ByteDance Reportedly Has Beijing’s ‘Blessing’ For TikTok-Oracle Deal

ByteDance Reportedly Has Beijing’s ‘Blessing’ For TikTok-Oracle Deal

Fri, 09/18/2020 – 06:20

As ByteDance, Oracle and the group of investors scrambled to assuage GOP China Hawks demands to ensure that the CCP will have no access to the personal data of TikTok’s 100 million American users earlier this week, we couldn’t help but wonder whether all these behind-the-curtain negotiations might be in vain.

Not only has Beijing expressed its opposition to a “smash & grab” deal via Chinese state-controlled media, but CCP officials imposed new restrictions on deals involving sensitive AI technology, including the content-recommendation algorithm that lies at the heart of TikTok, and which is said to be its most critical piece of technology, according to Bloomberg.

Finally, Bloomberg has offered us some insight into this question. According to a report published late Thursday night in the US (Friday morning in China), ByteDance has become “more confident” that the deal it has “envisioned” with Oracle (and  Wal-Mart, and a smattering of other, mostly American, investors) will receive Beijing’s stamp of approval.

TikTok-owner ByteDance Ltd. is getting more confident its envisioned alliance with Oracle Corp. will pass muster with China’s regulators, a critical step in the political clash over the popular video app, people familiar with the matter said.

While Beijing has asserted its right to block the sale of critical technologies, it is likely to greenlight a deal as long as it doesn’t involve the transfer of the artificial intelligence algorithms that drive TikTok’s service, they said, asking not to be identified discussing a private deal. That’s true even if ByteDance were to cede majority control over TikTok, they said.

ByteDance struck a deal with Oracle and later made revisions put forward by the Treasury Department aimed at addressing U.S. national security concerns, Bloomberg reported Thursday. The proposal calls for ByteDance to own most of a ringfenced TikTok, with Oracle, Walmart Inc. and venture capital investors holding a minority of a new company that will pursue an initial public offering in about a year. But President Donald Trump has the final word and has said he doesn’t want the Chinese parent to retain majority control.

The Trump Administration made clear that it wasn’t comfortable with ByteDance retaining majority control over the new US-based company (which, according to press reports, would be headed for a blockbuster IPO some time next year). By the looks of it, this could be the only route to a compromise. ByteDance might give up majority control of TikTok, but it will be handsomely compensated by American investors. Meanwhile, the spinoff of TikTok’s global business will confer unprecedented clout, while simultaneously filling the ByteDance’s coffers.

The report also included some new details about the Oracle-TikTok plan. Apparently, the two companies have agreed to oversight controls including an all-American board of directors that must be approved by the US government, as well as Oracle monitoring and approving

The plan revised with Treasury calls for the new TikTok to be headquartered in the U.S. with an independent board, approved by the U.S. government and made up entirely of U.S. citizens. The board would include a national security committee – led by an American data-security expert who would be the primary contact with the Committee on Foreign Investment in the U.S. – which would oversee any issues of concern to Washington.

The new terms include 20 pages of detailed provisions over data and national security, the people said. Under the existing proposal, Oracle has power to review the software or source code underlying the TikTok service, but ByteDance maintains ownership.

That technological division could remain even if American investors end up with control of TikTok’s equity. Oracle and ByteDance have accepted Treasury’s conditions, people familiar with the talks have said.

Also, there might be a role in the new organization for former Instagram head Kevin Systrom, possibly even as CEO. Systrom is best known for his feud with FB CEO Mark Zuckerberg.

ByteDance executives have also spoken to Instagram co-founder Kevin Systrom about a possible role in the new organization, according to another person familiar with the discussions. It’s not clear if the discussions are advanced, the person said.

If this report is accurate, ByteDance founder Zhang Yiminghas must simply retain control of TikTok’s core algorithm, and Beijing will sign off. That sounds almost…too good to be true, which begs the question: does this represent a kind of capitulation from Beijing? 

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