Victoria Harbour in the Kowloon district of Hong Kong.
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China’s entertainment industry is the latest sector put on edge by increased regulatory scrutiny, in an environment already stifled by the pandemic and the country’s overall slowing economy.
Authorities have previously exerted control over its multibillion-dollar celebrity and entertainment sectors, from banning broadcasters from showing tattooed music artists to requiring programmers to air more patriotic-themed content.
But the recent crackdown comes as a bigger swell. In early August, the official Xinhua News Agency—largely a press-release forum for the government—published a series of articles on the unhealthy phenomenon of fan groups that use their massive online presence to drive traffic to celebrities and products they hawk.
Since then, the internet regulator has removed thousands of fan groups and hashtags from social media. Even China’s antigraft agency got into the mix, publishing a statement titled, “Bringing Under Control ‘Fan Club’ Madness.” Hours later, Twitter-like Weibo (ticker: WB) took down its tremendously influential Star Power List, a sort of Billboard chart for trending celebrities, at the behest of regulators.
Weibo said publicly some fan groups had become “irrational” and “unhealthy” and that it would devise a “new scoring mechanism to curb fan fundraising, encourage fans to chase stars rationally, and encourage stars to interact with fans through charity.”
Leading video-streaming platform iQiyi (IQ)—often dubbed the Netflix (NFLX) of China—last week announced it would cease airing its super popular idol talent shows, which often require viewers to purchase products in order to vote for their contestants of choice.
The company, owned by search giant Baidu (BIDU), said in a social media statement it needed to be “responsible as a platform, resist bad influences, and maintain a healthy and clean internet for users.”
That crackdown came just after numerous A-list celebrities were named, shamed, and then essentially erased from China’s social platforms for various indiscretions. Two top Chinese actresses had their likenesses disappear from China’s internet in August following scandals. And after Canadian singer Kris Wu, a megastar in China, was recently arrested on charges of rape in Beijing, his fan groups attempted a public relations pushback and a fundraising campaign for his defense. Wu denies the charges.
One question that emerges is what this all means for the troves of traffic and money that have been channeled to products within this ecosystem. Social media advertising revenue alone in China is estimated to hit 107 billion yuan ($17 billion) this year, according to iResearch.
“Brands who are heavily invested in ambassadors whose fan clubs have been purged are likely to get less ROI from their endorsements. This will be the result of less online buzz created for idols, as much of this is often generated by fan club members,” Mark Tanner, managing director of Shanghai-based marketing research firm China Skinny, told Barron’s.
“It may also be a rude awakening that the ambassadors don’t have as widespread appeal as they thought, as this is often inflated by calculated initiatives from club members.”
This week, China’s television regulator also banned “effeminate men” from appearing on programs, and reminded broadcasters to promote communist ideology. The regulator’s public statement used the Chinese term for “sissies” to describe the now-prohibited male types.
The constant government bombardment of sector after sector has left companies and investors confounded. Tech, education, housing, and entertainment are just the more visible industries that have been ordered to “rectify” various alleged misconduct.
Gaming, too, has faced sporadic restrictions, mostly to curtail “addiction” of minors to popular games. On Monday, perhaps the most draconian new rule was issued by the gaming regulator, which now restricts playing time for minors to merely one hour on Fridays and on weekends. Barron’s has previously spoken to parents who say their children spend up to eight hours a day playing videogames.
Investors bullish on Tencent Holdings (700: Hong Kong) and NetEase (NTES)—the country’s two biggest videogame producers—noted that the contribution of minor-aged gamers to the companies’ revenues remains small.
But Mio Kato, Asian equities analyst at LightStream Research, argued in a note that investors haven’t truly appreciated the extend of damage new gaming restrictions will have on future industry revenue. With playing hours so strictly limited, young gamers will be less likely to develop deep-rooted playing and spending habits that continue into their adulthood, when they are lucrative customers.
As for what brands that rely on fandom and celebrity promotions can do to navigate the current environment, China Skinny’s Tanner said agility was key.
“Almost every successful brand in China is the result of being adaptable to the ever-changing market dynamics, so I expect most will pivot their marketing strategies quickly,” he said.
As many brands spend more than half of their marketing budgets on celebrity endorsements, “there may be a correction period, and marketing costs for less exposed touch points will increase, meaning ROI will sink further,” he said.
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