NEW YORK/BEIJING/WASHINGTON—The U.S. government has launched a national security review of TikTok owner Beijing ByteDance Technology Co’s $1 billion acquisition of U.S. social media app Musical.ly, according to three people familiar with the matter.
While the $1 billion acquisition was completed two years ago, U.S. lawmakers have been calling in recent weeks for a national security probe into TikTok, concerned the Chinese company may be censoring politically sensitive content, and raising questions about how it stores personal data.
Review of Acquisition
The Committee on Foreign Investment in the United States (CFIUS), which reviews deals by foreign acquirers for potential national security risks, has started to review the Musical.ly deal, the sources said. TikTok did not seek clearance from CFIUS when it acquired Musical.ly, they added, which gives the U.S. security panel scope to investigate it now.CFIUS is in talks with TikTok about measures it could take to avoid divesting the Musical.ly assets it acquired, the sources said. Details of those talks, referred to by CFIUS as mitigation, could not be learned. The specific concerns that CFIUS has could also not be learned.
The sources requested anonymity because CFIUS reviews are confidential.
“While we cannot comment on ongoing regulatory processes, TikTok has made clear that we have no higher priority than earning the trust of users and regulators in the U.S. Part of that effort includes working with Congress and we are committed to doing so,” a TikTok spokesperson said. ByteDance did not immediately reply to a request for comment.
National Security
Last week, U.S. Senate Minority Leader Chuck Schumer and Senator Tom Cotton asked for a national security probe in a letter to Joseph Macguire, acting director of national intelligence.On Nov. 1, Schumer welcomed news of the probe in an emailed statement, calling it a “validation of our concern that apps like TikTok...may pose serious risks to millions of Americans and deserve greater scrutiny.”
TikTok allows users to create and share short videos with special effects. The company has said U.S. user data is stored in the United States, but the senators noted that ByteDance is governed by Chinese laws.
Last month, Musical.ly founder Alex Zhu, who heads the TikTok team, started to report directly to ByteDance CEO Zhang Yiming, one of the sources said. He previously reported to Zhang Nan, the head of ByteDance’s Douyin, a Chinese short video app. It was not clear whether this move, which separates TikTok organizationally from ByteDance’s other holdings, was related to the company’s discussions with CFIUS over mitigation.
In October, U.S. senator Marco Rubio asked CFIUS to review ByteDance’s acquisition of Musical.ly. He cited questions about why TikTok had “only had a few videos of the Hong Kong protests that have been dominating international headlines for months.”
Facebook CEO Mark Zuckerberg, whose product competes with TikTok particularly for younger users, has also criticized the app over censorship concerns.
The United States has been increasingly scrutinizing app developers over the personal data they handle, especially if some of it involves U.S. military or intelligence personnel.
Chinese gaming company Beijing Kunlun Tech Co. said in May it would seek to sell its popular gay dating app Grindr after CFIUS approached it with national security concerns.
Company’s Rise
ByteDance is one of China’s fastest growing startups. It owns the country’s leading news aggregator, Jinri Toutiao, as well as TikTok, which has attracted celebrities like Ariana Grande and Katy Perry.ByteDance counts Japanese technology giant SoftBank, venture firm Sequoia Capital, and big private-equity firms such as KKR, General Atlantic, and Hillhouse Capital Group as backers.
Analysts have called ByteDance a strong threat to other Chinese tech industry firms including social media and gaming giant Tencent Holdings and search engine leader Baidu Inc. Globally, ByteDance’s apps have 1.5 billion monthly active users and 700 million daily active users, the company said in July.
The seven-year-old Chinese startup posted a better-than-expected revenue for the first half of 2019 at over $7 billion, and was valued at $78 billion late last year, sources have told Reuters.