Will China's new influencer rules improve the transparency of KOL marketing?

Earlier this year, China tightened regulations pertaining to influencers in regards to their use of multi-channel networks (MCNs). Starting with Douyin, TikTok’s China version, to be followed by Weibo, the names of MCNs behind influencers will need to be displayed on the account’s profile page.

MCNs are a relatively-new operating model that has become popular in China, to gain internet popularity. MCNs connect creators, or in more official terms, PGC (professional content production), with capital and production resource support to provide a steady means of content output and monetisation. MCNs are in effect the real incubators of KOLs in China, serving in effect as the online agents of many influencers. 

Four years ago, in 2018, when Douyin, began to expand in the market, it partnered with MCNs (multi-channel networks) to broaden its content offerings. Now, estimates by iiMedia suggest that China had over 30,000 MCN agencies last year, and the number will reach 40,000 in 2022. 

Clearly the KOL market has shown little signs of slowing down. While Ebiquity's new report on maximising KOL marketing returns in China concluded that “live-streaming is now integral to social commerce in China,” it also suggested the practice has become overvalued. “Influencer marketing in China is extraordinary. Our research finds top 15% of all KOLs in China generate return on investment six times more than the average ROI,” Ebiquity quoted James Gong, Vice-President of Datastory. 

MCNs have played a key role in supercharging the business of KOLs. The majority of top KOLs have MCNs operating their businesses while managing their content. China's number one KOL, Li Jiaqi, had MCN agency Mei One behind him. But the disappearance of Li Jiaqi this year and the collapse of another Chinese top KOL, Viya, last year, is raising more and more questions about brands’ strategies in how they cooperate with KOLs in China. 

Last October, another top Chinese KOL, with over 17 million followers on YouTube and over 10 million followers on Weibo, Li Ziqi, sued her MCN agency Weinian. The dispute has been framed by Chinese media as a conflict between the content creators and capital controllers. Li Ziqi is not the only influencer in China who sued MCNs, either. The monetisation of MCNs has triggered multiple controversies over the years. MCNs, with the capital they leverage, usually buy traffic from platforms at lower costs but, to some extent, can monopolise or even manipulate the traffic and content of influencers.  

So will the new rules and regulations ease tensions between KOLs and the capital controllers in the Chinese market? What does it mean for brands?

Campaign spoke with two observers of Chinese influencer marketing to share their thoughts on the changes and advice for brands: Ailsa Gu, business director of GroupM Knowledge China; and Arnold Ma, CEO of Qumin and Dao Insights, who is a digital creative and marketing expert based in the UK.  

(L) Ailsa Gu (R) Arnold Ma

Campaign: How will the new rules from Douyin and Weibo affect brands’ KOL marketing strategy in the mainland market?

Ailsa Gu, GroupM Knowledge: These new rules are in response to regulations from special campaigns launched by the Cyberspace Administration of China (CAC) which aim to create a better internet ecosystem in China. In the long term, these actions are beneficial to the online advertising environment so that brands can better manage their contextual brand safety and reduce the possibilities of branded KOL content being displayed near inappropriate content. Meanwhile, brands will be more cautious when choosing KOLs and MCNs, and require more precise pricing, methodology, measurement and benchmarks for KOL planning.

Arnold Ma, Qumin: In essence, the new rules make the two models of content production transparent to the public: PGC (professional generated content) and UGC (user generated content, which is original and organic).

There might be indirect impacts subsequently depending on pre-set narratives by individual KOLs. Some influencers have claimed their accounts are managed independently by themselves in a bid to show authenticity and in the hope of building a closer relationship with their followers by distancing themselves from the agencies in the name of producing /originally produced content'.

Following the new rules, those who have lied about their independent management could find themselves in hot water, especially those with big followers who are also under closer public scrutiny. As a result, brands who have already engaged with these individuals might also become involved in controversy.

This could actually trigger a shift from KOL marketing strategy to an approach focusing on genuine content creators whose output is delivering true value based on their own niche, rather than hyped content with an intention to drive online traffic.

Brand advice: We’ve already seen the start of the end for KOL/influencer marketing in China, and I would say that we are now approaching the mid-way of the journey to phase out traditional KOL/influencer marketing. Therefore I would highly advise brands to start thinking about funnelling budget and testing other strategies, such as creator-driven strategies to build in-house content and nurture brand-owned communities that aren’t reliant on borrowing reach from KOLs/influencers.

As platforms and KOLs are under stricter regulation now, the new rules could bring more transparency. What should brands and agencies do to prepare for the change?

Ailsa Gu, GroupM Knowledge: Firstly, brands and agencies should stay up to date with the latest regulations and their implications to marketing activities. Secondly, working with qualified and reliable MCNs is the optimal choice to control risks and reduce the workload of auditing content and KOLs. Last but not the least, using a mix of KOLs in social strategy planning rather than in a specific top KOL also helps to manage risks and ROI.

Arnold Ma, Qumin: As mentioned in my earlier answer, the new regulations also bring out a new way for brands to leverage the 'creator economy', as traffic-oriented influencers and agencies are under closer scrutiny. Meanwhile, this also shows the importance of genuine content creators for brands’ online marketing, since they have a more cemented bond thanks to the real personalities they bring to the content they produce.

On the other hand, this measure also expects to deter MCNs from fake marketing through those self-claimed 'independent' content creators. Therefore, MCNs will also need to focus more on the quality and authenticity of the content.

Brand advice: We need to remember a lot of these rules are mainly for a platform's benefit. I’ve said for years that one disadvantage with traditional KOL/influencer marketing is the secondary market transactions, the fact that platforms do not get a cut from these activities. This new model will focus on platform revenue. Thus, creator content and platform media buying will be the longer-term sustainable strategy for brands to grow and engage with their audience on social.

A good start is to let creators focus on what they love doing while making a living doing so, as content revenue will be more strictly controlled by the platforms. It will be to the platform’s benefit for creators to monetise content, rather than getting paid by 'saying nice things about brands', a.k.a. infomercials. As the industry moves to content commissioning, they will have the freedom to work with brands directly, rather than be under the rule of capital controllers such as MCNs.