In this article, Patrick McCallum, Senior Associate, and Gavin Chapman, Senior Paralegal, of Wright Hassall LLP’s Commercial team, consider:

• the recent decision by Twitch to reverse the introduction of restrictions on how its users advertise goods and services on their Twitch channels; and 
• some of the issues businesses should consider when engaging individuals to sponsor their goods and services.

The world of advertising is changing. The traditional advertising channels that businesses once relied on are being replaced by shoutouts, posts, reels and videos produced by content creators or “influencers” on their social media channels. 

You only need to look at the success of Prime Hydration to see that the potential returns on investing in influencers to promote a brand can be significant. With Prime, a joint marketing strategy from influencers Logan Paul and KSI made national news due to the crowds of people tripping over each other just to get their hands on a product that, without the influencers’ marketing activities, arguably would not have had anything like the same impact on the energy drinks market. 

Twitch: A Success Story for Digital Marketing and Online Advertising 

One online channel that is particularly well known for allowing businesses to insert ads and promote their goods and services via its users’ platforms is Twitch, an interactive livestreaming service for content spanning gaming, entertainment, sports, music and more.

It was common for Twitch influencers to fill a significant proportion of their screen with various forms of online advertising. This: (a) helped enable the influencers to make significant sums of money through sponsorship deals with businesses who wanted their goods or services to be promoted on Twitch; and (b) helped enable such businesses to reach new and wider audiences.

Twitch Updates its Terms of Service

However, this mutually beneficial relationship was put under serious threat in June 2023, when Twitch announced that they were amending their Terms of Service, resulting in the removal of nearly all of the advertising opportunities for users. 

The proposed changes imposed restrictions on “burned in” videos, audio ads and banners (etc.), the upshot being that only 3% of a Twitch user’s screen could be used for advertising. Even the boldest and most recognisable company logos would be difficult to make out on a handheld device with those restrictions. 

Backlash from the Online Community

Naturally, there was a huge outcry from the Twitch community, many of whom rely heavily on the revenue generated from sponsoring goods or services on their Twitch channels. Twitch influencers such as Asmongold suggested that streamers should find other platforms if Twitch’s decision to change its Terms of Service were not reversed. Another popular Twitch influencer, xQc, made the move to rival gaming and live streaming platform Kick, and many others followed suit. 

Twitch Reverses its Decision

Ultimately, Twitch decided to reverse its decision to update its Terms of Service. Perhaps Twitch’s main mistake was the lack of clear communication and consultation with its user base prior to implementing the changes to its Terms of Service. Clear communication with the users of its platform would have given Twitch the opportunity to better balance its needs against those of its users. This would have helped maintain a good relationship not only between Twitch and its users but also between its users and their commercial sponsors. 

The changes brought about by the Twitch community demonstrate the power of influencers today and their value to businesses looking to promote their goods and services online. 

Why should businesses engage influencers and online content creators to advertise their goods and services?

The backlash against Twitch restricting its users’ ability to advertise on their platforms demonstrates how much influencers on online platforms are engaged to promote goods and services and how fast this is becoming the go-to marketing strategy for many businesses. 

It is not just the large companies that are adopting this approach either. Disruptive businesses and other SMEs that partner with content creators who share similar values to the business and who can create more targeted online ad campaigns often see significant increases in sales as a result.

From the businesses’ perspective, they are getting a high return on investment by harnessing the hi-tech algorithms used on these online platforms to target their ads at people in a particular region and/or with particular characteristics and interests. From the influencers’ perspective, they can generate significant revenue simply by doing more of the hobby they love that got them all their followers and subscribers in the first place. 

If you decide that you want to engage an influencer to promote your goods or services, what issues do you need to consider?

• Does the influencer match your values, and are they appropriate to sponsor your goods or services?

Before engaging any influencer, it is important that you conduct extensive research into their lifestyle and their interests.

Identifying an influencer who might be expected to be an expert on the type of goods or services you provide is clearly going to increase the likelihood of that influencer’s followers considering buying your goods or services. 

Similarly, you may wish to engage an influencer who reflects the types of individuals you wish to sell your goods or services to. Again, this is likely to increase the likelihood of any sales. 

Classic examples of this would be using successful sportspeople to promote sporting equipment, celebrity chefs to promote cooking products or investment gurus to promote online trading apps.

• Have you put a sponsorship contract in place to mitigate damage to your brand if the influencer is involved in any controversies?

When you use an influencer to be the face of your brand, you are heavily reliant on that influencer acting in such a way that will add value to your business and have a positive impact on sales. 

Whilst an influencer’s “edginess” might be part of what makes them an effective sponsor for certain businesses, if an influencer acts in such a way that devalues the brand or is not consistent with the values of the business, then this can have a detrimental impact on sales and the business as a whole. 

If an influencer is involved in a scandal that represents a significant risk of damage to your brand, you will naturally want to be able to sever ties with the influencer to limit the amount of damage caused.

The most effective way this can be done is by putting in place a sponsorship contract with the influencer. The sponsorship contract can: (a) set out brand guidelines and rules on how the influencer is expected to behave, particularly when promoting your goods or services; and (b) permit you to terminate the contract if the influencer fails to behave in the prescribed way or otherwise becomes involved in any activity that could bring your business into disrepute.

There are many other reasons why you should record your sponsorship agreements with influencers in a formal contract, but mitigating against the influencer doing something wrong is one of, if not the most important reasons for doing so.

• What are the demographics of the individuals who follow the influencer, and what level of interaction/engagement do they have with the influencer?

You might be attracted to influencers with the most followers, with the idea that their ads will reach the most people. However, if a large proportion of an influencer’s followers are not the type of people who are likely to want to buy your goods and services, whilst your ads might reach more people, they will likely result in fewer sales.

Linked to this is the level of engagement an influencer has with their followers. To ensure ads get the most traction online, businesses should want to engage an influencer whose followers actively re-post, re-tweet, share and comment on the influencer’s content. It is this sort of activity that feeds the algorithms and will get your ads in front of more people who are likely to link through to the landing pages on your website.

• What platform(s) does the influencer use, and how might this affect how they are able to advertise your goods or services?

As demonstrated above, any business that was sponsoring a Twitch streamer would certainly have been worried about the potential impacts of the rule changes proposed in June 2023. 

You should consider the rules around advertising that each social media platform has in order to determine which platforms offer the most effective ways of getting your goods or services in front of potential customers. 

Furthermore, you should consider whether your goods or services are best advertised via images, videos, banners or messages, as this may help you determine the right types of influencers to engage with, the right platforms to advertise your goods or services on and the right marketing strategies to adopt with your influencers.

• How will the influencer be rewarded for their efforts? 

This is another issue that is best addressed in a sponsorship contract.

There are a number of means by which you could reward your influencers for promoting your goods or services, and you will need to give consideration as to which one will incentivise them to promote your brand to the best of their ability actively.

Standard payment models include a flat rate, cost per action (CPA), cost per click (CPC), and cost per (thousand) impressions (CPM). Each model comes with its own implications and can influence the choice of influencer or platform used. 

Flat-rate sponsorships will provide a set amount of money for a specific task, such as having a banner on display for a certain amount of time each day or a certain number of posts which display or mention a product. 

The CPA model pays the influencers based on specific actions of your customers, such as when they follow an influencer-affiliate link or make purchases with the influencer’s referral code. 

The CPC model is self-explanatory and preferable for those influencers whose followers actively engage with their content. 

The CPM model pays on the number of impressions an ad receives. It is more effective where followers are more likely to passively engage with an influencer’s content (e.g., hovering over a post or viewing a story without liking or actively reacting to it).

You could also choose to provide influencers with free or discounted goods or services as an extra incentive to promote your business.

• Do you want to restrict the influencer from promoting similar goods or services?

Given the reaction when Twitch sought to restrict how its users could advertise on the platform, you should use caution when seeking to place restrictions on your influencers’ ability to promote other goods or services.

However, it is understandable that you would not want an influencer to be advertising one of your main competitor’s products at the same time as they were promoting yours, so some restrictions are to be expected.

The important thing is to define what restrictions will apply clearly – you should consider: 

• the types of competing goods or services that you don’t want your influencer to advertise;
• the specific businesses you don’t want your influencer to work with; 
• the platforms on which you want to have exclusivity;
• any territorial restrictions where the influencer can/cannot advertise competing goods or services; and
• how long such restrictions will remain in place.

• What is the marketing strategy for how the influencer is going to promote your goods or services?

The production and format of content require planning from both parties. 

You should consider who will be responsible for what. For example: 

• how many ads will the influencer be involved in to satisfy their sponsorship obligations?
• what format will these ads be in (e.g. videos, stories, images, posts, banners)?
• who makes the ads, and if it is to be the influencer, will you want sign-off before such ads are posted?
• at what time during the day should influencers post their ads, and how (in)frequently should they be posting?
• how prominent do you want your brand and/or goods or services to be in each ad?
• will you need to share confidential information with the influencer which needs to be protected?

All of these questions are important to protect the reputation of your brand and the continued success of your marketing strategy.

Conclusions

The Twitch controversy demonstrates two things. 

Firstly, the advertising landscape is evolving – businesses must be ready to adapt to these changes and be aware of the new risks that such changes present. 

Secondly, businesses and influencers should both look to protect themselves so that if things do not go to plan, there are remedies available. 

If you are considering engaging an influencer or any other individual to sponsor your goods or services, it is of vital importance to get a sponsorship contract in place that clearly sets out the parties’ rights and obligations.