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TikTok Establishes New U.S. Entity Amid Regulatory Pressure

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TikTok's U.S. Operations to Spin Off into New U.S.-Majority-Owned Entity

TikTok's parent company, ByteDance, has finalized an agreement to establish a new U.S.-majority-owned entity to manage its U.S. operations. This pivotal move directly addresses years of U.S. government pressure regarding national security concerns and aims to prevent a ban on the popular social media platform in the United States.

Agreement Overview

The agreement establishes a new U.S.-majority-owned joint venture that will acquire TikTok's U.S. assets and operate a distinct U.S. version of the application. Key investors in this new entity include software company Oracle, private equity firm Silver Lake, and the Emirati investment firm MGX.

ByteDance will retain a 19.9% stake in the new venture. Reports indicate that the consortium of investors—including Oracle, Silver Lake, and MGX—will collectively hold 80.1% of the new venture. Michael Dell's investment firm is also listed among the investors.

Context and Regulatory Pressure

This agreement concludes years of regulatory uncertainty and scrutiny surrounding TikTok's presence in the U.S., which began in August 2020 when former President Donald Trump attempted to ban the app. The U.S. government's concerns primarily centered on potential access by the Chinese government to U.S. user data and the ability to influence content on the platform, citing national security risks.

In 2024, the U.S. Congress passed legislation, signed by President Joe Biden, which mandated the divestiture of TikTok's U.S. operations from ByteDance or face a ban. This law was subsequently upheld by the Supreme Court in January.

Enforcement of this legislation was repeatedly delayed, with a final deadline for the transaction's finalization set for January 23. The deal was finalized one day before this deadline. Former President Donald Trump expressed support for the deal following its approval and publicly thanked Chinese President Xi Jinping.

Ownership and Leadership

The new U.S. venture will be led by Adam Presser, who previously served as TikTok's head of operations and trust and safety, as its CEO. Will Farrell has been appointed Chief Security Officer.

A seven-member, majority-American board of directors will oversee the entity, including TikTok CEO Shou Chew, Kenneth Glueck (Executive Vice President at Oracle), and representatives from Silver Lake, Susquehanna International Group, and MGX.

Operational Safeguards and Changes

The new U.S. entity will implement specific safeguards designed to protect national security. These include:

  • Data Protection: Comprehensive data protections, with U.S. user data to be stored locally within a system managed by Oracle. ByteDance had previously initiated "Project Texas" to store U.S. user data on domestic servers.
  • Algorithm Management: ByteDance will license TikTok's algorithm to the U.S. entity. This algorithm will undergo retraining, testing, and updates using U.S. user data. While the algorithm's ownership is stated to remain with Beijing-based ByteDance, the new entity aims to oversee it with American auditors. U.S. law specifically prohibits "any cooperation with respect to the operation of a content recommendation algorithm" between ByteDance and the new American ownership group.
  • Content Moderation: The U.S. joint venture will be responsible for content moderation for U.S. users and for developing and enforcing related policies.
  • User Experience: The restructuring is anticipated to result in a U.S.-specific algorithm, which could potentially alter the user experience and impact advertisers and content creators. However, the user experience for American users is largely expected to remain unchanged, with interoperability allowing the venture to offer a global TikTok experience.

Operationally, managing distinct U.S. and global algorithms, separate workforces, and parallel governance structures is anticipated to increase engineering costs, potentially slow innovation, and add to overall operational complexity for ByteDance.

Broader Implications

The establishment of a separate U.S. entity will result in two distinct operational versions of TikTok: one managed by the U.S.-backed company with specific content and data security protocols for American users, and another operated globally by ByteDance for the rest of the world. TikTok serves an estimated 2 billion users worldwide, with less than 10% of its global user base located in the United States.

This deal is viewed by some experts as a "defining moment," potentially setting a precedent for other countries seeking to separate data sovereignty and digital affairs on a single platform.

It reflects a nuanced governmental approach to Chinese technology companies within the broader context of U.S.-China geopolitical rivalry. While the U.S. gains control over data and content narrative, China preserves its intellectual property rights over the algorithm.

The Chinese government has not publicly commented on the final deal structure, though a ministry spokesperson previously expressed hope for solutions compliant with Chinese laws and reflecting balanced interests, and for the U.S. to provide a fair business environment for Chinese enterprises. The structural change is also anticipated to carry implications for ByteDance's overall international strategic goals. ByteDance has faced similar regulatory challenges in other regions, such as India, where TikTok was banned in 2020.