By JIANG Jingling
In March, less than a year’s operation and 5 million yuan ($0.7 million) investment later, Qing Shi closed his multi-channel network. Often called MCN, these companies incubate and represent influencers, and connect them with advertising brands. For those who work in marketing, 2020 seems to be a particularly difficult year.
Wang Yeran, who works in marketing at a gaming startup, has for years been in close contact with MCNs for his company’s promotional campaigns. Recently, as he noticed, these MCNs have become “more proactive than ever”. Market researches and case studies, usually guarded as trade secrets and only shared with VIP clients, were given out as candies. Even notable “big names”, normally beyond reach for small advertising companies like his, have actively reached out. “The editing terms have also been much friendlier. Last year when we tried to negotiate, they bit back like no one’s business. ”
“Maybe, this year has been really hard.” Wang speculates.
Mass Bankruptcy
Qing Shi is a veteran in social media marketing. He had been running a few successful WeChat blogs since 2014, the biggest of which had two million followers. In early 2019, Qing Shi heard from friends that MCNs are even more lucrative - on an average month, each follower could bring 10 cents of advertising income. So he sold his blogs for 5 million yuan, and invested all of it into a new MCN company, called “All In”. He focused on short films, launched more than a dozen channels on Douyin, TikTok’s Chinese counterpart operated by the same parent company, and amassed a total of 27 million followers in less than a year. The plan, based on his market research and common industry practice, was to grow a sizable following, build distinguished brands (or “multimedia franchise” by industry jargon), and monetize them through advertising.
In October 2019, after investing over 2 million yuan in the business, Qing Shi felt he had hit a wall. By then, his channels had only brought in 300,000 yuan through ads, and “All In” was bleeding money. He consoled himself that the company was still at a “growing stage” and soldiered on. “In hindsight, that was probably the right time to stop the cash drain and get out,” he said.
Qing Shi is not alone in the on-going MCN carnage. In February, WeMedia Alliance, a leading influencer incubator and agency, surveyed more than three hundred MCNs of various sizes and found that two hundred firms, which is more than half of the firms surveyed, had gone bankrupt or were on the verge of bankruptcy by March 2020.
Fang Yu, Vice President of WeMedia Alliance, told Jiemian News that these MCNs “seemed to be still in pretty good shape” back in October and “had tremendous pricing power” then. He remembers negotiating with a decent-sized MCN on behalf of an advertiser and was told straight in his face that “we are not interested in any deal smaller than 500,000 yuan. If that condition is met, send over the advertiser’s name and we’ll take a look.” That experience left an impression. “They were completely dominating the negotiation. In my years of work, I have rarely seen a sell-side firm behaving like that.”
But in less than five months, the landscape completely changed. In February, when WeMedia Alliance was conducting the MCN survey, Fang suddenly realized that he hadn’t heard from many of these firms for a while, and couldn’t even get a call back when he tried to introduce potential clients to them. “That’s an obvious sign of bankruptcy,” he said.
On the grand scale of things, the MCN industry looks contradictory. Alongside mass bankruptcy, new firms are rushing in large swaths - the number of MCNs nationwide almost tripled in 2019, reaching 20,000. It is a typical scene of any frontier market.
From advertising to e-Commerce
Traditionally - that is, before the recent rise in MCN e-commerce - the tried-and-true business model MCNs is to monetize fan followings through advertising. Qing Shi, who had planned to follow the same path, had invested heavily in building influential “franchises” for his Douyin channels, hoping to grow a large following through them. As he soon found out, for an MCN, that was easier said than done.
Qing Shi summarized his MCN endeavor as follows. “You can only attract followers with good content. And to create good content, you need an army of producers, screenwriters, and directors. Even that is not enough. You miss a trending topic once, it immediately shows in the analytics. Plus, the cut-throat competition on short-video platforms is getting worse. It’s more difficult than ever to distinguish your brand with anyone else’s.”
Chenjin Media (translated as “Immersion Media”), another MCN with a few ten-million- follower Douyin channels, also makes money through advertising. Its CEO Wang Yujue told Jiemian News that growth and size are crucial to survival for an MCN “in the bulge of the curve”, like his. Advertisers are disposed to work with “large, leading” MCNs, attracted to their diverse content portfolios as well as abundant capital and talent. For Wang, the key for a mid-sized MCN is to “make small movements on all fronts” and “strike fast and quickly expand” whenever any content goes viral.
Wang Yeran also expressed similar views. “Compared to small firms, larger MCNs can offer better services at similar prices. Also, the quality of their content is more consistent.”
He mentioned that the coronavirus crisis has posed existential threats to the MCNs, especially the smaller ones. Cash-strapped advertisers have, on average, slashed their marketing budgets by 20 to 30 percent this year, some even by 60 percent. To squeeze the most out of the already-meager budget, their strategy has increasingly shifted away from advertising to MCN e-commerce, in which influencers encourage viewers to purchase the showcased items through embedded links in videos and live streaming channels.
The coronavirus crisis has only accelerated an emerging trend. A recent market survey shows that more nearly 60 percent of the revenues for MCNs founded after 2019 comes from e-commerce (the rest are from advertising). Fang Yu from WeMedia Alliance even pointed out the watershed moment for the shift - November 11, 2019, Alibaba’s “Double 11” promotion day usually dubbed as “China’s Black Friday”. More than half of the sellers on the giant platform launched live-streaming sessions that day, through which over 10 billion yuan worth of transactions was made in less than nine hours. One of the top-ranking live streamers sold more than ten thousand lipsticks in five minutes.
For advertisers, the advantage of MCN e-commerce over traditional ads is obvious - the money spent is converted to sales on the spot. The return on their marketing investments suddenly becomes easily trackable, since advertising rates are no longer tied to the influencers’ follower numbers and engagement rates, metrics that may not have any direct correlation with the particular goods advertised.
The biggest drawback, however, is fraudulent viewership. Last year, a Shenzhen electronics product seller revealed that a fashion influencer whom the company signed a million-yuan contract with faked viewership. Her videos and live streaming sessions, which were watched by millions of people barely brought in any online shop visits and sales.
MCNs seem to have come to a crossroad - it has become exceedingly difficult to gain followers and attract advertisers, who, in the wake of the coronavirus crisis, have set higher-than-ever benchmarks for the returns on their marketing investment. On the other hand, consumers are getting more receptive to or even comfortable with shopping through live streaming and short videos. An industry reshuffling is on the horizon.
Saved by e-commerce?
For now, e-commerce seems to be the holy grail. And no one wants to miss out. Wang Yujue told Jiemian News that “all the Douyin channels operated by Chenjin Media are switching to live streaming [e-commerce], including the most successful ones that have thrived on uploaded contents and advertising. New channels are live streaming and e-commerce only. The mood is supported by industry data. About 60 percent of newly created MCNs jobs in 2019 is on live streaming, compared to 30 percent on short videos. Only 10 percent of the new workers are still editing old-fashioned photos and texts.
However, for both MCNs and advertisers, e-commerce is still the wild west, where hard-learned lessons abound.
In one case, according to Fang Yu, a cosmetic brand was “cajoled into” signing a fashion influencer with ten million followers. For 300,000 yuan, she posted a few short videos with embedded online shopping links. “The viewership was great. But only less than 5000 yuan worth of goods was sold. That was a ‘what the hell’ moment for the advertiser.”
The cosmetic brand quickly learned its lesson. “Now viewership and follower numbers are nothing e.” They explained to Fang Yu their new, single standard for influencer brand ambassadors. “We only care about how much sales he or she can bring.”
This represents an industry trend. Advertisers, who used to see viewership as the single most metric for marketing effectiveness, have now switched their focus to how much the viewership can be converted to sales. This, for MCNs, requires a completely different strategy and mindset. Ads are follower oriented, so the strategy is “content-centric”, focused on the influencers’ styles, as Fang Yu pointed out. E-commerce, in contrast, are sales driven, so MCNs need to better align their followers’ enthusiasm with incentives to purchase.
“For example, if an MCN representing a women’s clothing brand hires a sexy dancer strutting on the stage, I bet you many of the viewers will be single men, who, at the end of the day, won’t spend a dime on the dresses. However, if the same young dancer makes a “how to put on makeup” tutorial, women viewers will come, and the session will be way more successful.” Fang Yu said.
Many MCNs Jiemian News talked to are having a hard time converting viewers to shoppers, especially the more established ones who started by selling ads. One of them, who recently closed his MCN, summarized the conundrum as a “lose-lose” situation - he once solicited free tickets from airlines in exchange for increased brand awareness, but in the end, no tickets were sold. Both parties were “pedaling while losing money” and they quickly ended the partnership.
Nevertheless, new players are still entering the playing field in large numbers. At the same time, consolidation is happening among leading MCNs, posing unprecedented market power. For the majority in the middle, the road is both rocky and full of hope. From the MCN carnage, the new landscape is still unfolding.
