WEBVTT - Is TikTok on the Countdown to a Shutdown? 0:00:12.520 --> 0:00:16.080 Hello, and welcome to the Votes and Verdicts podcast hosted 0:00:16.120 --> 0:00:21.599 by Bloomberg Intelligence, Bloomberg LP's investment research platform. In this 0:00:21.680 --> 0:00:25.160 podcast series, we talk about the intersection of business policy 0:00:25.400 --> 0:00:28.840 and law. My name is Matt Schuttenhelm. I'm an analyst 0:00:28.880 --> 0:00:33.680 with Bloomberg Intelligence covering litigation and policy in the TMT space, 0:00:34.800 --> 0:00:39.360 with TikTok filing a lawsuit to challenge Congress's recent divest 0:00:39.520 --> 0:00:43.519 or ban law. In today's episode, we feature our April 0:00:43.560 --> 0:00:49.479 twenty ninth I analyst briefing TikTok countdown to shutdown. In it, 0:00:49.520 --> 0:00:53.159 I'm joined by my Bloomberg Intelligence colleagues Hamlin Basin and 0:00:53.240 --> 0:00:56.560 Mandeep Singh to discuss what's at stake for TikTok and 0:00:56.600 --> 0:01:00.680 its competitors and what's next in Congress, the courts, and 0:01:00.720 --> 0:01:05.200 the EU. Please enjoy it. That's a title we phrased 0:01:05.319 --> 0:01:10.000 as a question because after recent events in the US Congress, 0:01:10.040 --> 0:01:14.160 the company is facing serious risks of an effective ban, 0:01:15.080 --> 0:01:16.760 and what we hope to do over the next couple 0:01:16.760 --> 0:01:19.440 of minutes is give you an overview of those recent 0:01:19.480 --> 0:01:23.360 events and then focus our analysis on what's next for 0:01:23.400 --> 0:01:27.839 the company in courts. In the EU and with respect 0:01:27.920 --> 0:01:32.720 to a potential divestiture. So a couple housekeeping notes before 0:01:32.800 --> 0:01:37.720 we begin. First, this presentation will be recorded and it's 0:01:37.760 --> 0:01:41.560 available for playback. You can ask ask a question by 0:01:41.600 --> 0:01:44.560 submitting one in the Q and a box at the 0:01:44.560 --> 0:01:48.600 bottom of your screen. And after the webinar, the three 0:01:48.640 --> 0:01:52.120 of us are available to answer further questions. Just reach 0:01:52.160 --> 0:01:55.840 out to us on the Bloomberg terminal. A brief note 0:01:55.880 --> 0:02:01.280 about who we are. Bloomberg Intelligence BI Research delives an 0:02:01.280 --> 0:02:08.320 independent perspective, interactive data and investment research on companies, industries 0:02:08.480 --> 0:02:12.240 and global markets. Our team of three hundred and fifty 0:02:12.280 --> 0:02:17.160 professionals helps our clients make informed decisions and we cover 0:02:17.240 --> 0:02:23.399 these companies, industries and markets from the perspectives of strategy, equity, credit, ESG, government, 0:02:23.480 --> 0:02:27.399 and litigation. My name is Matt Schuttenhelm. I'm a litigation 0:02:27.520 --> 0:02:31.080 and policy analyst with the I focused on the TMT sector. 0:02:31.639 --> 0:02:34.880 I'm joined today by my colleagues Tamlin Basin, our TMT 0:02:35.040 --> 0:02:37.760 analyst and the EU, and man Deep singh Our, our 0:02:37.800 --> 0:02:44.639 TMT global team leader. So, good morning, good afternoon, guys. Hi. 0:02:45.080 --> 0:02:48.959 So we wanted the structure today's briefing as a conversation 0:02:49.639 --> 0:02:52.640 more of an exchange of questions and answers between the 0:02:52.720 --> 0:02:55.079 three of us, and I wanted to toss it to you, Tamlin, 0:02:55.160 --> 0:02:57.080 to sort of get it started. 0:02:58.000 --> 0:03:01.160 Yeah. Sure, thanks, thanks Matt, and thanks joining us everybody. 0:03:01.880 --> 0:03:05.720 So I guess it's certainly been an eventful couple of 0:03:05.720 --> 0:03:09.000 weeks for TikTok, But I think, really, if you take 0:03:09.000 --> 0:03:11.760 a step back, a lot of these issues really have 0:03:11.840 --> 0:03:14.639 been simmering for some time, for a number of years, 0:03:14.800 --> 0:03:18.240 I think, going back certainly to the Trump administration. So 0:03:18.280 --> 0:03:21.079 I get Matt, maybe you can walk us through sort 0:03:21.120 --> 0:03:25.640 of a basic overview of how things stand now after 0:03:25.720 --> 0:03:28.880 some of the recent actions from Congress a few days ago. 0:03:29.080 --> 0:03:30.720 Yeah. Sure, there's been a lot of coverage of this, 0:03:30.800 --> 0:03:33.200 but let's just give the cliff notes version. Yeah, this 0:03:33.240 --> 0:03:35.560 really does go back to that, to the Trump administration. 0:03:35.640 --> 0:03:40.080 President Trump adopted an executive order that would have banned TikTok. 0:03:40.160 --> 0:03:43.720 He since now reversed his position on that. President Biden, 0:03:43.760 --> 0:03:46.880 at the beginning of his term reverse President Trump on that. 0:03:47.480 --> 0:03:50.840 And so that was the status quo for most of 0:03:50.880 --> 0:03:54.640 these four years of President Biden's term until March of 0:03:54.800 --> 0:03:58.640 last year, when when suddenly TikTok found itself in the spotlight. 0:03:58.760 --> 0:04:02.320 And you might remember that very very difficult hearing that 0:04:02.320 --> 0:04:06.640 that showed you Ceo TikTok CEO had before the House 0:04:06.640 --> 0:04:10.120 of Representatives when you really got torn into by you know, 0:04:10.160 --> 0:04:15.840 on a bipartisan basis about concerns about data privacy and 0:04:15.880 --> 0:04:19.760 potential propaganda from the company. But then after that hearing, 0:04:19.800 --> 0:04:22.839 there was you know, as as often happens in Congress, 0:04:22.960 --> 0:04:28.279 very little nothing, nothing happens. That all changed thought sort 0:04:28.279 --> 0:04:32.880 of suddenly this year in March March seventh, the House 0:04:33.600 --> 0:04:36.760 Committee focused on this passed a bill by a fifty 0:04:36.839 --> 0:04:41.400 to zero vote. That just doesn't happen in Congress. But 0:04:41.440 --> 0:04:44.360 then you know, there was a real question of whether 0:04:44.400 --> 0:04:47.880 President Biden wanted to sign a TikTok ban during an 0:04:47.920 --> 0:04:52.360 election year, and the Democrats control the Senate, so it 0:04:52.400 --> 0:04:55.159 really looked to me like this was going to slow 0:04:55.240 --> 0:04:58.239 down and be something that where you see potential action 0:04:59.040 --> 0:05:03.600 after the US selection. Well that changed in you know, 0:05:03.640 --> 0:05:08.680 a couple of weeks ago, about nine days ago, when 0:05:09.240 --> 0:05:13.560 House Speaker Mike Johnson decided to attach this bill to 0:05:14.040 --> 0:05:17.640 the Ukraine aid package, the Foreign Aid package and tie 0:05:17.720 --> 0:05:21.240 them all into one package that was effectively must pass 0:05:21.320 --> 0:05:24.840 for the Democrats. So suddenly all the positive signals that 0:05:24.880 --> 0:05:28.200 President Biden had given about this, he really had no 0:05:28.320 --> 0:05:31.839 choice but to support this because he needed this foreign 0:05:31.839 --> 0:05:35.640 aid to get through. So it cleared the House again 0:05:35.839 --> 0:05:38.559 on April twentieth by three hundred and sixty to fifty 0:05:38.560 --> 0:05:41.159 eight vote, and then the Senate cleared it seventy nine 0:05:41.160 --> 0:05:44.440 to eighteen on April twenty third, less than a week ago. 0:05:45.040 --> 0:05:48.720 April twenty fourth, President Biden signed the bill into law. 0:05:48.960 --> 0:05:53.599 So that's where we are. After a lot of noise 0:05:53.640 --> 0:05:55.800 around the issue and then what looked like nothing, all 0:05:55.839 --> 0:05:57.560 of a sudden, we've reached the end of the road 0:05:57.600 --> 0:06:01.120 here in the US in terms of passing. It's now 0:06:01.200 --> 0:06:01.840 become law. 0:06:03.000 --> 0:06:06.160 So what exactly does the law do? Can you give 0:06:06.200 --> 0:06:06.599 some sort of. 0:06:07.120 --> 0:06:09.480 Yea, let's give just an overview of that. So it's 0:06:09.520 --> 0:06:14.400 called the Protecting Americans from Foreign Adversary Controlled Applications APT 0:06:14.520 --> 0:06:18.239 And the basic way this operates is that it says 0:06:18.320 --> 0:06:25.200 that companies can't provide services to distribute, maintain, or update 0:06:25.839 --> 0:06:30.000 what a defined term a foreign adversary controlled app and 0:06:30.040 --> 0:06:31.839 that means you can't put it in your app store, 0:06:32.120 --> 0:06:36.039 for updates, for maintenance, for distribution, you can't web host 0:06:36.120 --> 0:06:42.039 it anymore. And for any of these foreign adversary controlled apps, 0:06:42.120 --> 0:06:46.839 and that is in part defined to be any app 0:06:46.920 --> 0:06:51.640 that is controlled indirectly or directly by byte Dance or TikTok. 0:06:52.240 --> 0:06:55.000 And so if a company were to keep the app 0:06:55.040 --> 0:06:59.120 and its web store or to host it after the 0:06:59.160 --> 0:07:04.000 deadlines in this law, they're at risk of severe financial penalties. 0:07:04.800 --> 0:07:07.800 The math adds up very quickly if the company were 0:07:07.800 --> 0:07:10.520 to take on that risk. So the key deadlines are 0:07:10.640 --> 0:07:14.320 two hundred and seventy days from passage, which takes us 0:07:14.320 --> 0:07:18.880 to January nineteenth, the day before the inauguration as it is. 0:07:19.800 --> 0:07:22.720 And then if there's progress made to it for a 0:07:22.800 --> 0:07:28.120 divestiture basically TikTok or selling it to someone else, the 0:07:28.160 --> 0:07:34.320 president can give another ninety days for those negotiations to 0:07:34.320 --> 0:07:38.880 play out for a divestiture to be complete. Okay, So 0:07:38.920 --> 0:07:43.760 that's the basic position the company finds itself in now. 0:07:43.840 --> 0:07:48.320 If TikTok doesn't divest by January nineteenth, or maybe April nineteenth, 0:07:48.560 --> 0:07:52.080 if they get that extension, we effectively have a ban. 0:07:52.720 --> 0:07:55.080 No company can can web host it or carry it 0:07:55.080 --> 0:07:57.840 in its app store to make it available for users. 0:07:58.360 --> 0:08:02.480 So TikTok now has two paths going forward. One you 0:08:02.560 --> 0:08:06.040 can try to get that law overturned in court, or 0:08:06.200 --> 0:08:09.600 it can affect a divestiture. So I'm going to dive 0:08:09.640 --> 0:08:13.000 into both of those two options in a minute. But 0:08:13.200 --> 0:08:16.160 before we do, since we're laying out the legal risks 0:08:16.280 --> 0:08:18.120 and we've done it on the US side, Tamlin, I 0:08:18.120 --> 0:08:20.720 want to turn to you to talk about the legal 0:08:20.800 --> 0:08:24.280 risks in the EU. Is there any movement to ban 0:08:24.400 --> 0:08:27.240 TikTok in Europe? And if not, why not? 0:08:28.280 --> 0:08:31.720 Yeah, sure, Matt so, and short answer is that there 0:08:31.920 --> 0:08:34.960 does not currently seem to be any movements in the 0:08:35.000 --> 0:08:38.959 EU to ban TikTok. That's not to say that regulators 0:08:39.000 --> 0:08:41.800 are really thrilled with the app. In fact, it's not 0:08:41.920 --> 0:08:45.520 allowed on the work devices of European Commission employees. So 0:08:45.800 --> 0:08:48.040 clearly some of the concerns that are I think motivating 0:08:48.160 --> 0:08:51.640 that movement in the US are also relevant here. So 0:08:51.679 --> 0:08:55.200 I think the reason the regulators don't see them on 0:08:55.280 --> 0:08:58.080 board with a ban is that, unlike in the US, 0:08:58.280 --> 0:09:02.880 the EU does have regulations impact that, if wielded aggressively, 0:09:03.559 --> 0:09:06.560 could really curb a lot of those potential negative impacts 0:09:06.600 --> 0:09:08.840 of the app. So I'll focus on three. So the 0:09:08.880 --> 0:09:12.240 first is the Digital Services Act of the DSA. Now, 0:09:12.280 --> 0:09:15.679 this is a new content moderation on regulation aimed at 0:09:15.720 --> 0:09:20.559 social media that took effect last August. Now, some of 0:09:19.880 --> 0:09:23.480 the new rules that large platforms, and TikTok has been 0:09:23.520 --> 0:09:27.000 designated a large platform subject to these rules. Now, some 0:09:27.040 --> 0:09:29.160 of the things that they must comply with are with 0:09:29.240 --> 0:09:34.959 respect to risk assessments and risk integation measures. So, for instance, 0:09:35.000 --> 0:09:38.720 TikTok needs to do an annual assessment to determine what 0:09:38.800 --> 0:09:40.839 are some of the risks of people using the app. 0:09:42.240 --> 0:09:45.560 And also it's probably worth noting that sort of addictive uses, 0:09:45.720 --> 0:09:49.120 especially for younger users, is definitely qualifies as a risk. 0:09:50.240 --> 0:09:52.240 And then it's going to have to show that it's 0:09:52.240 --> 0:09:55.400 putting in place in NEGA nation measures to assess these risks. 0:09:55.760 --> 0:09:57.480 And if it doesn't do so in a manner that 0:09:57.480 --> 0:10:01.640 regulators regulators think is appropriate, then maximum fines can be 0:10:01.679 --> 0:10:06.520 six percent of byteedances animal revenue. Now GDPR is another overhang. Now, 0:10:06.520 --> 0:10:11.280 the General Data Production Regulator regulation actually took effect back 0:10:11.320 --> 0:10:14.360 in twenty eighteen, but it wasn't until September of last 0:10:14.440 --> 0:10:17.720 year that TikTok got its first taste of enforcement. I 0:10:17.760 --> 0:10:19.560 mean that came with a three hundred and forty five 0:10:19.720 --> 0:10:23.600 million euro fine there was in relation to Howard's handling 0:10:24.080 --> 0:10:28.880 data and again mostly data of younger users. There's still 0:10:28.880 --> 0:10:34.360 pending investigations under GDPR related to TikTok's data practices, and 0:10:34.400 --> 0:10:37.280 I think a particular one to know here is looking 0:10:37.320 --> 0:10:41.439 at whether it is sending user data to China. Now, 0:10:41.520 --> 0:10:45.760 ultimately this could result and ruling forbidding TikTok from transferring 0:10:45.800 --> 0:10:49.800 on user EU user data outside of to China, and 0:10:49.840 --> 0:10:52.400 this could result in a significant pine of four percent 0:10:52.400 --> 0:10:56.000 of revenues. Now, the Digital Markets Act is the last one. 0:10:56.160 --> 0:10:59.080 Now TikTok has been named the gatekeeper under the DNA, 0:10:59.600 --> 0:11:04.640 which is sweeping new competition law that took effect in March. Now. 0:11:04.679 --> 0:11:07.600 I don't think the DMA itself poses a significant risk 0:11:07.679 --> 0:11:10.720 to TikTok, at least not on the level of DSA 0:11:10.960 --> 0:11:14.679 or GDPR. But what it is is the potential overcame 0:11:14.960 --> 0:11:18.440 overhang for any company that might be interested in buying 0:11:18.440 --> 0:11:23.040 the app if Bits does decide to divest. I think 0:11:23.040 --> 0:11:25.959 this is particularly true for any other d M a gatekeeper, 0:11:26.800 --> 0:11:31.040 and a list of those gatekeepers includes Apple, Amazon, Meta Alphabet, 0:11:31.400 --> 0:11:35.000 and Microsoft. So I think for now politicians in the 0:11:35.000 --> 0:11:39.800 EU are at least cautiously optimistic that there's this regulatory 0:11:39.880 --> 0:11:44.600 scheme in place that can counter TikTok's influence without needing 0:11:44.640 --> 0:11:45.600 to resort to a band. 0:11:46.080 --> 0:11:49.840 Yeah, that makes sense. It's definitely a very different legal 0:11:50.000 --> 0:11:52.800 environment there since since the US hasn't been able to 0:11:52.840 --> 0:11:57.240 pass any of the laws that the EU has. There 0:11:57.320 --> 0:12:00.360 was news the other day of a potential ban in 0:12:00.440 --> 0:12:05.760 on a reward system associated with TikTok Light, and any 0:12:05.880 --> 0:12:09.439 color on what that is about and resolution there. 0:12:09.840 --> 0:12:10.560 Yeah, sure, yeah. 0:12:10.559 --> 0:12:10.640 So. 0:12:10.760 --> 0:12:13.880 TikTok Light was a service that TikTok launched a few 0:12:13.920 --> 0:12:17.640 weeks ago in some markets in the including in Spain 0:12:17.720 --> 0:12:21.199 and France. Now, the service allowed users to earn points 0:12:21.200 --> 0:12:25.199 for performing certain tasks on TikTok, so for instance, by 0:12:25.240 --> 0:12:29.040 watching videos or engaging with content or inviting prints of 0:12:29.080 --> 0:12:32.640 the app. Now, the European Commission pretty quickly sounded the alarm. 0:12:33.080 --> 0:12:38.160 I'm particularly a concern over the potential addictiveness given that 0:12:38.200 --> 0:12:41.960 the rewards were being offered, and how this might encourage 0:12:42.160 --> 0:12:44.880 younger users again to use the app. So I asked 0:12:44.920 --> 0:12:49.320 TikTok for TikTok's pre launch risk assessment and risk mitigation reports. 0:12:49.960 --> 0:12:52.960 So it asked for that, and then on April twenty second, 0:12:53.040 --> 0:12:56.760 it launched a formal probe into TikTok Light, and just 0:12:56.800 --> 0:12:59.080 a few days later on TikTok said it was going 0:12:59.120 --> 0:13:03.640 to withdraw tick tout Light from those markets. So I 0:13:03.960 --> 0:13:07.679 think we really did have swift resolution on that, and 0:13:07.760 --> 0:13:10.199 I think you regulators will probably a bit small gap 0:13:10.280 --> 0:13:12.640 for that, okay. 0:13:12.880 --> 0:13:16.040 So a lot of the concern in the US has 0:13:16.160 --> 0:13:20.840 been that TikTok's owner, byte Dance, could be forced to 0:13:20.920 --> 0:13:24.280 turn over sensitive user data if it was requested to 0:13:24.360 --> 0:13:26.680 do so by the Chinese government, since byt Dance is 0:13:26.720 --> 0:13:32.520 located in China, and obviously Europe is even more cautious 0:13:32.920 --> 0:13:38.400 about sensitive user data than the US has been. Can more, 0:13:38.559 --> 0:13:40.240 Can you give us more color on how that is 0:13:40.280 --> 0:13:41.320 being handled over there? 0:13:41.960 --> 0:13:42.200 Yeah? 0:13:42.200 --> 0:13:45.720 Absolutely, And this goes back to the GDPR which I 0:13:45.760 --> 0:13:50.040 mentioned earlier now and now under GVR. Under GDPR there 0:13:50.040 --> 0:13:53.920 are really tight rules on where EU user data can 0:13:54.000 --> 0:13:58.199 be transferred, and essentially any country that the data does 0:13:58.840 --> 0:14:01.880 go to has to be able to demonstrate that it 0:14:01.920 --> 0:14:05.760 has the equivalent data protection of an EU member state. 0:14:06.360 --> 0:14:08.240 I mean, I think it's worth noting here that the 0:14:08.360 --> 0:14:11.760 US actually cannot meet that standard, and that's why every 0:14:11.840 --> 0:14:14.880 few years we have this scramble looking for a new 0:14:14.960 --> 0:14:18.360 policy that's going to allow that that uninterrupted trans atlantic 0:14:18.760 --> 0:14:24.080 data flows despite the US inadequacy here. Now that that 0:14:24.240 --> 0:14:29.640 pending inquiry into TikTok's potential transfer of China could result 0:14:29.640 --> 0:14:32.240 in something similar to what we've seen there now. First part, 0:14:32.320 --> 0:14:36.360 TikTok has been heavily investing in building data centers in 0:14:36.400 --> 0:14:40.080 Europe so that it wouldn't need to transfer any use 0:14:40.240 --> 0:14:44.360 EU user data abroad, and it also proactively says that 0:14:44.440 --> 0:14:47.160 it's not going to let employees located in China have 0:14:48.000 --> 0:14:51.000 access to EU user data. I think the question is 0:14:51.080 --> 0:14:54.440 going to come down to whether data privacy regulators are 0:14:54.480 --> 0:14:57.160 going to take that promise at base value when there's 0:14:57.240 --> 0:15:00.560 this sort of existing Chinese law that my allow them 0:15:00.600 --> 0:15:03.960 access to it. I think there's definitely a reason to 0:15:04.000 --> 0:15:06.960 be skeptical that that that argument is going to hold, 0:15:07.360 --> 0:15:09.200 But I think we we are going to have to 0:15:09.200 --> 0:15:10.920 wait and see how that develops. 0:15:12.120 --> 0:15:12.440 Got it. 0:15:12.600 --> 0:15:14.760 Yeah, So so it sounds like for now, before we 0:15:14.760 --> 0:15:17.360 bring man deep into this, it does sound like EU 0:15:17.960 --> 0:15:20.800 would would like to stick with with the regulatory path 0:15:21.160 --> 0:15:24.400 if they can, rather than a ban, although you know, 0:15:24.560 --> 0:15:27.840 it's it's easy to imagine sort of just to follow on. Okay, 0:15:27.880 --> 0:15:30.720 you ban, we ban, you know, follow on and any 0:15:30.840 --> 0:15:32.920 any sense you could see that that changing. 0:15:34.400 --> 0:15:38.040 Yeah, so I think going back to that TikTok light episode, 0:15:38.320 --> 0:15:40.440 I think it's kind of on this scores that the 0:15:40.480 --> 0:15:43.560 EU is in a different position than the e US. Now, 0:15:43.600 --> 0:15:46.800 regulators here again have done the legwork to enact those 0:15:46.840 --> 0:15:49.600 measures that can and I think will be used as 0:15:49.600 --> 0:15:54.400 a cudgel against TikTok. Now, a ban on TikTok would certainly, 0:15:54.440 --> 0:15:56.840 I think be a political had a peg and then 0:15:56.920 --> 0:15:58.600 you have to take an account. But I think younger 0:15:58.640 --> 0:16:01.040 voters in Europe can go to the polls a little 0:16:01.040 --> 0:16:04.400 bit more frequently than younger voters in the US. So 0:16:04.480 --> 0:16:08.440 I think as of now, EU lawmakers will sort of 0:16:08.480 --> 0:16:11.560 do everything they can to avoid taking the drastic action 0:16:11.680 --> 0:16:17.080 of the ban unless it's really the only possibility. Yeah. 0:16:17.080 --> 0:16:20.480 So that's I guess how things are currently setting out. 0:16:20.520 --> 0:16:22.520 But I want to bring men deep in here to 0:16:22.600 --> 0:16:26.520 talk sort of the business side. So, Mandy, if a 0:16:26.680 --> 0:16:30.800 US ban were to happen, who do you think benefits 0:16:30.840 --> 0:16:32.240 the most and why? 0:16:33.600 --> 0:16:33.960 Yeah. 0:16:34.000 --> 0:16:38.840 So, one of the things that's very obvious with the 0:16:38.960 --> 0:16:42.760 way social media time split is in the US is, 0:16:43.800 --> 0:16:47.040 you know, with TikTok, especially when it comes to short 0:16:47.080 --> 0:16:51.880 form video content, the average daily user time spend is 0:16:51.960 --> 0:16:56.360 close to ninety four minutes. And you contrast that with 0:16:58.120 --> 0:17:02.200 you two around seventy nine minutes and Instagram close to 0:17:02.960 --> 0:17:08.800 fifty four, and then Snap and others. It's there are 0:17:08.840 --> 0:17:11.920 only four or five places you could go to consume 0:17:12.000 --> 0:17:15.360 social media content. And from that perspective, I mean, all 0:17:15.400 --> 0:17:19.440 these companies will stand to benefit. I don't think there 0:17:19.520 --> 0:17:24.480 is like one company where all the users will end 0:17:24.560 --> 0:17:29.400 up moving to. And you have to remember with a TikTok, 0:17:29.480 --> 0:17:33.520 a lot of the original content starts there and then 0:17:33.680 --> 0:17:38.879 it shows up on Instagram and other platforms, YouTube shorts, 0:17:39.600 --> 0:17:43.840 and so the real question is where do the creators go. 0:17:44.840 --> 0:17:50.040 You know, if TikTok is banned, which platform do they 0:17:50.200 --> 0:17:54.080 curate this content on? And then what is the policy 0:17:54.240 --> 0:17:57.119 of that platform in terms of you know, letting that 0:17:57.240 --> 0:18:03.720 content flow through to their competitive So that is TBD 0:18:03.920 --> 0:18:06.600 because clearly that is still operating in a lot of 0:18:06.600 --> 0:18:12.440 the creators that are on the platform are still finding 0:18:12.560 --> 0:18:15.440 a ton of engagement on TikTok and then on other 0:18:15.480 --> 0:18:19.720 platforms as the content flows through. So I answer a question, 0:18:20.359 --> 0:18:25.200 all the others will stand to benefit, notably Snapchat because 0:18:25.800 --> 0:18:28.280 of its size. So you know, when you think about 0:18:29.040 --> 0:18:32.080 two to five minutes a day per user, it will 0:18:32.119 --> 0:18:36.040 be the percentage stems the impact would be the most 0:18:36.080 --> 0:18:38.800 noticeable on a platform like. 0:18:38.800 --> 0:18:43.480 Snap Okay, great, thanks for that. And then I guess 0:18:43.520 --> 0:18:46.800 a kind of related question is you have any thoughts 0:18:46.880 --> 0:18:51.560 on valuation if there might be sort of potential bios 0:18:51.600 --> 0:18:53.840 And I guess, going back to that ninety four minutes, 0:18:53.840 --> 0:18:56.399 I would think a lot of that might be driven 0:18:56.440 --> 0:18:59.000 by that algorithm. In my understanding, is good by Dancers 0:19:00.320 --> 0:19:03.800 mooted the idea of maybe selling without algorithm, So there's 0:19:03.840 --> 0:19:08.200 any way to assess valuation with and maybe without the algorithm. 0:19:09.640 --> 0:19:13.159 Yeah, So, I mean you have to look at what 0:19:13.359 --> 0:19:18.080 has transpired in the last two years. And I think 0:19:18.119 --> 0:19:23.280 when TikTok's testimony started in the Congress, they kept saying that, 0:19:23.440 --> 0:19:27.639 you know, we have this project Texas, which was in 0:19:27.800 --> 0:19:32.240 that decoupling the US operations from the parent and so 0:19:32.359 --> 0:19:36.040 all the data and the algorithm should be decoupled. But 0:19:36.160 --> 0:19:39.359 that's not what it seems to be. I mean, given 0:19:39.480 --> 0:19:41.960 what we have heard so far from the parent company, 0:19:43.440 --> 0:19:46.199 one they don't like the idea of divesting the aset, 0:19:46.240 --> 0:19:51.000 and the other it sounds like the decoupling didn't take 0:19:51.080 --> 0:19:56.800 place in Folk. So when you think about that aspect 0:19:56.840 --> 0:20:00.199 that you know, the operations aren't fully decoupled. And for 0:20:00.240 --> 0:20:04.919 a prospective buyer to buy this asset just for the 0:20:05.000 --> 0:20:09.080 app and you know, the current data and not knowing 0:20:09.119 --> 0:20:12.120 how to recommend content or what else could be there, 0:20:12.240 --> 0:20:17.040 that is you know, very important for the data day operations. 0:20:17.640 --> 0:20:23.720 You have to apply a discount to the market multiples, 0:20:23.760 --> 0:20:27.399 And the closest comp I would say is the Twitter 0:20:27.520 --> 0:20:32.119 deal elon Mask acquisition at forty four billion, and that 0:20:32.359 --> 0:20:36.119 was probably at the high end in terms of multiple 0:20:36.600 --> 0:20:39.959 almost you know, seven times forward sales tv DO sales. 0:20:40.000 --> 0:20:43.680 So if you were to apply something like that to TikTok, 0:20:44.440 --> 0:20:49.880 based on our estimates, TikTok's revenue is less than ten 0:20:49.960 --> 0:20:53.760 billion and it's less than ten percent of the overall 0:20:53.840 --> 0:21:00.400 by dance revenue. So with that kind of discount, our 0:21:00.480 --> 0:21:05.320 original valuation was around forty billion, but then we kept 0:21:05.359 --> 0:21:08.399 lowering it because of the chance that you know, the 0:21:08.480 --> 0:21:12.439 app may be ban and any prospective buyer may not 0:21:12.840 --> 0:21:16.800 be able to retain that sort of engagement that they 0:21:16.840 --> 0:21:20.119 currently have because the algorithm goes away. So when you 0:21:20.200 --> 0:21:24.000 apply that discount, you come closer to more around thirty 0:21:24.000 --> 0:21:31.040 billion in value, and you can actually undo the maths 0:21:31.119 --> 0:21:36.960 using ev per user based on where the current market 0:21:37.040 --> 0:21:41.679 multiples are for slamp interest in you know, some of 0:21:41.720 --> 0:21:45.920 the competitors. I mean, obviously for Meta it's much higher 0:21:45.960 --> 0:21:49.679 than the others, But if you were to look at 0:21:49.720 --> 0:21:54.080 the ev per user for the other competitors and use 0:21:54.119 --> 0:21:57.760 the media and you would come close to the thirty 0:21:57.800 --> 0:22:03.800 billion number that I mentioned. So that's evaluation minus the algorithm. 0:22:03.840 --> 0:22:07.000 Obviously you can apply a steeper discount, but that's the 0:22:07.080 --> 0:22:08.320 framework we've been using. 0:22:09.880 --> 0:22:12.880 Got it? Got it? Mandy's help? Well, and can can 0:22:12.880 --> 0:22:15.600 you say a little bit more on potential buyers that 0:22:15.640 --> 0:22:19.040 you would think would be most likely to take a look. 0:22:20.760 --> 0:22:26.800 I mean, look the ones that would make the best 0:22:26.920 --> 0:22:29.920 use of the app or your Internet platforms the walled 0:22:29.920 --> 0:22:34.760 garden companies that currently have the you know, the dominant share, 0:22:34.800 --> 0:22:42.520 whether it's your Amazon, your Meta, your Google, and probably 0:22:42.600 --> 0:22:45.440 more so for the companies that currently don't have a 0:22:45.600 --> 0:22:50.840 social media asset. So a microsoftware in Amazon may uh 0:22:51.400 --> 0:22:55.960 look a lot better from that sense than a Meta 0:22:57.640 --> 0:23:01.560 or for the matter, in Alphabet and uh, you know, 0:23:01.760 --> 0:23:04.960 a company like Oracle or Salesforce, even if they end 0:23:05.040 --> 0:23:09.040 up buying it at a steep discount, you could argue 0:23:09.320 --> 0:23:14.919 because it's not core to their overall business. Like, an 0:23:14.960 --> 0:23:18.440 acquisition of this size always puts a lot of pressure 0:23:19.240 --> 0:23:21.960 in terms of you know, ROI and what you can 0:23:22.760 --> 0:23:26.879 show around revenue synergies. And I think it will be 0:23:26.920 --> 0:23:30.720 hard for them to justify it to their shoulders spending 0:23:31.160 --> 0:23:34.280 something off the order of this for buying a very 0:23:34.800 --> 0:23:40.800 unique asset. But given the complications around the algorithm and 0:23:40.880 --> 0:23:45.400 the data, I think it's still a pretty large acquisition 0:23:45.520 --> 0:23:47.280 for them. 0:23:47.720 --> 0:23:51.880 Got it Yeah, Yeah, I guess this is a bit 0:23:51.920 --> 0:23:55.840 of an anti trust concern, But there's also a separate 0:23:56.320 --> 0:24:00.160 legal review of a got such a Do you look 0:24:00.160 --> 0:24:01.440 at that as a distinct risk? 0:24:01.920 --> 0:24:04.040 Yeah, I mean that's one of the most puzzling things 0:24:04.040 --> 0:24:07.480 from a legal perspective as you try to figure this 0:24:07.600 --> 0:24:12.200 out in terms of timing, as Mandeep walks through potential buyers, 0:24:13.600 --> 0:24:16.200 TikTok's not only going to have a legal case against this, 0:24:16.680 --> 0:24:20.080 that's one track, but there's also a legal review of 0:24:20.160 --> 0:24:25.480 that acquisition leaving uside China in the US itself, and 0:24:26.400 --> 0:24:30.240 a lot of these big tech names as potential acquirers 0:24:30.320 --> 0:24:34.399 are going to you know, raise concerns with anti trust 0:24:34.440 --> 0:24:37.600 regulators and that process. And we talked about this process. 0:24:37.640 --> 0:24:41.160 We have until January nineteenth is two hundred and seventy days. 0:24:41.400 --> 0:24:44.720 You know, that process by itself can can take at 0:24:44.840 --> 0:24:49.040 least that or longer in the typical scenario as the 0:24:49.119 --> 0:24:53.520 DOJ or the FTC looks to review these things. So 0:24:54.320 --> 0:24:56.959 that's one of the puzzles about how this fits together 0:24:57.080 --> 0:25:00.879 and whether they can get anti trust clearance within the 0:25:01.040 --> 0:25:04.440 within the timeline. And you know, probably the best way 0:25:04.520 --> 0:25:08.000 to do that is to avoid these sort of big 0:25:08.040 --> 0:25:12.520 tech names that would raise the most concerned with regulators. 0:25:12.760 --> 0:25:15.280 But it's still tight no matter what. And all that, 0:25:15.320 --> 0:25:18.639 as we said, is leaving aside kind of as in 0:25:18.680 --> 0:25:20.960 its potential m and a review and the fact that 0:25:21.000 --> 0:25:24.000 it may simply say no, at least with respect to 0:25:24.600 --> 0:25:29.240 the algorithm. So there's a real subct and kind of 0:25:29.280 --> 0:25:32.200 beyond what we can cover today without knowing the potential buyer. 0:25:32.240 --> 0:25:35.639 But there's a big difficult legal problem in terms of 0:25:35.840 --> 0:25:38.840 just getting the antitrust review in the US as well. 0:25:40.240 --> 0:25:42.359 Yeah, so if you outline that, and it looks like 0:25:42.400 --> 0:25:45.280 a kind of huge can of worms if you do divest. 0:25:46.880 --> 0:25:49.520 So if you're by dance, why not just if you're 0:25:49.560 --> 0:25:51.240 going to try your chances in core, why not just 0:25:51.280 --> 0:25:54.800