While advertisers are playing it cool, they’re hesitant to unleash their budgets on TikTok

Advertisers are dancing around the idea of yanking their cash out of the TikTok maelstrom. 

In fact, some are gearing up to take that exact step. 

The looming threat of a bill that could foist new ownership onto the app or potentially ban it in the U.S. has thrown them into a frenzy. They’re urgently trying to anticipate and mitigate any potential geopolitical fallout that such an event could trigger.

“They [advertisers] want full removal within 90 days,” said an agency exec who oversees ad spending for several big TikTok advertisers. “We’re talking about nine figure sums in spending that we control. We have to figure where to move it all to. 

But don’t hold your breath for a mass exodus just yet. 

Advertisers aren’t exactly breaking into a sweat over the app’s future. Instead, they’re keeping their cool, and with good reason.

The bill that was passed by the U.S House and Energy Committee earlier this week would give TikTok’s Chinese owner ByteDance 165 days to divest the app or face being banned. 

It’s undoubtedly a nerve-wracking prospect for advertisers. However, at this point, it’s just that — a prospect. After all, the bill still has to navigate through the Senate, where opposition looms on both sides. 

Pulling ad dollars now would be presumptuous for any marketer watching from the sidelines. Yet, forewarned is forearmed, as the maxim goes.

“The future of TikTok is obviously a hot topic with our clients at the moment but our advice to them for now is to wait and see,” said a senior media agency executive, who agreed to talk candidly in exchange for anonymity.

What this guidance means, the executive continued, is advertisers should maintain any current ad spending but exercise caution by scaling back and even halting any forthcoming plans. The reason being that investing in new programs costs money and time, which the exec said could potentially be wasted if TikTok faces a ban or significant regulatory changes in the near future.

“We’ve cautioned clients to dial that sort of work back,” the exec added. “For the ads that are currently in play it’s a different story.”

This cautious approach seems to be the norm among advertisers across the board. Even typically conservative ones like financial companies are refraining from making any rash movies. They have contingency plans, of course, but they’re not currently considering implementing them.

At least, not just yet. There’s too much uncertainty to be clear on that.

Nevertheless, some advertising executives seem resigned to the fact that they may need to activate those contingency plans in the coming months. Why? Because there’s a prevailing belief that, eventually, the bill will be passed. Yes, there’s opposition within the Senate, but there’s also support from the White House. This support could potentially translate into pressure on the Democratic Senate leadership to push the bill through. 

Should this scenario unfold, the ban on TikTok would arguably be the easier issue to handle, according to the seven agency executives interviewed for this article.

Of course, they’re aware of the potential repercussions of having to operate without this platform, but they are prepared to redirect their resources elsewhere. 

However, if TikTok were to have a new owner, that would present a host of challenges. From the typical risks and rewards associated with any new proprietor to the inevitable changes that would need to be made to the app’s functionality, given lawmakers’ concerns about privacy risks, the situation would become considerably more complex.

“If that happens then we would have to pause and reconsider the brand safety implications of a new owner,” said the senior media agency exec. “Look at Twitter selling to Elon Musk, there was a lot that happened in the first six months after that deal that caused a lot of turmoil for our clients.”

The longer questions like this are being bandied about the closer it gets to that crucial time of the year when budgets for the following year get locked in — i.e from September onwards

“TikTok has historically been part of those conversations but if we don’t have a definitive answer [on its future] by then, we’re going to have to start thinking about where the money that we would’ve spent with TikTok next year could go instead,” said the senior media agency exec.

The answer is likely to be lots of places. This is because marketers cannot simply transfer the same campaign from one platform to another due to their varying rules, formats, and audiences. Consequently, there won’t be a singular obvious destination for those TikTok dollars. It won’t be as straightforward as reallocating funds if issues arose with a publisher or commercial TV broadcaster. 

Still, at least some of those dollars would find their way to rival TikTok services like YouTube Reels and Instagram Reels. 

“The clear winners are going to be Meta and Google — Meta has already started to lean into consumer behavior by pushing Reels through the algorithm and Facebook Stories,” said Tom Stone, managing partner at digital marketing agency re:act. “These other platforms have set themselves up well for ‘TikTokifcation’ of short video behavior and are now ready to go in terms of marketing spend being diversified to other platforms but still benefit from this consumer shift.”

If Stone’s predictions hold true and these TikTok imitations do emerge as the primary beneficiaries, it may not significantly impact their advertising businesses. 

The reality is that it remains a relatively small portion of ad spending, with much of it still being considered as test and learn budget. So much so that spending on the app in the U.S. accounts for up to 20% of a larger agency’s social media spend for the year. While there’s nuance to this and the percentages vary depending on various factors, as a ballpark figure, it holds true, according to several ad execs Digiday has spoken to over the last six months. 

“We don’t have many clients where TikTok is more than 5% to 10% of budget, and that’s on the higher side for a number of businesses as well,” said Kevin Goodwin, vp of digital marketing at New Engen. “I think the short term risk is not that significant. It’s not going to be incredibly hard to go replace that revenue. What are the long term ramifications of that for brands? That’s a lot harder to say because what’s really hard to measure and replicate is the virality of TikTok and the cultural influence of it and how Gen Z’s specifically shops in a much more nonlinear way. So I do think there will be an outside impact relative to budgets of losing a platform like that.”

Count on TikTok to put up a fight if it starts seeing ad dollars slip away.

Already, it’s been peppering agency execs daily with updates and statements as well as offering to meet with concerned marketers. And that’s how they’ve responded to the bill being passed to the Senate. “This feels like the most legitimate threat to it [TikTok] from our point of view,” Goodwin added. “Whereas previously our response was let’s wait and see, I think now I would say our response is, we’re starting to have conversations around the implications of this and the ramifications of it. Obviously, we’re still in a little bit of wait and see mode. But there’s definitely a little bit more realness this time that’s creating a bit more action from our side.”

TikTok declined to comment.

https://digiday.com/?p=538158

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