The smart money for TikTok shows China is a growing force in media

Lockdown has forced us to see the world differently and try new things.

In the case of Campaign, we have launched an exciting event, Campaign Connect—our first global, virtual conference on 2 and 3 June.

Our editorial teams in Campaign Asia, Campaign UK and Campaign US have joined together for live sessions that "follow the sun" from East to West each day.

It makes sense to start with Asia, because it was the first region to suffer from Covid-19 and, at this stage, appears to be doing a better job of containing the pandemic and restarting economic growth than the US and the UK.

The growing geopolitical influence of Asia—and of China, in particular—is one of the defining themes of this century and, like other long-term shifts, it feels as if the coronavirus crisis could accelerate change that was already under way.

That is certainly the view of the Scottish Mortgage Investment Trust, which is a FTSE-100 company with a smart track record of investing in technology and media businesses, including Chinese companies such as Alibaba, Tencent and TikTok owner ByteDance, as well as US tech giants such as Alphabet, Amazon and Facebook.

Tom Slater, an investment manager at Scottish Mortgage, is bullish on China’s digital media sector.

"The creative ferment, intensive competition and relentless execution that exist in this vast market are a powerful combination for shaping great companies and it remains an important hunting ground for new ideas," he says in Scottish Mortgage’s recently published annual report.

Strikingly, Slater argues that the innovation in Chinese companies such as ByteDance has "happened in a time of limited progress in the Western advertising industry from either a product or business model perspective".

Hence Scottish Mortgage’s decision to reduce its holdings in Alphabet and Facebook.

"Whilst Alphabet continues to make good progress in search, Facebook's product focus has for some time been predominantly on firefighting," Slater says, although he remains a big supporter of Amazon.

Slater is impressed with TikTok, a playful social media app, which "has transcended cultural and geographic boundaries" and is gaining traction in the West—aided by a new, fun ad campaign during lockdown and support from its global media agency, PHD.

"ByteDance’s core skill is in deploying artificial intelligence to predict the content that each member of its vast audience will be interested in," Slater says. "This skillset should extend the opportunity well beyond current products."

Scottish Mortgage’s biggest single shareholding used to be in Baidu, but it has exited because the Chinese search engine failed to "evolve", according to Slater, underlining the fact that there is no sentimentality when it comes to investment.

He is also bearish on the big agency groups. Instead, Scottish Mortgage has been a long-time backer of You & Mr Jones, the brand tech group that was founded by ex-Havas chief executive David Jones and has risen strongly in value after buying stakes in Pinterest and in-housing experts Oliver.

"His [Jones’] underlying insight was that the corporate sector needed specialist help in harnessing the increasingly complex online and mobile advertising environment," Slater says. "That foresight has proved correct, with big brands moving their business away from large agencies."

Scottish Mortgage’s judgment has proven right so far. The company’s share price hit a record high in May, despite the wider stock market slump.

Doing business with China is not straightforward, given the country’s record on human rights and state intervention.

Beijing’s efforts to impose a tough security law on Hong Kong and the ongoing debate about whether the UK should block Huawei equipment from being used in the country’s telecoms network are just two examples of the friction between China and the West.

There are also cultural differences that mean Chinese media brands face challenges when it comes to expanding outside their home market.

But if Scottish Mortgage is correct about "limited progress" in the Western ad industry, then the future for a post-Covid-19 world is clear: China is going to become a growing force in global media.

Gideon Spanier is UK editor-in-chief at Campaign.