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Caught in the Crosshairs of China’s Livestreaming Crackdown

Tight new restrictions could mean trouble — and relief — for brands who have made livestreaming a key part of their sales strategy. But the Chinese government isn’t the only thing worrying brands about the booming channel.
Beauty blogger Li Jiaqi applies lipstick while livestreaming on the e-commerce platform Taobao | Source: Getty Images
By
  • Casey Hall

SHANGHAI, China — Though it's not even four years since the first wave of brightly-lit, fast-talking hosts selling everything from lipstick to Birkin bags first appeared on Chinese screens, it seems as though we have already hit peak livestream.

In the fashion and beauty space, it's rare to find a brand that hasn't at least tried their hand at livestream selling at this point. Top brands from Louis Vuitton and Burberry to L'Oréal and Tiffany & Co. have all made a splash with varying levels of success.

Indeed, with coronavirus-induced shutdowns and a broader miasma of nervousness keeping China's big-spending populous at home for much of the year, livestreaming has become something of a sales lifeline for retailers here.

The livestreaming industry more than tripled its gross merchandise value (GMV) to 434 billion yuan ($62.1 billion) last year, compared to 2018, according to consultancy iiMedia, and is tipped to double that value again in 2020.

KOL Yvonne Ching's Burberry livestream | Illustration by BoF

But now its extraordinary success had made it a target. There is a proverb in China that says the bird who sticks his head out will be the one to get shot, and much like that proverbial bird, livestreaming is now finding itself in the crosshairs of government and regulatory intervention in China.

Though the momentum has been building for some time, last month's 618 Shopping Festival was something of a tipping point, with China's two largest e-commerce players, Alibaba and JD.com, reporting a combined total of $136.5 billion in sales during almost three weeks of promotions — largely driven by livestreaming. On Taobao Live, over 300 celebrities, including Kris Wu, Liu Tao, Zhu Yilong and Ouyang Nana, as well as 600 chief executives took part in livestreams.

Video sharing social media platform Kuaishou surpassed 100 million daily active livestreaming shoppers in June, double the number they had only six months ago, with goods, including Hermès bags priced in excess of 350,000 yuan ($50,000) being sold via the platform’s livestreams.

Authorities in China Make Their Move

Last month, the Cyberspace Administration of China (CAC) posted an official notice singling out ten firms, including ByteDance’s Xigua and three livestreaming apps run by Tencent-backed firms — Bilibili, Huya and DouYu — as services that must rectify “vulgar” and “problematic” content. Some individual hosts were blacklisted, and platforms found themselves unable to upload new content or sign-up new users. NetEase’s CC Live and Baidu’s Quanmin were also among those named in the CAC notice.

This followed an announcement in May that the China General Chamber of Commerce was working on drafting a set of national standards for livestreaming e-commerce, to be implemented at an undetermined future point.

That same month, China’s Ministry of Human Resources and Social Security recognised “livestreaming host” as a new profession, a move welcomed by Josh Gardner, chief executive of Kung Fu Data, an e-commerce partner specialising in data analytics, brand control and business development inside China's largest e-marketplaces

He describes a recent conversation with a multi-channel network (or MCN, an agency representing influencers in China working over all areas of social media, from text, to short-video, to livestreaming and everything in between) with 12 million key opinion consumers (or KOCs, the term commonly used in China to describe micro-influencers) on its platform.

“It’s so hard to police,” he explained. “If the government forces anyone who uses livestreaming as a tool or [who is] promoting themselves as [an influencer] to get the equivalent of a driver’s license to do that, which I think the government is moving towards, I think it will have a super positive impact on the industry [in terms of professionalisation].”

Though increased regulation will undoubtedly lead to a more professional industry, valid concerns surround Chinese government pronouncements about more stringent oversight. For brands, this means a need to be even more careful with partner platforms and hosts for livestreams. Even if an influencer or platform is not known to be a controversial figure, it’s not difficult to imagine a scenario in which someone who is doing a live broadcast for eight hours per day each day of the week might slip up and say something that displeases China’s notoriously changeable censors.

Brands... have to bend over backwards and do whatever the streaming host wants them to do.

In recent years, there have been waves of censorship of television and social media in China targeting body piercings, tattoos, bikinis and content with LGBTQIA+ themes, justified by a need to “harmonise” the environment and discourage “low values” and “vulgarity.” Trends in what kind of content authorities choose to care about come and go, with plenty of grey area left in the middle for platforms and users to censor themselves. The thinking goes: if there is an official line, people might come close to it; if not, people will stay well back to be on the safe side.

So it is with the broad guidelines that make up the code of conduct that was put in place for the livestreaming industry on July 1 by the China Advertising Association (CAA). It recommends platforms work with livestream hosts to censor content (nudity and vulgarity seem to be particular areas of concern) and ensure information conveyed about products doesn’t mislead consumers.

It also recommends real-name user registration (similar to that used in China already by most social media platforms, including WeChat and Weibo) to participate in livestreamed shopping and that marketing data provided by livestreamers to merchants, streaming platforms and marketing platforms be true.

The CAA is not empowered to punish violators of the code, but it can investigate violations and refer any suspected criminal conduct to the authorities.

On balance, the experts working within the Chinese social media and e-commerce spheres whom BoF spoke with almost universally welcomed more regulation for livestreaming, as a way for the industry’s explosive growth to be built on legitimacy, rather than fake data, misleading claims and increasingly unhappy consumers swindled by unscrupulous players.

According to Sara Dong, an account manager at Shanghai-based digital marketing agency, Red Ant, the CAA code of conduct is “essentially there to help protect consumers and ensure they receive genuine information and that all products are safe for the public.”

According to Dong, further scrutiny and regulation on the livestreaming industry is only going to lead to trouble for those looking to mislead the public.

“It’s a good thing for brands who take their business seriously,” she added.

Indeed, consumer complaints about livestreaming have become a serious problem, soaring in the first quarter of this year in conjunction with the explosion in livestreaming e-commerce's popularity, which was propelled over that period by lockdowns and restrictions on physical retail. The state-sponsored watchdog China Consumers Association released a report at the end of March that showed 37.3 percent of customers reported having problems with purchases obtained during livestreaming sessions.

“It’s going to take them a while to clean up the mess,” Gardner said. “The sheer volume of fraud, malicious mischief and misrepresentation of abilities and results is rampant.”

The Problems Are Endemic, and Regulation Won’t Fix Them All

Even with real-name registration and regulations requiring the veracity of claims made about products and data, people working in the livestreaming industry are going to find a way to work the system. One reason being that the foundations of livestreaming’s impressive sales growth may be shakier than many would like to admit.

According to multiple sources interviewed by BoF, gaming the system to inflate the apparent success of livestream sales is common practice. MCNs work with millions of livestreaming hosts (especially those outside of the top echelons of the industry) to take the upfront fees from brands in exchange, for example, for a five-minute slot in an eight-hour livestream. The MCNs and hosts (or their proxies) then use those fees to purchase as much product as they can within the livestream sale, to inflate the sales volume. Then they return the maximum contractually allowable amount and offload any remaining products on third-party e-commerce sites.

It's a good thing for brands who take their business seriously.

“This is 100 percent going on… [and the] bots or fake purchases they push into the system are impossible to distinguish from the real [ones],” said Elijah Whaley, the chief marketing officer of China influencer platform, Parklu.

In other words, the numbers might not be faked in a technical sense, but they are not real in any meaningful sense.

Things are different at the top of the pyramid, however, with the sales data and viewership commanded by top streamers such as Li Jiaqi and Viya widely considered to be legitimate.

The reigning king and queen of livestreaming e-commerce in China are Li (also known by the English name Austin) and Viya (real name Huang Wei). While Li is well known for his ability to use his following on Taobao Live and his 40 million strong army of fans on Douyin to move beauty products for brands from MAC to YSL Beauty, Tom Ford, Giorgio Armani, once selling 15,000 lipsticks in five minutes, Viya was famously tapped by Kim Kardashian when the latter wanted to launch her perfume in the Chinese market, and it's no wonder, with a livestream audience that has topped 37 million for some sessions.

Whaley says he has seen first-hand Li Jiaqi’s backend data for the month of May, in which the host worked with 600 brands, and sold over 21 million units with a total purchase value of more than 2 billion yuan ($286 million). Brands BoF has spoken to who have worked with Li also report very low rates of returned products resulting from his livestreams.

While the engagement and sales of top streamers are real, working with them still presents major risks for brands, Whaley explained, because of the massive discounts these hosts require for brands to participate in their shows.

“This is a race to the bottom,” he said. “As long as you are willing to discount and crush your margins into oblivion, livestreaming will remain very popular because it's a place people can go to get stuff really cheap. The real driver is discount.”

Another significant concern is the way in which brands and platforms have ceded so much power to top livestreaming hosts, who essentially own their own audience, and keep the wheels of the industry turning in a way that ensures they retain the power balance in any relationship with brands.

“The brands have totally lost control of their sales channels and are 100 percent beholden to the platforms and the influencers and have to bend over backwards and do whatever the streaming host wants them to do, including selling their products at a loss,” Whaley added. Sometimes this amounts to not even “building up the popularity of their own brand, but building up the popularity of the host [instead].”

Proceed with Caution, Aim for Control

In spite of all of this, livestreaming has become an indispensable tool for brands in post-pandemic China and they are unlikely to give it up, even with its multitude of problems.

“I wouldn’t recommend people walk away from this,” Gardner said. Rather, he recommends brands host livestreams within more transparent marketplaces, such as those run by Alibaba, which he says from experience already do “pretty good job of policing” any nefarious activity.

“One of the other things I recommend brands do is to negotiate performance-based agreements with no minimums, if you can. If there’s no minimum fee and it’s purely sales commission based, you just need to control the assets and what the host says, the way they talk about you. That’s the lowest risk profile,” he added.

Another option is to take a leaf out of the playbook that has increasingly been adopted by domestic brands, in which they train their own staff or feature their own founders and executives as livestreaming hosts.

Chinese skincare brand Forest Cabin has a network for 500 stores nationwide, and until this year 75 percent of its sales came from these brick-and-mortar outlets. Their biggest sales event of the year is the Chinese New Year holiday period, which this year was pretty much wiped out by China’s initial outbreak of coronavirus. For Forest Cabin, Chinese New Year holiday period sales were down 95 percent compared with the same period last year, according to founder Sun Laichun.

"In late January, the company's cash flow [could] only last for one or two [more] months," Sun said. Then, the company turned to livestreaming for sales, retraining an army of 500 sales assistants to host livestreams on a variety of platforms. By mid-February, sales were up 45 percent over the same period a year earlier.

The livestreaming industry, which has flourished relatively freely to this point, is likely to see major changes soon, as regulations work to sanitise content and brands become less enamoured by its discount-driven charms. But this doesn’t mean livestreaming is going anywhere, with Chinese consumers seemingly addicted to its brand of shop-ertainment. For those who continue to use it as a tool, taking a leaf out of the Chinese government’s handbook and aiming for as much control as possible is going to be the best way to lessen the risks involved.

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