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TikTok's future in the U.S. is most likely to be determined by the courts, rather than by politicians, executives or influencers.

Driving the news: Congress gave the social media company no quarter yesterday, in a four-hour hearing that mostly vacillated between moral panic and red scare.

CEO Shou Zi Chew seemed unable to persuade anyone that Project Texas, the Oracle-enabled data ringfencing effort, would solve U.S. data security concerns. 

He also bricked a couple of layups, and hewed to congeniality in the face of being called a liar and told that there wasn't remaining time for responses to questions.

What comes next: The upshot was bipartisan agreement that TikTok must be bought or banned. So let's play that out...

Parent company ByteDance is 60% owned by outside investors, including many U.S.-based venture capital firms. Its Chinese co-founders own another 20%, while the remainder is employee equity.

At TikTok's estimated value of up to $50 billion, a buyer would need just $10 billion to buy out the founders (who have voting control). That allows for a decent-sized universe of strategic suitors, including Oracle. 

But there may still be political objections to any shareholding by Chinese residents, including TikTok employees. Sure, it's absurd and ignores how other U.S. tech companies have employees in China. But we're talking about Congress, so that's table stakes. You'd likely need a bit more cash, and an IPO becomes less likely.

It's also worth noting that TikTok U.S. is just one piece of ByteDance, and currently an unprofitable one at that. ByteDance's founders might be willing to roll the dice, comforted by earnings from the rest of their empire.

This is where it gets really tricky. Imagine that Oracle makes a takeover offer so rich that ByteDance's founders can't refuse. Maybe it even throws in some of Larry Ellison's magic immortality beans.

The Chinese government could simply say no, perhaps using a 2020 law designed to protect intellectual property. Perhaps Beijing really does want all that user data, or just doesn't want to publicly capitulate to Washington. The reason is less important than the ruling. 

Some House members yesterday argued that China's ability to block a merger is evidence that ByteDance is controlled by the CCP, but it's really just evidence that a country can act in its perceived national interest to block divestitures (the U.S. government has similar abilities, albeit with much more of an adversarial legal process).

So now TikTok is in a position where the U.S. government insists it be sold or banned, but China won't allow it. 

Its only option, short of shutting down or praying for the political storm to pass, is to fight the ban demand in court.

And there is some precedent here. Back when former President Trump tried to ban TikTok, the company sued and won. 

President Biden may have a stronger case this time, and one backstopped by a new law Congress is on the verge of passing, but the final venue remains the same.

The bottom line: TikTok isn't going away any time soon, nor is it likely to have a new owner. But a lot of lawyers will be kept very busy. 

TikTok's fate may be decided by the courts

TikTok isn't going away any time soon, nor is it likely to have a new owner. But lawyers will be kept busy.

Illustration of the US Capitol dome piercing a smart phone. The Capitol has pink and blue strokes in the colors and style of Tik Tok's logo.

TikTok

Data privacy

China

TikTok&#x27;s future in the U.S. is most likely to be determined by the courts, rather than by politicians, executives or influencers.Driving the news: Congress gave the social media company no quarter yesterday, in a four-hour hearing that mostly vacillated between moral panic and red scare.

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

Technology

President Biden has made the COVID-19 crisis and a post-Trump return to national unity and traditional democratic ideals his top priorities. From vaccinations to stimulus to schools, Biden is seeking bipartisan compromise while showing a willingness to use executive authority and bare Democratic majorities in the U.S. House and Senate to implement his policies. Republican leaders are navigating deep party divisions over if and how to move beyond former President Trump.

Politics & Policy

China is becoming the most formidable rival America has faced, and the risk of confrontation with Russia, North Korea or Iran still looms. Authoritarians are rising, the chaotic Afghanistan exit revealed the limits of U.S. power, and the pandemic, climate change and other critical challenges continue to pose grave threats.

World

Data: Nielsen the Gauge; Chart: Axios Visuals

The number of new, original scripted series may start to shrink this year or next after hitting a record high in 2022, analysts warn. The amount spent on new content will also slow or contract for most of the traditional entertainment companies. 

Why it matters: Under pressure to produce profits, media companies are beginning to pivot their strategies from producing a glut of original content for their own platforms to more cautious spending and licensing out more content to competitors.

"The number of shows is down this year, and there is no reason to expect it to climb back to prior levels," said Michael Pachter, managing director of equity research at Wedbush Securities. 

"Everyone suddenly recognized that profitability matters, and they are cutting costs wherever they can. I expect more overseas production, but far less domestically."

Driving the news: A new report out Tuesday from leading media analysis firm MoffettNathanson predicts a "flattening in 2023" after two years of strong double-digit content spending growth. 

"As more companies shift their focus away from solely subscriber growth, we would expect industry content spending to be relatively flat or even decline in the outyears," wrote senior analysts Robert Fishman and Michael Nathanson.

Companies "are no longer willing to spend whatever it takes, in part because attitudes and strategies have shifted and rationalized, but also because their balance sheets no longer have what it takes," they added. 

The big picture: The slowdown will be more evident at traditional entertainment companies with less scale, like Warner Bros. Discovery, Paramount Global and NBCUniversal, none of which have profitable streaming services yet. 

"The big players are investing more in bigger programming," said Rich Greenfield, a media analyst and partner at LightShed Partners. "Apple and Amazon are going to keep ramping ... and I suspect that negates any spending pullback you see from the legacy media companies."

Greenfield is more optimistic about overall spend, arguing that the rate of growth in total programming spending "will slow dramatically from the last 5–10 years," but "I don't think it flatlines or declines."

Instead, he argues, companies will focus on "fewer, better pieces of content," and he noted that while the number of new pieces of content is less relevant when evaluating the health of the industry, "2023 could be the peak."

Between the lines: The pivot toward licensing content could start to slow the number of original new shows, in part because it gives streamers more options. 

In a different report last week, MoffettNathanson analysts noted that produced content for Netflix reached nearly 60% of its total content in 2022, up from about 20% five years prior. 

Asserting that original production is an "inherently riskier" strategy than licensing previously released shows, the analysts questioned whether 2022 "might be the peak level of produced content [for Netflix] as media companies start to rethink licensing content."

Be smart: For traditional programmers, the push to compete with Netflix has put an enormous strain on finances, but it has helped them reclaim viewers' attention amid the shift to streaming. 

Netflix's share of global demand for original streaming programming is shrinking as more competitors step up their content investments, according to data provided to Axios from Parrot Analytics. 

Netflix is still the top streamer in terms of profitability and global subscribers, but increased competition has forced it to reconsider its business strategy to mimic its legacy competitors — adding a new, ad-supported tier, experimenting with theatrical releases, and putting a heavier focus on password sharing. 

Data: Parrot Analytics; Chart: Alice Feng/Axios

By the numbers: Streaming's share of TV consumption dipped last month, according to Nielsen, as streamers struggled to capture viewers' attention with new hits. 

As Bloomberg notes, many of the top streaming shows at the beginning of February were reruns, suggesting new shows are struggling to break through. 

"TV engagement in February confirms a very basic truth: viewership reflects the availability of what audiences are looking for," Nielsen wrote, noting that February had fewer "high-demand, mass-appealing programs than January."

Of note: Nielsen said it changed its methodology last month.

The bottom line: “We are post-peak relative to the pandemic-driven viewing and production in 2020 and 2021," said Seth Geiger, president and co-founder of SmithGeiger, a media research firm. 

"From a consumer perspective, the shift is both in terms of total screen time — which exploded in 2020 and has now softened a bit — and contraction on spending. This of course drives the number of titles which is experiencing a reckoning as well."

Analysts predict streaming spend and new content slowdown in 2023

Everyone suddenly recognized that profitability matters, and they are cutting costs wherever they can.

Media trends

The number of new, original scripted series may start to shrink this year or next after hitting a <a class="gtmContentClick" data-vars-link-text="record high" data-vars-click-url="https://www.axios.com/newsletters/axios-media-trends-1f66ce7b-9a47-400c-ac21-1c4efa4d5eba.html?chunk=3&amp;utm_term=twsocialshare#story3" data-vars-item="in_content_link" href="https://www.axios.com/newsletters/axios-media-trends-1f66ce7b-9a47-400c-ac21-1c4efa4d5eba.html?chunk=3&amp;utm_term=twsocialshare#story3" target="_self">record high</a> in 2022, analysts warn. The amount spent on new content will also slow or contract for most of the traditional entertainment companies. Why it matters: Under <a class="gtmContentClick" data-vars-link-text="pressure to produce profits" data-vars-click-url="https://www.google.com/search?q=axios+wall+street+streaming+profit&amp;oq=axios+wall+street+streaming+profit&amp;aqs=chrome..69i57j33i160l2.4978j0j7&amp;sourceid=chrome&amp;ie=UTF-8" data-vars-item="in_content_link" href="https://www.google.com/search?q=axios+wall+street+streaming+profit&amp;oq=axios+wall+street+streaming+profit&amp;aqs=chrome..69i57j33i160l2.4978j0j7&amp;sourceid=chrome&amp;ie=UTF-8" target="_blank">pressure to produce profits</a>, media companies are beginning to pivot their strategies from producing a glut of original content for their own platforms to more cautious spending and <a class="gtmContentClick" data-vars-link-text="licensing out" data-vars-click-url="https://www.axios.com/newsletters/axios-media-trends-74b96917-f73a-4ee8-8bcf-baf5c3d68e57.html?chunk=4&amp;utm_term=twsocialshare#story4" data-vars-item="in_content_link" href="https://www.axios.com/newsletters/axios-media-trends-74b96917-f73a-4ee8-8bcf-baf5c3d68e57.html?chunk=4&amp;utm_term=twsocialshare#story4" target="_self">licensing out</a> more content to competitors.

Data: AppTopia; Note: Musically became TikTok in the U.S. on Aug. 2, 2018; Table: Axios Visuals

The U.S. government's threat to ban TikTok takes aim at what has become the most popular smartphone app in the country.

Why it matters: TikTok’s scale presents an enormous challenge to lawmakers trying to argue that the app's national security threat outweighs the wishes of the millions of people and businesses that use the app.

The TikTok app has been downloaded more times in the U.S. than any other social app since it merged with U.S. lip-syncing app Musical.ly in August 2018, according to data from Apptopia.

The app is expected to generate more than $11 billion in U.S. ad revenue by 2024, far outpacing rivals like Snapchat, Pinterest and Twitter, per eMarketer. 

TikTok has also captured far more revenue than its competitors from in-app purchases, like coins that fans can use to tip their favorite creators, per Apptopia.

Driving the news: TikTok CEO Shou Zi Chew plans to highlight the app's growth in remarks prepared for his first-ever Congressional testimony on Thursday and released Tuesday night by the House committee he will address.

The company now counts more than 150 million monthly active users in the U.S., up from the 100 million users it first reported in 2020, executives confirmed to Axios.

Chew will also likely cite TikTok's role in supporting small businesses — a message that's also been used by tech rivals like Meta and Google when faced with regulatory pressure.

On Tuesday, Chew posted a TikTok video touting the app's reach, asserting that 5 million U.S. businesses, a majority of which are small or medium-sized, use TikTok to reach their customers.

Be smart: Tuesday's video is part of a broader consumer campaign that the short-video platform is beginning to push amid growing efforts by federal and state governments to limit or ban the app.

Last week, The Information reported that TikTok sent a message to some creators inviting them to join its top executives in Washington, D.C., to support the company on Capitol Hill. 

This week, TikTok is trying to appeal to users directly in the app. "Some politicians have started to talk about banning TikTok," Chew said in the video posted Tuesday. "Now this could take TikTok away from all 150 million of you." 

He then directed users to leave comments about "what you want your elected representatives to know about what you love about TikTok."

Between the lines: TikTok has ramped up its marketing efforts in recent weeks, buying prominent ad space alongside many of D.C.'s most prominent political publications.

While most of TikTok's consumer messaging is focused on the ban risk facing the app, its Washington campaign has mostly focused on steps the company is taking to protect U.S. user data.

The big picture: Surveys indicate that the public remains mostly divided on whether the government should ban TikTok, but Republicans are much more likely to support a ban than Democrats. 

Lawmakers that oppose the ban argue the government needs to find more convincing proof that TikTok is a national security threat before forcing the app's Chinese parent ByteDance to sell to a U.S. company or face a ban. 

Lawmakers that support moves against TikTok say the app is a threat to U.S. user data privacy because of Chinese laws that require Chinese companies to share user data with China's government. 

Yes, but: Many lawmakers fall somewhat in the middle, arguing that lawmakers need to provide the public with more clarity about the actual national security risks.

"If you're going to pull the plug on one of the largest digital communities in the country, you have to make a very clear case for why you're doing that,” Rep. Jeff Jackson (D-N.C.), an avid TikTok user whose office says he supports banning TikTok if its owners don't sell, told Bloomberg. 

What to watch: TikTok's U.S. tech rivals have been waiting in the wings, hoping their TikTok clones — like Reels on both Facebook and Instagram, YouTube Shorts, and Snapchat's Spotlight — could steal some market share from TikTok if it were banned.

Those services have all launched in the wake of former president Trump's initial proposal to ban TikTok in 2020, and many have grown pretty sizable. 

Google said last month that YouTube Shorts has crossed 50 billion daily views. 

Meta CEO Mark Zuckerberg said last month that Reels plays across Facebook and Instagram "have more than doubled over the last year," and people sharing Reels "has more than doubled on both apps in just the last 6 months."

Editor's note: This story has been updated to clarify Rep. Jackson's position on a  possible TikTok ban.

TikTok's popularity complicates possible U.S. ban

Any move to ban the app will face the reality that a vast number of Americans use it — a lot.

Washington D.C.

D.C. Alerts

Washington, DC Members

A daily look at the most significant and interesting stories affecting Washington, DC. Written by Chelsea Cirruzzo, Cuneyt Dil and Paige Hopkins.

Axios D.C. Thought Bubble

Axios D.C.

Monumental readies $20M overhaul of D.C.'s regional sports network

The investment is notable given the TV distribution crisis hitting dozens of local sports teams around the country.

Media

Monumental Sports &amp; Entertainment, the owner of the Washington Wizards, Mystics and Capitals and Capital One Arena, is planning a major rebrand and investment in NBC Sports Washington, the regional sports network it fully <a class="gtmContentClick" data-vars-link-text="acquired" data-vars-click-url="https://www.prnewswire.com/news-releases/monumental-sports--entertainment-completes-acquisition-of-nbc-sports-washington-301628850.html#:~:text=20%2C%202022%20%2FPRNewswire%2F%20%2D%2D,Sports%20Washington%20from%20Comcast%20Corporation." data-vars-content-id="e05ceced-6c51-4679-8307-0e97b0160dec" data-vars-headline="Monumental readies $20M overhaul of D.C.&#x27;s regional sports network" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.prnewswire.com/news-releases/monumental-sports--entertainment-completes-acquisition-of-nbc-sports-washington-301628850.html#:~:text=20%2C%202022%20%2FPRNewswire%2F%20%2D%2D,Sports%20Washington%20from%20Comcast%20Corporation." target="_blank">acquired</a> from Comcast last September, a top executive told Axios. Why it matters: Owning the network insulates Monumental from the <a class="gtmContentClick" data-vars-link-text="distribution crisis" data-vars-click-url="https://www.axios.com/pro/media-deals/2023/03/15/diamond-bankruptcy-mlb-diamondbacks" data-vars-content-id="e05ceced-6c51-4679-8307-0e97b0160dec" data-vars-headline="Monumental readies $20M overhaul of D.C.&#x27;s regional sports network" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/pro/media-deals/2023/03/15/diamond-bankruptcy-mlb-diamondbacks" target="_self">distribution crisis</a> hitting dozens of sports teams around the country. It also gives Monumental the resources needed to create its own local sports streaming app, which it plans to launch next year.

Shifts in technology and media are changing the way we play, watch and understand sports. Business models are adapting and social change is forcing those in charge of teams and leagues to reconsider decades-old practices.

Sports

Communicators

Axios Communicators

Axios HQ, the communications software company that spun off of Axios last year, has raised $20 million in Series A funding at nearly a $100 million post-money valuation. 

Why it matters: It's rare for media companies to create software startups.

While many media firms license their own proprietary tech, few actually spin out their tech departments into independent companies. 

Axios HQ is leveraging the brand equity and trust built by Axios, which is primarily an email-driven news company, to attract clients that need better email communication tools to reach internal and external stakeholders. 

Catch up quick: Axios HQ was launched in 2021 as a separate tech division within Axios. It split off from Axios in 2022, after Axios Media was acquired by Cox Enterprises for $525 million. 

The company is majority-owned by the Axios founders. Cox Enterprises serves as a minority investor. 

Glade Brook Capital Partners led the Series A round, and was joined by Greycroft. Both were investors in Axios Media.

Axios' co-founder and president Roy Schwartz is the CEO of Axios HQ. Axios co-founder and CEO Jim VandeHei is chairman of the board.

Details: Proceeds will be used to help HQ scale its suite of tools and services that it currently uses to service over 500 enterprise clients, which include brands like  Sweetgreen and Edelman. 

To-date, the company says it has nearly $7 million in annual recurring revenue. 

Between the lines: Axios HQ is leaning heavily into artificial intelligence tools to help its clients write clearer emails. 

The software helps users automatically sharpen their writing with stronger wording suggests. It also offers suggestions for pictures, headlines and summaries that can be used to strengthen their communications, using AI. 

The big picture: More companies are leaning into artificial intelligence to grow public relations and communications tools. 

Some are using AI tools to help companies write press releases. Others are using AI to help communications departments understand which reporters to pitch.   

Axios HQ raises $20 million

It's rare for media companies to create software startups.

Media deals

Axios Pro: Deals

Axios HQ, the communications software company that spun off of Axios last year, has raised $20 million in Series A funding at nearly a $100 million post-money valuation. Why it matters: It&#x27;s rare for media companies to create software startups.

Sara Fischer

Stories

TikTok's fate may be decided by the courts

Axios HQ raises $20 million

TikTok's popularity complicates possible U.S. ban

Analysts predict streaming spend and new content slowdown in 2023

Monumental readies $20M overhaul of D.C.'s regional sports network