The Chinese government’s latest crackdown saw live stream influencers scrambling to get their finances right. China’s top live stream influencer Huang Wei, popularly known as Viya, was sanctioned a $210 million fine for tax evasion and her social media account was also deleted. Along with Viya, a few other influencers like Cherri (real name: Zhu Chenhui) and Sunny (real name: Lin Shansha) were also fined for tax evasion (albeit a smaller amount) and several others were issued warnings.
This move could be the first step towards bringing in line the highly unregulated live streaming industry. There could also be potential regulations against false advertising and “immoral behaviour” by influencers in the future.
Previously, influencers had free run over what they said on their live stream but these fines have them on their back foot. They are now cautious about what they say about a product and how they go about their live stream.
Growth of live stream influencers in China
We can attribute the growth of live streaming in China to as early as 2005 when public chat rooms were used by people for performances. It then evolved in 2013 when people started live streaming as a profession. In 2015, when 4G networks became available in the country, it accelerated the mobile live streaming scene.
Furthermore, the COVID-19 pandemic fuelled the unprecedented growth of live stream influencers. In 2020, the Chinese live streaming industry was worth $190 billion with more than 9 million influencers.
Though there are millions of influencers, there are a few top influencers who command the highest viewers and generate the highest sales. They appear on live streams every night selling products at deep discounts for their viewers.
Before the crackdown, Viya and Li Jiaqi (aka Lipstick King) were the top two influencers in China. They became popular because of their candour and honest feedback of products. It also helped that they were entertaining and had a knack for selling products. On average, Viya had 839 million cumulative viewers per month while Li Jiaqi had 824 million viewers.
Disproportionate bargaining power
The prime time slot for live streaming is between 8 pm to midnight and top influencers like Viya and Jiaqi are the ones who command viewers’ attention. They choose which products and brands they would like to review on air and it is roughly estimated that only 1 in 10 products get chosen. Moreover, when brands approached them, they negotiated great discounts for their followers.
Brands that wanted to capture people’s attention relied on these top influencers as they had the highest sales numbers and millions of followers. Even when brands employed multiple other influencers instead of these top ones, they weren’t able to get satisfactory sales numbers. On the 2021 Single’s Day sale, both Viya and Li Jiaqi sold more than $3 billion worth of products in a single day.
Their high sales numbers coupled with the support of their million followers emboldened Viya and Li Jiaqi to have a public spat with L’Oreal for not giving their followers the lowest price on a product. L’Oreal then provided shopping discounts to resolve the issue and end the negative publicity.
These top influencers leverage brands on their appeal to the public and high selling numbers. Their growth has given them disproportionate bargaining power, and they also command a high premium. Brands are compelled to work with them to get increased ROI and public attention, and they are left with not much choice but to yield to these influencers’ many demands.
However, this crackdown would actually be a welcome break for brands since it would dent such top influencers’ negotiation power and reduce their demands.
Note that not only brands, e-commerce platforms such as Alibaba are also affected by the concentration of power held by top live streamers. For any platform, concentration of either side of the supply or demand is not welcome news. However, managers often had no choice because giving top influencers more traffic will make their KPIs look better – because these influencers provide the best returns (conversion).
Co-dependency will continue
Even after things quieten down, there is no doubt that brands will continue to rely on live stream influencers to create awareness about their products. Valued at $190 billion, live streaming still holds prominence over the Chinese’s buying power.
Brands will have to leverage live streaming to promote their products, make them accessible to the public and sell surplus stock. It is also an effective market research tool for brands where they can understand people’s wants and needs and get instant feedback for a product.
Though live stream influencers, brands and platforms will continue to remain co-dependant, this crackdown will level the playing field.
However, the question is, will other top influencers emerge to fill the void left by Viya? Or would platforms find a way to create a cohort of good, but non-dominating, influencers?