either in the form of voting power (like “golden shares“), stock or a financial interest), or they can shut down. And it may not just be TikTok–it may be all of the Bytedance companies that have a TikTok problem. Even though giving up a 50% share would essentially cut in half any ownership stake of Softbank, there may be some tolerance given that the alternative is zero–not just for TikTok, by the way, but potentially all of the Bytedance companies.

Is giving up 50% of your company because your lawyers and lobbyists failed a happy thing? Do you think Xi Jinping is in the habit of giving a hug when someone he’s paid a fortune to fails miserably? Not really. I would not want to be the food taster for TikTok’s head lobbyists.

Of course, the US should not take on any of TikTok’s obligations or litigation, such as the Multidistrict Social Media Addiction Litigation which potentially has massive liabilities for TikTok. TikTok’s benefit from social media addiction should not be lost on anyone given the user reaction that TikTok has riled up. Social media addiction is a real thing. 

Stay tuned, we’ll see what happens. Whatever happens, it won’t change the fact that TikTok pays garbage royalties if they pay at all.

by Trichordist Editor

It’s the Stock, Stupid:  Will the Centrifugal Force of the Public Market Nix the TikTok Divestment?

It’s a damn good thing we never let another MTV build a business on our backs.

In case you were wondering, the founder of TikTok’s parent corporation Bytedance is now reportedly China’s richest man according to the Hurun Rich List at a net worth of US$49.3 billion.  Is that because of “profits”?  Ah, no.  It’s due to his share of the Bytedance stock valuation. This is why any royalty deal with Big Tech that is based solely on a percentage of revenue rather than a dollar rate based on total value is severely lacking.

Revenue is a factor in determining stock valuation, of course.  ByteDance’s first-half 2024 revenue increased to $73 billion, making Bytedance’s revenues almost as big as Facebook but potentially growing faster. (Meta/Facbook’s first half  revenue increased about 25% to $75.5 billion.)

But where does TikTok’s revenue come from? ByteDance’s international revenue reached $17 billion in the first half of 2024, largely driven by TikTok. Non-China revenues for ByteDance rose by nearly 60% during this period. ByteDance continues to leverage TikTok to expand into international e-commerce, sustaining its global popularity. So the company is throwing off a pile of cash–yet they are unable to come up with a functioning royalty system.

Then what would a Bytedance IPO price at?  We kind of have to guess because Bytedance is not publicly traded and doesn’t report its financials to the public (and even if they did, China-based companies got special beneficial treatment during the Obama Administration so PRC companies haven’t reported on the same basis as everyone else until recently).  Continuing the Meta/Facebook comparison, Meta has a market capitalization of $1.4 trillion give or take, while ByteDance’s valuation on the secondary market for private stocks is about $250 billion, according to a CapLight subscriber. 

That gap is not lost on our friends at mega-venture capital firm Sequoia China and other influential investors in Bytedance such as Susquehanna,  SoftBank, and  General Atlantic.  And, of course, the Chinese Communist Party investing through its Cyberspace Administration of China censorship operation. The CCP’s CAC owns elite “golden shares” in Bytedance that allows it to name directors to the board.  These cats did not put up cold hard cash for a distress asset sale of Bytedance’s principal operating unit aka TikTok.  

Assuming a constant growth rate, Bytedance is trading at a paltry 1.7 times its 2024 revenues compared to Meta which is trading at about 8.7x its revenues.  There are some differences between Meta and Bytedance, like operating profits:  Meta has a 38% operating margin compared to Bytedance at about 25%.  But we all know why Bytedance’s valuation is depressed—the TikTok divestment which seems to be on track to happen on or about January 19.

The Protecting Americans from Foreign Adversary Controlled Applications Act aka the TikTok Divestment Act, requires that Bytedance must sell TikTok.  There’s a pretty good argument that the divestment is enforceable for a variety of reasons.  The law applies not only to TikTok, but also to any entity controlled by China, Iran, North Korea or Russia that distributes an application in the United States.  That’s a pretty significant barrier to IPO riches, or at least one major risk factor that could sour underwriters if not investors.  How to get around it?

As we saw with the Music Modernization Act that solved Spotify’s IPO issues due to the company’s massive copyright infringement business model, if you spread enough cash around Capitol Hill, it’s astonishing what can happen with the vast number of people on the take.  Whatever it costs, lobbyists and lawmakers are cheap dates compared to IPO riches.  Even so, it doesn’t look like the US government is quite ready to allow one of the biggest foreign agent data harvesting and user profiling operations in history to get its snout in the public markets trough.  At least not yet.

But an argument could be made that Bytedance is missing about $1 trillion in market cap.  Greed and resentment are a powerful combination.  To add insult to injury, even Triller managed to get to the public markets, so things could start to get weird while Mr. Tok watches his paper billions evaporate on January 19.

[This post first appeared on MusicTech.Solutions]

by Trichordist Editor

Press Release: Opposition grows worldwide about TikTok’s decision to stop negotiations with @MerlinNetwork

[Editor Charlie sez: This post from Worldwide Independent Network is available here.]

TikTok’s decision to disintermediate Merlin and walk away from negotiations to renew its current license has sparked widespread concern across the global music industry. The platform is contacting independent music companies directly to try to reach individual deals. Many fear that with this move TikTok intends to pay less for music.

Merlin acts as the licensing partner for the independent sector, playing a crucial role in providing efficiencies for digital platforms, promoting diversity and consumer choice, as well as delivering market access and value for its members. With more than 500 members representing over 30.000 record labels, distributors, and rights holders around the world, Merlin currently accounts for 15% of the global recorded music market and has deals with over 40 digital services.

“TikTok’s decision to walk away from Merlin puts independent labels in an impossible place with their artists: it’s a choice between their music being available on the platform or ensuring fair license terms.” explains Zena White, WIN Chair. Noemí Planas, WIN CEO, adds that “Merlin was created by independent music companies to compete at the highest level and ensure they can access the best terms. TikTok’s decision poses risks to cultural diversity, market access, and fair payment for independents. But this is not just about TikTok. We urge policymakers around the world to regulate the tech sector to ensure a truly competitive market where creators’ rights are protected from abusive and monopolistic behavior.” TikTok continues to resist calls from the sector to address the existing ‘value gap’, which has a negative impact on the independents’ ability to defend their music and rights.

Asia

Owned by Chinese company ByteDance, TikTok is the world’s largest social media platform after Facebook, YouTube, and Instagram. Asia is home to 6 of the top 10 countries by number of users and local music companies fear TikTok’s decision threatens the level playing field. Jong-Gill Shin, Secretary General of the Record Label Industry Association of Korea (LIAK) says: “LIAK expresses profound concern over the current circumstances, which pose a significant risk of fostering discrimination against creative works. It is imperative that all music, regardless of whether it originates from major or independent sectors, be accorded equal value and recognition. We unequivocally oppose TikTok’s recent attempts that threaten to undermine our efforts to secure equitable terms. Aligned with our fellow WIN members globally, we stand resolute in our commitment to upholding and safeguarding the intrinsic value of independent music.” China’s neighbors have also raised concerns about TikTok’s compliance with data protection laws, with India banning the app over national security concerns.

North America

In the United States, the second-largest market by number of TikTok users with 120.5 million, concerns are raised about abuse of power from the platform. In April, President Biden signed a law that would ban TikTok unless ByteDance sells its stake within a year. Richard Burgess, CEO of the American Association of Independent Music (A2IM), comments: “TikTok’s unwillingness to negotiate a licensing deal with Merlin is just the latest example of the platform doing whatever it can to avoid compensating artists fairly. Now, more than ever, we need Congress to enact the Protect Working Musicians Act and give musicians, songwriters, independent labels, and publishers the ability to negotiate collectively in the marketplace.”

Similar concerns are raised in Canada, where the music community is actively engaged in the regulatory process around the Online Streaming Act, which extends broadcasters’ requirements to invest in Canada’s music sector to digital platforms and is being met with mounting resistance from the tech sector. “By bypassing local regulations and enforcing unfavourable terms on rights holders, platforms create a significant power imbalance,” says Gord Dimitrieff, Chair of Government Relations at the Canadian Independent Music Association (CIMA). “It stifles competition, reduces cultural diversity, and limits consumer choice.” Andrew Cash, President and CEO of CIMA adds that TikTok’s decision “should act as a wake-up call to Canadian policy makers and politicians engaged in regulating the tech sector.”

Latin America

TikTok was the fastest-growing social media platform in Latin America in 2023. “From a Brazilian perspective, TikTok’s decision not to renew the agreement with Merlin could weaken the representation of independent music, which plays a crucial role in promoting cultural and regional diversity,” says Felippe Llerena, President of the Associação Brasileira da Música Independente (ABMI). “Without a collective agreement, small labels may have more difficulty negotiating individually, negatively impacting their visibility and participation on a platform as relevant as TikTok.” The Brazilian organization claims that this move not only compromises the diversity of content available on the platform, but also does not make sense from a commercial and strategic point of view. Brazil ranks third in TikTok users by country, with 105.3 million, followed by Mexico, with 77.5 million users, but concerns are also raised in other markets of the region. “It is extremely detrimental for the independent sector in Latin America that TikTok is applying this pressure to bypass Merlin. The very purpose of Merlin is to ensure fairer and more equitable representation for all, especially in regions like ours, and we stand by it. The most affected will be the smaller players, who will have few options, and our biggest fear is that they will end up facing the worst conditions.”adds Francisca Sandoval, President of Asociación Gremial Industria Musical Independiente de Chile (IMICHILE).

Europe

Following value gap concerns raised in April, the Independent Music Companies Association (IMPALA) has opposed TikTok’s attempt to boycott Merlin. The European organization highlights the importance of collective deals for diversity and consumer choice, and notes that it is vital that independents and digital services work together and explore ways to grow the value of the moment economy as a key part of the music ecosystem, as proposed in IMPALA’s ten-step plan to make the most of streaming. “We believe giving labels the option to work under a collective deal is the best way for TikTok to achieve these aims and work with artists and genres from across Europe,” says Dario Draštata, IMPALA Chair and Chair of RUNDA Adria. “We respect freedom of choice in entrepreneurship. The growth of the independent sector across all platforms is fundamental to provide fans and consumers with choice and diversity, exactly what TikTok stands for. The easiest way to achieve that is through Merlin.” says Helen Smith, IMPALA’s Executive Chair. She adds: “We invite TikTok to see the value of a renewed collective deal through Merlin and collaborate on growing this important part of the ecosystem. We hope that efficiency and choice for TikTok users, as well as access for artists and labels whatever their country or genre or level of success, and of course joint and standardised efforts on fraud, will prevail.” France, Belgium, Germany, and other European countries have also come forward in support of Merlin.

Australasia

TikTok is crucial to the music industry, and music is crucial to TikTok. An experimentconducted by TikTok in Australia in 2023 to analyze how music is accessed and used on the platform showed that limiting the licensed music users can experience caused the number of users and the time they spend on the app to decline. “We are highly alarmed at the news of TikTok’s decision to walk away from the negotiating table with Merlin before any licensing renewal discussions could even begin. As if that wasn’t onerous enough, TikTok have stated their intention to seek direct deals, and provided a very, very short runway for labels to sign an NDA. This would be hilarious, if it wasn’t so disrespectful and further demonstrates that TikTok’s behaviour completely undermines their previously stated support of worldwide independent rights holders. IMNZ, as representative and advocate for New Zealand artists and labels, joins with our global compatriots in the hope that TikTok makes the right decision – and finds its way back to the licensing table with Merlin, and smartly”, says Dylan Pellett, General Manager at Independent Music New Zealand (IMNZ).

WIN is committed to ensuring that all businesses in the music sector are best equipped to maximize the value of their rights, regardless of their size and origin, and Merlin is a key partner in this. The global independent music community remains steadfast in its support for collective licensing negotiations and calls on TikTok to return to the table and work on solutions that benefit all parties involved.

by Trichordist

Astroturf Spotting: “The People’s Bid for TikTok”

We’ve had a pretty good track record over years of spotting astroturf operations from the European Copyright Directive to ad-supported piracy. Here’s what we believe is the latest–“the People’s Bid for TikTok,” pointed out to us by one of our favorite artists.

The first indication that something is fake–we call these “clues”–is in the premise of the campaign. Remember that the key asset of TikTok is the company’s algorithm. That algorithm is apparently responsible for curating the content users see on their feeds. This algorithm is highly sophisticated and is considered a key factor in TikTok’s success. The U.S. government has argued that the algorithm could be manipulated by the government of the People’s Republic of China to influence what messaging is promoted or suppressed.

In April, President Joe Biden signed a law requiring TikTok’s PRC-based parent company ByteDance to sell TikTok or face a ban in the U.S. by mid-January 2025. This law was the culmination of years of Congressional scrutiny and debate over the app’s potential risks.

At the core of President Biden’s concerns about TikTok is the algorithm. Not surprisingly, the People’s Republic of China has made it very clear that the algorithm is not for sale. This position was confirmed when TikTok itself admitted that the Chinese government would not allow the sale of its algorithm. China’s Commerce Minister Wang Wentao indicated that officials would seek to block any transfer of the app’s technology, stating that the country would “firmly oppose” a forced sale. That likely means that even if ByteDance were to sell TikTok–to “the people” or otherwise–the algorithm would remain under Chinese control, which undermines the U.S. government’s objective.

So–who is behind the “People’s Bid” since given that the “People’s Bid” seems to be making a proposal that will only be acceptable to the People’s Republic of China? We say that because of this FAQ on the People’s Bid site disclaiming any interest in acquiring the algorithm that PRC has essentially claimed as a state secret for some reason:

The People’s Bid has no interest in acquiring TikTok’s algorithm [which is nice since the algo is not for sale]. This is not an attempt to rinse and repeat the formula that has allowed Big Tech companies to reap enormous profits by scraping and exploiting user data. The People’s Bid will ensure that TikTok users control their data and experience by using the app on a rebuilt digital infrastructure that gives more power to users.

Oh no, The People’s Bid has no interest in that tacky algorithm which wasn’t for sale anyway. Good of them. So who is “them”? It appears, although it isn’t quite clear, that the entity doing the acquiring isn’t “The People’s Bid” at all, it’s something called “Project Liberty.”

The FAQ tells us a little bit about Project Liberty:

Project Liberty builds solutions that help people take back control of their digital lives. This means working to ensure that everyone has a voice, choice, and stake in the future of the Internet. Project Liberty has invested over half a billion dollars to develop infrastructure and alliances that will return power to the people.

They kind of just let that “half a billion dollars” drop in the dark of the FAQ. What that tells us is that somebody has a shit-ton of money who is interested in stopping the TikTok ban. So who is involved with this “Project Liberty”? The usual suspects, starting with Lawrence Lessig, Jonathan Zittrain and a slew of cronies from Berkman, Stanford, MIT, etc. Color us shocked, just shocked.

But these people never spend their own money and probably aren’t working for free, so who’s got the dough? Someone who doesn’t seem to care about acquiring the TikTok algorithm from the Chinese Communist Party?

Forbes tells us that this transaction is just a little bit different than what “The People’s Bid” or even the “Liberty Project” would have you believe if all you knew about it was from information on their website. The money seems to be coming in part, maybe in very large part, from one Frank McCourt whom you may remember as a former owner of the Los Angeles Dollars…sorry, Dodgers. In fairness, McCourt isn’t exactly making his plans a secret. He had his Project Liberty issue a press release as “The People’s Bid for TikTok”, which is actually Frank McCourt’s bid for TikTok as far as we can tell and as reported by Forbes:

Billionaire investor and entrepreneur Frank McCourt is organizing a bid to buy TikTok through Project Liberty, an organization to which he’s pledged $500 million that aims to fight for a safe, healthier internet where user data is owned by users themselves rather than by tech giants like TikTok parent ByteDance, Meta and Alphabet.

That’s more like it. We knew there was a sugar daddy in there somewhere. That’s much more in the Lessig style. Big favor, little bad mouth.

Of course, users owning their data is not the entire story by a long shot. Authors owned their books and Google still used the vast Google Books project to train AI.

Forbes adds this insight about Mr. McCourt:

Best known as the former owner of the Los Angeles Dodgers, McCourt spent most of the past decade focused on investing the approximately $850 million in proceeds from the team’s 2012 sale via his company McCourt Global. 

He sprinkled money into sports, real estate, technology, media and an investment firm focused on private credit. In January 2023, McCourt stepped down as CEO of McCourt Global to focus on Project Liberty but remains executive chairman and 100% owner. 

McCourt’s assets are worth an estimated $1.4 billion, landing him on Forbes’ billionaires list for the first time this year—though his wealth is a far cry from the estimated $220 billion valuation of ByteDance.

Which brings us to ByteDance. Is there another Silicon Valley money funnel with an interest in ByteDance? One is Sequoia Capital, which was also an original investor in Google which was an original investor in Professor Lessig and his various enterprises including Creative Commons. Sequoia’s ByteDance investment came in the form of one Neil Shen who runs Sequoia’s China operation recently spun off from the mothership. If you don’t recognize Neil Shen, he’s the former member (until 2023) of the Chinese People’s Political Consultative Conference, an arm of the Chinese Communist Party and its United Front Work operation. (According to a Congressional investigative report, The United Front operation is a strategic effort to influence and control various groups and individuals both within China and internationally. This strategy involves a mix of engagement, influence activities, and intelligence operations aimed at shaping political environments to favor the CCP’s interests. United front work includes “America Changle Association, which housed a secret PRC police station in New York City that was raided by the FBI in October 2022.”)

)

In plainer terms, it’s about the money. According to CNN:

McCourt said he is working with the investment firm Guggenheim Securities and the law firm Kirkland & Ellis to help assemble the bid, adding that the push is backed by Sir Tim Berners-Lee, the inventor of the World Wide Web [OMG, it must be legit!].

McCourt joins a host of other would-be suitors angling to pick up a platform used by 170 million Americans. Former Treasury Secretary Steven Mnuchin announced in March he’s assembling a bid, as well as Kevin O’Leary, the Canadian chairman of the private venture capital firm O’Leary Ventures.

TikTok, meanwhile, has indicated that it’s not for sale and the company has instead begun to mount a fight against the new law. The company sued to block the law earlier this month, saying that spinning off from its Chinese parent company is not feasible and that the legislation would lead to a ban of the app in the United States starting in January of next year.

But it’s the people‘s bid, right? Don’t be evil, ya’ll.

Let’s boil it down: TikTok would have been, up until President Biden signed the sell-or-ban bill into law, a HUGE IPO. It’s also a big chunk of ByteDance’s valuation, which means it’s a big chunk of Neil Shen’s carried interest in all likelihood. TikTok is no longer a huge IPO, in fact, it probably won’t be an IPO at all in its current configuration, particularly since the CCP has told the world that TikTok doesn’t own its core asset, the very algorithm that has so many people addicted (and addiction which is what a buyer is really buying).

So the astroturf is not the Liberty Project of the People’s Bid. Whatever “the People’s Bid” really is, it’s much more likely to be as the financial press has described it–Frank McCourt’s bid. But only for the most high-minded and pure-souled reasons.

It’s about the money. Stay tuned, we’ll be keeping an eye on this one.

by Trichordist Editor

Guest post by @TheBlakeMorgan: A musician’s view of the TikTok legislation

Here’s a musician’s perspective on the TikTok legislation before Congress: I hope it passes, both as an American, and as a music maker. (The bill is “Protecting Americans From Foreign Adversary Controlled Applications Act, (HR 7521),” It was recently introduced by Representatives Mike Gallagher (R-Wi.) and Raja Krishnamoorthi (D-Ill.). The bill passed the House by a vote of 352-65, demonstrating deep bipartisan support)

First––this bill restricts TikTok, it does not “ban” the app. It forces the company to separate its ties to the Chinese Communist Party and prevents them from accessing the data of Americans. That’s a good thing.

The bill doesn’t mandate or regulate speech, it’s focused on national security: the FCC called TikTok “a clear and present danger” to our country.

Second––music makers already know what music lovers are just now learning: TikTok is the worst, most exploitative streaming platform for music, anywhere. The vast majority of music on TikTok generates virtually no revenue for the musicians who made it, and even more music on the platform is completely unlicensed (stolen), copied (stolen via AI), or pirated (stolen).

Simply put, TikTok is trying to build a music-based business without paying music makers fair value for the music.

Lastly––musicians (and Americans) are all too familiar with being underpaid and undervalued, with our data being scraped and sold, with platforms which promote hate speech, bigotry, and bullying.

But TikTok does all of this and more, while posing an existential national security threat to our country.

It’s rare to see independent musicians (like me) stand with major labels, and it’s rare to see Republicans and Democrats stand together about anything. But here we are. I hope it passes the Senate and that President Biden signs it.

by trichordist

How Do TikTok Executives Sleep at Night?

Read the post on Music Business Worldwide and Associated Press “Former Bytedance executive says Chinese Communist Party tracked Hong Kong protesters via data” (Bytedance is the parent company of TikTok.)

by thetrichordist