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Posted 11/11/2024 9:43am

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TikTok's Canada wind,
Google, Meta, Snap may gain,
Ad dollars in wind.

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Salesforce

Canada forces TikTok wind-up, potential windfall for Google, Meta and Snap on the way, says Madison and Wall

Madison and Wall investment analysts are predicting an advertising windfall for Google, Meta and Snap after the Canadian Government ordered the wind-up of TikTok Technology Canada, Inc., following a multi-step national security review under the Investment Canada Act.

The decision to shutdown TikTok locally was made based on evidence collected during the review and advice from Canada's security and intelligence community and other government partners. This decision, made in accordance with the Investment Canada Act, allows for the review of foreign investments that may be injurious to Canada's national security.

Criteria it applies for this process includes the reach and audience of a product's content, its ties to a foreign government by way of investment, the composition of its board locally, and degree of influence an investor could exert on the Canadian business and its products.

"The government is taking action to address the specific national security risks related to ByteDance's operations in Canada through the establishment of TikTok Technology Canada, Inc. The decision was based on the information and evidence collected over the course of the review and on the advice of Canada's security and intelligence community and other government partners," said François-Philippe Champagne, Minister of Innovation, Science and Industry.

However, the government is not blocking Canadians' access to the TikTok application or their ability to create content. "The decision to use a social media application or platform is a personal choice," continued Champagne.

"It is important for Canadians to adopt good cyber security practices and assess the possible risks of using social media platforms and applications, including how their information is likely to be protected, managed, used and shared by foreign actors, as well as to be aware of which country's laws apply."

TikTok's formal response was limited, stating it was "not in anyone's best interest" and that it would "challenge this order in court." The law forcing TikTok to sell or exit takes effect on January 19, unless a court prevents it from happening.

Commenting on the news, Madison and Wall suggested the likely beneficiaries of this decision are Google, Meta, and Snap, with Snap potentially seeing the biggest proportional shift of advertising budgets. Canadian operations Snap and Pinterest are significantly smaller with around C$166 million and $100 million in ad revenue last year, respectively, highlighting the bigger impact they would see if they can capture any of TikTok’s lost revenue.

"Presuming the order takes effect, the company will still have a technical capacity to sell advertising to marketers based in Canada via international operations. However, it’s hard not to imagine that many will choose to shift their spending whether because of the potential appearance of countering the spirit of the government’s action or because there are practical or logistical reasons why a Canadian marketer (or budget-holder) wouldn’t be able to engage with a foreign entity," Madison and Wall stated.

"If TikTok was on track to generate $8 billion in US ad revenue this year and generated about 5% of that figure in Canada (a mid-range between the shares that Meta, Snap and Pinterest generate), there’s probably around C$500 million in revenue at TikTok Canada, much of which will now be up for grabs, unless courts rule in TikTok’s favor there. It’s theoretically possible that broadcasters or streamers could see some incremental revenue, although very doubtful given the view we hold that marketers shift spending to next-best alternatives to accomplish their goals when one medium or media owner is unavailable. For most, television is not a realistic substitute, although conceivably an enterprising sales organization could find a way to make it one."

The decision on TikTok is part of a Foreign Investment Review into the digital media sector that's been happening in Canada. In March, the Government provided further clarity about how it was set to apply the rules to investments in Canadian businesses in this space. At this time, it noted that it recognised "hostile state-sponsored or influenced actors may seek to leverage foreign investments in the interactive digital media sector to propagate disinformation or manipulate information in a manner that is injurious to Canada's national security, this policy provides guidance on the review of such investments under the Act".

"The nature of interactive digital media and its prominent role in everyday life introduces a heightened risk of information manipulation. Information manipulation includes, but is not limited to, the omission of facts, inauthentic amplification of narratives, doctored audio/visual content, trolling, and efforts to censor or coerce self-censorship of information," the government stated.

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