Implications of Banning TikTok
Last Thursday, US lawmakers questioned TikTok’s CEO, Shou Zi Chew, in Washington D.C. over concerns about the Chinese government’s influence over the short-form video app’s parent company, ByteDance. The testimony lasted over five hours and consisted of Shou Zi Chew consistently denying that the TikTok app shares data with the Chinese Communist Party (CCP). Given the geopolitical tensions right now between the U.S. and China, the two largest gaming markets, this topic is intensely relevant to our industry.
American lawmakers are trying to determine what steps the US government should take to protect not only the data of domestic TikTok users, but also limit (or eliminate) the influence that a company minority-owned by the CCP could have over Americans. Solutions range from an outright ban of TikTok to a divestiture of ByteDance’s ownership of TikTok. This is the culmination of several years of issues surrounding not only ByteDance, but also the CCP and how it controls and monitors people (initially domestically but now internationally).
Here are a few key highlights of what has happened to date:
- Board Seats: The CCP has one of Bytedance’s three board seats despite reportedly only having 1% ownership in the company. Additionally, ByteDance has an internal Chinese Communist Party committee that ensures that the company “work(s) to promote the party’s interests and its propaganda” (Washington Post 1, 2).
- “National Security”: China implemented a law in 2017 that requires companies to give the government any personal data relevant to the country’s national security. While there is currently no evidence (available to the public) that TikTok has turned over such data, this is a justifiable fear due to the amount of data it collects. It is also unclear how broad “data pertaining to national security” is in practice (The Diplomat).
- Freedom of the Media: Concerns were heightened in December when ByteDance said it fired four employees who accessed data on two journalists from Buzzfeed News and The Financial Times while attempting to track down the source of a leaked report about the company (Engadget).
TikTok’s US user data is currently stored through a contract with Oracle under the name “Project Texas”, and the company has reportedly spent $1.5b (on their restructuring and data storage plan in the US) to regain American confidence that data from American citizens is not being used by or given to the CCP (Mashable).
The issue here is that trust is built over a long period of time, can be lost very quickly, and cannot be purchased back (that takes time and action, not money). When it comes to the CCP (and now TikTok); in the eyes of the US government, most US businesses, and soon the American consumer; trust has left the building.
Who Bans TikTok next?
As of today, there are a variety of TikTok bans across the globe. Countries that have already banned TikTok outright include India, Pakistan, and Afghanistan. Jurisdictions that have banned TikTok from government and other official devices include the United Kingdom, European Union (The European Parliament, European Commission and the EU Council), Belgium, Denmark, Canada, Taiwan and the United States (Time).
We believe that if the US takes the action of banning TikTok for all users, we will see a similar action across many of its geopolitical allies. While a full outright ban may happen, we do think that ByteDance will likely try to divest TikTok if an outright ban becomes the preference of the US government. Whichever path the US decides to take (full ban or divestiture), we expect many NATO allies and countries like Australia will likely mimic the US approach (at least in part).
In free market economies that are governed by democracies, the overreach of government intervention is frowned upon (at best) if not completely against the very fabric of a free society. Countries that share the US approach to free markets and freedom of enterprise will likely follow suit in short order.
How Does Banning TikTok Affect Games?
While TikTok is a major social media platform, it is currently not a large UA channel across games since the app is mobile-first and therefore affected by IDFA and AAID deprecation. Due to TikTok’s algorithmic and viral content strategy, gaming videos are typically presented to users through different gaming accounts instead of direct marketing. They can promote their accounts and posts but there are actually larger opportunities around game brand accounts participating in trends.
While TikTok may not be a core UA channel today for gaming, it is well positioned to be in the future if it somehow finds a way to avoid government scrutiny. Gen Z is a core focus right now for game publishers because 87% of Gen Z plays video games every week (Deloitte).When it comes to Gen Z, TikTok is a large part of their social media consumption. The top three social media platforms for Gen Z are Snapchat, TikTok, and Instagram, respectively. 41.4m (~60%) of the US Gen Z audience uses TikTok, and that number is expected to grow to 49.8m in 2025.
The Implications of “The Restrict Act”
Today, a bill is being proposed (but has not passed yet) in Washington D.C., which is the the “Restricting the Emergence of Security Threats that Risk Information and Communications Technology” Act (AKA the Restrict Act) is a core piece of legislation at the center of the TikTok controversy. While it is meant to combat TikTok’s influence, there are cascading effects that are also creating controversy.
Publicly, the Restrict Act is meant to make it easier for the government to ban or force the sale of specific software or equipment from certain countries if it is deemed to pose a security risk. As of today this is limited to “foreign adversaries” of the US, which includes China, Cuba, Iran, North Korea, Russia, and Venezuela (Code of Federal Regulations).
The first major concern is what precedent this Restrict Act sets for the future the government having the ability to ban apps that pose (or could pose) a threat. Similar to the Patriot Act, critics are concerned that the Restrict Act could give the government wider power to ban other platforms if they deem it a security risk. As of today, the bill is not just limited to TikTok or ByteDance, but any company that “has not less than 1,000,000 United States-based annual active users at any point during the year preceding the date on which the covered holding is referred to the President.”
Gaming falls under the umbrella of software according to the U.S. government. One million annual (not monthly) active users over a preceding 12 month period is not a high threshold when it comes to gaming companies. In the future, non-US based gaming companies could find themselves being banned under the purview of the Restrict Act if affiliated with one of the listed foreign adversaries.
Takeaway: Today, TikTok is a fantastic product experience enjoyed by hundreds of millions of people around the world. Unfortunately, the CCP’s ownership, influence, and control over ByteDance is giving them access to data and influence over US citizens, posing a threat to US security interests. In D.C, the US government has set up the Restrict Act, which gives them the ability to ban any app with 1m annual users that are from the jurisdiction of a deemed “foreign adversary”. We have some concerns with the precedent the Restrict Act sets for potentially banning other apps (or games) in the future, so we hope to see it amended to be more restrictive (pun intended) on the US government.
In conclusion: the CCP stands in opposition to the idea of free markets, democracy, and data privacy. In addition, the CCP has not been a friend to the gaming industry, as they have notoriously restricted and put handcuffs on the gaming community’s creators and players. We believe that the CCP should not be allowed to have such unwarranted influence over TikTok (or any other private enterprise), which is a quickly emerging UA channel for the gaming industry.