TikTok advertisers prepare contingency plans as US ban looms

TikTok generated US$16 billion in sales in the United States last year, mainly from advertising. Photo / 123RF

Agencies representing TikTok’s biggest advertisers are drawing up contingency plans as the United States prepares to ban the popular video app, including seeking break clauses in their marketing contracts.

ByteDance, TikTok’s Chinese parent, has been given until January to either divest its US business or face a ban on the app by US lawmakers, who are concerned about security because of its links to China.

The social media platform, with more than 1 billion global users, has become a key part of the marketing strategies for many brands given its huge popularity, particularly with younger audiences who are less likely to engage with traditional advertising such as TV.

TikTok generated US$16 billion in sales in the US last year, mainly from advertising, people with knowledge of its finances have told the Financial Times.

However, multiple advertising bosses say their teams are now drawing up alternative plans for next year should TikTok be removed from the US, one of the world’s most important advertising markets.

One advertising executive said the ban threat was already having a chilling effect on spending by some brands. The person said they had quizzed company executives about what would happen if the US blocks the site.

“They didn’t have a good answer on how they sell ads in the US right now,” the ad boss said. “How does anyone believe that they’re going to be able to do what they’re doing in six months time?”

He added that the agency was drawing up contingency plans, including a “kill clause” to escape any financial commitments in the event of a ban. Brands and their agencies typically sign contracts committing to spend a certain amount on advertising in advance to secure prominent slots or volume discounts from media platforms.

“You have to keep a little distance,” this person said. “You’re not at a loss for places to promote. It just so happens that TikTok is the biggest one at the moment.”

Another agency chief said the threatened ban was already disrupting clients’ plans. Other social media platforms would likely benefit as a result, they added.

“We have contingency plans at a high level if something were to happen,” they said. “Those audiences will go somewhere, and our investment will follow them.”

Shou Zi Chew, the Singaporean chief executive of TikTok, was among the company’s executives to attend the Cannes Lions week-long advertising festival last week.

He did not appear publicly, however, instead attending private meetings with ad bosses about the platform.

In a report this month, GroupM said that “if a ban is triggered, we would expect ad revenue to move to other social-video platforms such as Meta’s Reels and YouTube’s Shorts, as well as other digital media owners, and the creators and influencers currently active on those platforms”.

A third advertising boss said that even if the US took no action, the negative publicity has already hit TikTok’s standing with some marketers.

“More brands are starting to think about [where the data goes] in terms of the investment, the return that they’re getting,” they said. “I am seeing more of a groundswell into the societal impact of the platform.”

ByteDance is fighting the threat of a ban of TikTok, arguing that it violates free speech rights and claiming it would be impossible to split the app from the wider group. The Chinese Government has said it would not support a sale. About 170 million Americans use the app.

In a statement to the FT, TikTok said: “We continue to see strong growth in our advertising business as brands understand that TikTok drives results and can have a transformational impact on business growth, no matter the size.”

Written by: Daniel Thomas and Cristina Criddle

© Financial Times