The US is banning TikTok, could Fortnite and League of Legends be next? | This Week in Business

This Week in Business is our weekly recap column, a collection of stats and quotes from recent stories presented with a dash of opinion (sometimes more than a dash) and intended to shed light on various trends. Check every Friday for a new entry.

The US government this week said it will ban TikTok if the platform isn't sold in the next nine months.

It's a terrible idea, one predicated on the app being a national security risk because it's owned by Chinese firm ByteDance.

ByteDance said it will challenge this through the courts, but with the Supreme Court now firmly entrenched in its Calvinball era, who knows if the actual constitutionality of the law (or lack thereof) will have any bearing on its ultimate fate?

It's a strange bill for a country that prides itself so much on its free market economy, as it specifically names ByteDance as the company targeted by the legislation and TikTok as a service that cannot be permitted to continue operating in its current fashion.

It's not even clear what must happen with TikTok to make it sufficiently free of Chinese influence, as the law's definition for a "qualified divestiture" leaves it largely up to the president to determine if a sale of TikTok (or even a spin-off into a separate, US-based company) addresses concerns sufficiently.

In fact, under the text of the law, if some other company were to come along and do everything exactly the same as ByteDance, including being owned by a Chinese company, and offered a service substantially identical to TikTok, it would be perfectly legal until the president said it was a significant threat to national security.

And that's a particularly worrisome thing for the games industry, which stands to lose a lot more than just an effective marketing platform out of this. Even though the law specifies TikTok by name, the law also allows the president to apply it to other companies.

It does put some limits on which kind of companies the president can unilaterally force into a sale under threat of ban, and it's basically any company that meets the following criteria:

• The company makes a website or application that lets you make or share text, images, video, real-time communications like voice chat, or other such content
• That website or app has had 1 million monthly active users for at least two out of the past three months
• That company is based in a foreign adversary country, or parties based in such countries directly or indirectly own a 20% stake in the company

You might have noticed that applies to a number of major players in games.

STAT | 40% - The percent of Epic Games purchased by Tencent in 2012.

[UPDATE: After publication, an Epic Games representative reached out to give us a more current figure. These days, Tencent owns about 35% of Epic shares.]

That's a little concerning. Fortnite can hit the 1 million user threshold 45 times over on a good day, never mind what it does in a whole month. And last year Epic told us Unreal Engine itself had about 750,000 active users and it certainly fulfills the other criteria. If Unreal Engine grows much more, the law could require Epic to sell that too, along with its other popular games that include text or voice chat.

[UPDATE 2: A bit longer after publication, an Epic representative offered comment on the possibility of Fortnite falling under the law, saying, "Epic is an American company based in North Carolina. Tim's the controlling shareholder. There is no realistic chance of the Tik Tok scenario occurring with Epic. In the worst case scenario, Tencent would have to sell 15% to other shareholders, and business would continue on as usual."]

STAT | 100% - The percentage of League of Legends maker Riot Games acquired by Tencent in 2011.

If Biden gets tilted because his jungler game isn't flowing tonight, League of Legends is getting banned tomorrow.

The whole thing's a bit more arbitrary than one might like to see from a law, leaving the fate of massive companies, homegrown success stories, and one of the largest communication platforms in the world up entirely up to the question of whether the president says its OK or not. Putting in the sweat and toil to build a successful business and then having the government come in and take it away from you? Why, I was always told that's the sort of injustice that happens under communism!

But this is ridiculous, right? TikTok is a social media platform and these are just games. Even if Chinese companies have an interest in them, nobody seriously thinks the US government is going to start banning games over it.

QUOTE | "Trump administration reportedly questions Epic, Riot about Tencent investment" – A September 2020 headline about the Committee on Foreign Investment in the US (CFIUS) looking into the data security protocols of game developers with Tencent ties.

I know, I know. That was the Trump administration, and all kinds of unhinged nonsense went on, nonsense which thankfully drew to a true and proper close with the inauguration of Biden in January of 2021.

QUOTE | "Tencent in talks with US Committee to retain Epic and Riot stakes" – A May 2021 headline about the CFIUS' negotiations with Tencent to allow its continued holding of ownership stakes in the two companies.

Or not. But in the CFIUS' defense, Fortnite and League of Legends are massive social phenomena, so maybe it's worth a glance just to make sure users' personal data was being handled appropriately.

QUOTE | "US national security panel investigating Tencent's Sumo acquisition" – A November 2021 headline about the Committee on Foreign Investment in the United States looking askance at Tencent's acquisition of the Sumo Group.

No offense to Sumo, but a Chinese company buying the UK-based work-for-hire developer behind Sackboy: A Big Adventure and Team Sonic Racing does not strike me as a US national security interest.

The CFIUS is leaving no stone unturned here, even in companies that don't meet that 20%-foreign-adversary-owned threshold.

QUOTE | "The Committee on Foreign Investment in the US (CFIUS) has continued to apply a more stringent review of certain foreign investment in US companies, including investment by Chinese entities, and has made inquiries to us with respect to Tencent Holding's equity investment in us and involvement in the China JV." – In the "Risk Factors" section of its latest annual report, Roblox says it's been dealing with the committee as well.

And while we don't often hear too much about the CFIUS, it isn't some irrelevant little corner of government bureaucracy where wild stuff happens because the adults in the room (to the extent such things exist) aren't paying attention. The committee includes the head of the Department of the Treasury (who chairs it), as well as the heads of the Departments of Justice, Homeland Security, Commerce, Defense, State, and Energy, so it's a cross-section of the most important members of the presidential cabinet.

The games industry hasn't been too preoccupied by these proceedings to this point (at least publicly), but given the fact that this TikTok ban has become law, suddenly things that seemed like far-fetched scenarios a few years ago are uncomfortably within the realm of possibility.

The idea of the government banning these games seems silly, but so did the idea of it banning TikTok

Representatives with Epic Games and Riot Games declined to comment. While they are two of the more obvious game companies that this law could be leveraged against, they are far from the only ones.

Tencent owns at least a 20% stake in a slew of other developers, and the Chinese company simply publishing PUBG Mobile was enough to get India to ban that game. And then there are Chinese-native operations like Genshin Impact maker MiHoYo.

The idea of the government banning these games seems silly, but so did the idea of it banning TikTok.

If we want to determine how likely a ban for games with ties to China would be, it might be helpful to look at the US government's motivation in banning TikTok. The government says it's going after TikTok for specific national security interests. After all, apps like TikTok track user information and could potentially allow the Chinese government to build out surveillance operations on American citizens.

Why would the law have an exception based on what the app is used for, rather than for the types of information it tracks and gives foreign adversaries access to?

I suppose that's plausible, but if that were the case, why would the law have an exception based on what the app is used for, rather than for the types of information it tracks and gives foreign adversaries access to?

QUOTE | "The term 'covered company' does not include an entity that operates a website, desktop application, mobile application, or augmented or immersive technology application whose primary purpose is to allow users to post product reviews, business reviews, or travel information and reviews." – The law specifies that China is free to harvest user information from review apps.

Besides, if China really wanted that information, it could just buy it from one of the many American data brokers selling horrifying amounts of information on American citizens to the highest bidder. Like Pasadena-based Near, which tracked mobile phone data information for people who visited one of 600 reproductive health clinics in 48 states and sold that personal data to anti-abortion groups to send them misinformation. (Near was later acquired by LA-based Azira).

Or Georgia-basesd LexisNexis Risk Solutions and New Jersey-based Verisk, who the New York Times reported this week took GM's monitoring data about how many times each of their millions of customers slammed on the brakes or floored the accelerator and sold it to their insurance companies to help justify charging higher premiums. (Like GamesIndustry.biz, LexisNexis Risk Solutions is owned by RELX.)

Or Idaho-based Kochava, which the FTC has been fighting for years for selling a wealth of personal information that could easily be used to identify those who had visited abortion clinics, places of worship, domestic violence shelters, addiction recovery centers, and more.

If this law were about actual privacy concerns, the US would be doing more about the gross over-surveillance that underpins the tech and advertising industries

If this law were about actual privacy concerns, the US would be doing more about the gross over-surveillance that underpins the tech and advertising industries, not just finding ways to let everyone except China continue profiting from it.

But the exception for review-based apps suggests the law isn't about the data apps can collect, because a review app can harvest data from your phone just like any other. So if it's not a technical concern about the app's access to Americans' devices, the national security threat must be the content of what's being shared on TikTok, the ideas and opinions and beliefs expressed by its users.

And here I was thinking Congress was told very specifically it shall make no law abridging that stuff. Boy, is my face red!

That said, I understand some people don't like TikTok. After all, some of the stuff that takes off on TikTok is obviously, blatantly offensive. But the same could be said of lots of social media platforms.

Whatever charges I have seen levelled against TikTok – anti-Semitism, election interference, harmful impact on children, questionable moderation silencing some voices and amplifying others – they are problems that are much more established (and over a longer stretch of time) on social media sites based in the US, so it's not like domestic ownership of TikTok could be relied on to clean that up.

So what's left behind when you discount those motivations? The most straight-forward culprits are xenophobia and generational anxiety.

China owns it, so it must be bad.

The kids are really into it and I don't see the appeal, so it's probably an indicator of societal decay.

On top of those motivations (and to be quite clear, entwined with them), it's not too difficult to think that the US has seen the tremendous destabilizing/organizing potential of social media in everything from the Arab Spring to the George Floyd protests, and whatever happens in the future, it would greatly prefer those platforms be centered within its own sphere of influence and surveillance than that of an adversarial country. And if it needs to gin up some bogus law that clearly violates some of the central freedoms upon which it has built its national mythology, oh well.

Video games haven't been nearly as impactful as social media when it comes to organizing or shaping public opinion, but politicians are not oblivious to their significance

Video games haven't been nearly as impactful as social media when it comes to organizing or shaping public opinion, but politicians are not oblivious to their significance on the world stage. And they have not been shy about leaning on games companies to take their preferred course of action, philosophical inconsistencies be damned.

QUOTE | "As China amplifies its campaign of intimidation, you and your company must decide whether to look beyond the bottom line and promote American values – like freedom of speech and thought – or to give in to Beijing's demands in order to preserve market access." – In 2019, a bipartisan group of five US legislators write a letter to Activision Blizzard CEO Bobby Kotick, asking him to reconsider the ban of a Hearthstone player who spoke up in favor of protests in Hong Kong.

Because as everybody knows, protecting free speech is always more important than appeasing a government's unreasonable demands just to preserve market access.

Of the three Representatives who signed that letter, one voted in favor of the TikTok ban (Mike Gallagher, R-WI), one voted against it (Alexandria Ocasio-Cortez, D-NY), and one ran into an ethics scandal and lost his bid for re-election in the meantime (Tom Malinowski, D-NJ).

It's a little less clear-cut an issue for the two Senators who signed the letter, as they voted on an entire package of bills that also included aid for Ukraine and Israel instead of a stand-alone TikTok ban, but Ron Wyden (D-OR) voted in favor of the package, while Marco Rubio (R-FL) voted against it.

The fact is that even in a hyper-partisan political climate, this is a rare issue popular on both sides of the aisle in the US.

STAT | 352 – The Protecting Americans from Foreign Adversary Controlled Applications Act had 352 votes in favor and 65 against when it was voted on as a stand-alone bill by the House of Representatives. The bill had the support of 197 Republicans and 155 Democrats.

If you're hoping for cooler heads to prevail here because you have faith that Biden wouldn't throw a colossal wrench into the multi-billion-dollar global games business, I have potentially concerning news for you.

STAT | 270 – The length of time a company will have to sell their app after the president declares a national security threat under this law.

STAT | 1 – The number of days between the TikTok ban going into effect and the next presidential inauguration.

If there are follow-up bans to come, they will ultimately be determined by the winner of the next presidential election. And if that winds up being Donald Trump again, please forgive my cynicism, but this could be less about any actual or perceived threat to national security and more about how it could possibly line the pockets of him and his cronies.

I'll just note that with the prospect of TikTok going up for sale, one of the first in line to buy the incredibly successful platform (that would under no other circumstances be a candidate for sale right now) is Steven Mnuchin, Trump's former Treasury Secretary and the CFIUS chair when the committee started sizing up Tencent's gaming business in the first place.

QUOTE | "It's a great business and I'm going to put together a group to buy TikTok." – Mnuchin, speaking with CNBC last month.

ESA stands for Eat S**t, Academics

Last week, the US Copyright Office held public hearings to determine tweaks to the Digital Millennium Copyright Act, as it does every three years.

A group representing historians and academics argued before the committee about why it is essential to broaden the list of exemptions under which people can circumvent DMCA protections in order to preserve and research culturally relevant works, as they do every three years.

Lawyers representing industry trade groups including the ESA argued that any such exemptions would lead to human sacrifice, dogs and cats living together, and mass hysteria, as they do every three years.

This year the big concern on the video game front was about whether libraries should be able to give academics remote access to games within their collection. And in discussing the subject, the ESA's lawyer Steven R. Englund acknowledged that there were appropriate circumstances under which the academics and historians in the hearings would use such an exemption, but the industry will "assume the lowest common denominator" that such exemptions would be abused for piracy and so it will object to basically every such effort they make.

QUOTE | "I don't think there is at the moment any combination of limitations that ESA members would support to provide remote access, so I would categorize [a concession from those in support of a DMCA exception] that as progress, but not sufficient progress." – Englund confirms the ESA isn't going to support any movement on this, no matter how reasonable or tightly controlled.

That's a very different message from the one the ESA actually voices when it knows people are listening.

QUOTE | "It simply is not accurate that the industry has opposed efforts by libraries to have legal access to games for preservation purposes." – ESA senior counsel Bijou Mgbojikwe, talking to us last year.

One of the proponents asking for exemptions, Harvard Law School Cyberlaw Clinic's Kendra Albert, jumped on Englund's admission.

QUOTE | "We just heard from the Entertainment Software Association that there is literally nothing that preservation institutions can do that would permit the kinds of off-premises access that is required for research, and I think that speaks to the degree to which preservation institutions and the proponents have been willing to make specific compromises, require very specific processes, in order to try to prevent the really significant adverse effects that have been caused by these restrictions… And what you heard from Mr. Englund is that none of that is ever going to be sufficient to reassure these rights-holders that it will not cause harm."

Time and again throughout the hearings, Englund and the other industry representatives stressed that they were not questioning the motivations of the academics and historians asking for exemptions; they were merely asking the Copyright Office to think of the practical impact of people being able to use the internet to get games they did not pay for.

As Nintendo learned with the Switch, the DMCA is not stopping people from cracking modern hardware and pirating games

But if we're talking about practical impact, I have very bad news for the games industry about what some people use the internet for right now. The DMCA has not effectively stopped piracy, but it absolutely is effectively stopping schools and libraries from preserving, researching, and teaching the history of games in a reasonable manner. Because unlike pirates, they actually wait for explicit legal permission to do things.

For example, you might think it's fine for a teacher to make a dozen copies of an out-of-print and commercially unavailable game to give to game design students as part of their coursework, but the fair dealings laws that might permit such a thing in the US and Canada haven't been tested for this purpose and the industry's "Just say no" approach to any kind of copyright exception makes it a legal hazard few institutions will risk.

QUOTE | "For us at the university, how confident are we that if we start to make materials accessible in certain environments that we're not going to be sued by certain companies? Until enough organizational groups are confident enough to do it – and if they do get sued, they win the case – it's hard to know what the path is going forward." - Chris Young, librarian and curator of the Syd Bolton Collection at the University of Toronto Mississauga, talking to us in 2022 about challenges in preservation.

Gaming is a cultural force and a medium that demands preservation, yet the web of technical dependencies, the increasingly online nature of games, and the ephemeral nature of live services all make that preservation an enormous challenge. It's a challenge the industry itself doesn't have much appetite for, largely because it's not a particularly profitable endeavor.

But it's a job that absolutely needs to be done nonetheless. So if the industry won't preserve its own past and throws up constant roadblocks in the path of those who are willing to treat the medium with the care it deserves, it should forfeit its say in who does that job, or how it gets done.

The rest of the week in review

QUOTE | "Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once non-competes are banned." - FTC Chair Lina M. Khan announces the commission has formally passed a rule banning non-compete clauses in employment contracts in the US. The FTC estimated that about 18% of US workers were subject to such clauses.

STAT | $3.8 billion – The amount of money Meta lost on its VR/AR division in the first three months of this year. While Meta posted overall revenue and profit growth for the quarter, the stock price slid as Mark Zuckerberg warned investors to brace for a similarly unprofitable long-term investment in AI.

QUOTE | "Our goal is to make it so the open model defines the next generation of computing again, with the metaverse, glasses, and headsets. That's why we're releasing our operating system, so that more companies can build different things on it." – Zuckerberg announced this week that Meta is opening up the Meta Quest's operating system for other companies to make third-party VR headsets, just in case anyone else is looking that those billion-dollar monthly losses thinking, "I gotta have me a slice of that."

(To be fair, Lenovo and ASUS have already lined up to have themselves a slice of that.)

STAT | 7 - As noted by Microsoft CEO Satya Nadella, the Xbox maker published seven of the Top 25 best-selling games on the PlayStation Store earlier this month, getting more titles on that list than any other company. I don't think they're stopping with that Pentiment and Hi-Fi Rush group, folks.

QUOTE | "If the major engine and development tool creators, like Unreal, Unity, etc. are accessible, that makes the most impact as fewer bespoke solutions will need to be invented for developers at the companies that use these tools." – Can I Play That's Marijn Rongen was just one of the people Chris Sutcliffe spoke to for this feature on accessibility in game development engines.

QUOTE | "In every given moment, you are making decisions you believe are right. When we were at the peak of 2020, 2021, we made all those decisions to acquire or organically set up or invest… and everyone was backing that. I firmly believed in that." – In speaking with James Batchelor about what happened at Embracer, CEO Lars Wingefors said he still stands by the company's hyper-acquisitive strategy.

QUOTE | "These name changes are strategic decisions aimed at allowing each new entity to develop its own unique brand identity, tailored to its specific business focus and to maximize its potential in the market." – Wingefors explains that just because the Embracer name is going away once it splits into three separate companies (with the holding company owning a majority of each and taking on a new name), we should not take that as evidence that the Embracer brand has been irredeemably debased over the past year-plus of terrible headlines.

Personally, I think it's a wonderfully fitting way for the Embracer name to go away. After all, when it changed its name from THQ Nordic AB to Embracer in 2019, it was just a few months after the THQ brand had been tarnished when subsidiary publisher THQ Nordic GmbH held an AMA session to promote its games on an anonymous message board best known for hate speech, child pornography, harassment, and abuse (shoutout to Mark).

QUOTE | "For decades, Infogrames built a reputation as a publisher and developer of amazing and eclectic games, and we are excited to bring it back." – Atari chairman and CEO Wade Rosen announces that the retro game company has bought the shell of the company that previously bought the Atari name and wore it like a corporate skin suit, and now Atari will be the one slapping the Infogrames brand on stuff that has no relation to the original company, like Totally Reliable Delivery Service, which frankly deserves better.

All in all, it was a pretty big week for unpleasant things coming full circle.

QUOTE | "If for some weird reason we had to render a verdict right now, 'What happened with Playdate', I think we would say it was a success. It was a success beyond what we imagined." - Panic's head of special projects and Playdate Greg Maletic tells Marie Dealessandri about the unlikely success story behind the endearingly unusual crank-sporting black-and-white handheld.

QUOTE | "I think it's going to be a bigger phenomenon than smartphones." – Epic's Tim Sweeney, speaking 10 Years Ago This Month about… VR?

STAT | LaKeith Stanfield – I admit that's not really a stat, but we can't let the week pass without acknowledging how cool it is that Strange Scaffold's El Paso Elsewhere is getting a feature film adaptation starring LaKeith Stanfield.