Blocking TikTok Opens a Can of Worms for Facebook, Google

(Bloomberg Opinion) -- Be careful what you wish for.

You might think that the Trump administration banning Chinese ownership of video-sharing app TikTok in the U.S. on national security grounds would be a win for social-media competitors such as Facebook Inc., Alphabet Inc. and Twitter Inc. Selling Bytedance Inc.'s operations in several major English-speaking markets to Microsoft Corp. raises the hope that TikTok might suffer the sort of benign neglect that's neutered other Microsoft-owned media assets, such as LinkedIn and Skype. Facebook lost no time in launching a copycat video-sharing service to compete.

The decision opens a Pandora's Box that digital platforms might one day wish had been kept closed. By citing data privacy and foreign influence to justify its restrictions, the U.S. has thrown a spotlight on issues that Silicon Valley's social media companies have done well to keep in the shadows as they've grown to world-spanning power.

While it's tempting to label President Donald Trump's actions around TikTok a “shakedown,” his administration hasn't been uniquely hostile to foreign investment, despite a barrage of hot rhetoric and high-profile cases around Huawei Technologies Co. and ZTE Corp. Even after a law was passed in 2018 to tighten national security scrutiny by the Committee on Foreign Investment in the U.S., Washington's takeover-review panel, investigations by last year were being initiated at a rate similar to during President Barack Obama's second term. Foreign direct investment in the U.S., meanwhile, has continued to tick upward around long-term trend rates.

Media companies have always been regulated more tightly, especially in relation to foreign ownership. Rupert Murdoch had to give up Australian citizenship to buy a group of U.S. television stations in 1985, and little has changed since. When a British-Polish couple spent $8,000 buying a tiny radio station serving the upstate New York town of Tupper Lake in 2018, they needed to apply for a special waiver from the Federal Communications Commission. 

In that context, the lax treatment of digital media platforms looks like a loophole that's never been closed. TikTok hasn't needed to get a permission note from the FCC to get a lock on the attention of tens of millions of Americans, any more than Facebook has needed to jump media-ownership hoops in other countries to become the prime news source to more than 2.4 billion active users outside the U.S.

Part of the reason for the distinction comes down to a simple issue of enforcement. Broadcasters are treated as special cases because they depend on licenses to the limited public radio spectrum, giving governments leverage that they don't have over print and digital companies.

Still, behind all media regulation is a recognition of the industry's importance in forming a country's public sphere and shaping the direction of political debate. That's an awkward space for democratic governments, given how it edges close to controls on freedom of speech. Historically, the solution has been to use antitrust powers to prevent any player getting too large an audience, combined with foreign investment and local-content rules to prevent outsize control by overseas owners.

Those regulations were designed for an era that had never conceived of Facebook, though. Thanks to that lack of oversight and decades of lobbying, the Silicon Valley companies that are now the world's largest media businesses have been more or less exempt from the regulation that their print-and-broadcast peers still deal with.

The extent to which this has been the case is remarkable. Even among authoritarian countries, China is unusual for banning U.S. digital platforms. People in Vietnam, Saudi Arabia and Russia are respectively among the biggest users of Facebook, Twitter and Instagram. That's been a quiet victory for companies that make billions in revenue outside the U.S. The attack on TikTok has made this status quo far more difficult to maintain.

In Europe, privacy issues have already spawned the General Data Protection Regulation that now puts cookie pop-ups onto every website you visit. The European Union's antitrust chief, Margrethe Vestager, has repeatedly warned that breaking up tech giants remains on the table, if only as a “last resort.”

It would be better for Silicon Valley's social media companies if they could hold on a little longer to their fraying image as innocuous providers of cat videos and inspirational quotes, rather than under-regulated behemoths with the power to sway electorates. By putting that issue so firmly on the agenda, the Trump administration hasn't done them any favors.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

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