In a bid to curb growing malpractices in influencer marketing, the Consumer Affairs Ministry on January 20 released endorsement guidelines making it mandatory for celebrities, influencers and virtual influencers to disclose their paid partnerships with brands while promoting them on social media or else face legal action.

The guidelines specify that failure to disclose any material connection would make such violators liable for strict action under the Central Consumer Protection Act, 2019 (CCPA). For “endorsement of misleading advertisements”, CCPA has prescribed a Rs 10-lakh penalty, which may go up to Rs 50 lakh, and a ban of 1 to 3 years for subsequent contravention.

Brand collaborations, which are often passed off as organic posts influencing the purchase decisions of millions of consumers, may land influencers in legal trouble and hefty penalties henceforth.

It is noteworthy that influencer marketing skyrocketed in India during the pandemic touching Rs 1,275 crore in 2022 and was projected to grow by 25% CAGR for the next five years, according to the INCA-e4m Influencer Marketing Report released last year.

However, the rise also led to complaints of malpractice. Several Bollywood celebrities have been accused of flouting the Advertising Standard Council of India (ASCI) ‘Influencers Guidelines' while advertising for brands without disclosing properly that their social media posts were part of commercial agreements.

The ASCI deals with hundreds of such cases every year, prompting it to bring exhaustive influencer guidelines in 2022 but it doesn’t prescribe any punitive action on the violators as the ASCI’s mandate is limited to self-regulation.

“Influencer violations comprise almost 30% of ads taken up by ASCI,” says Manisha Kapoor, CEO & Secretary General, ASCI. This is despite the fact that more than 90% of the brands have pledged to be ASCI compliant, as per the INCA report.

Nano and micro-influencers remain out of the ASCI net, despite flouting ASCI guidelines as they are millions in number, industry observers point out.

'Storytelling will be lost'

With the government as well ASCI guidelines drawing a clear line between authentic and branded content, the government’s move to include hefty penalties and a ban will make the industry more accountable and clean up the ecosystem of hidden promotions, which have escalated over the past couple of years, says Kapoor.

Sahil Gupta, Lead - Influencer Marketing, Interactive Avenues (A Reprise Network Company and digital arm of Mediabrands India) has a different point of view though.

According to Gupta, the guidelines are important and much needed, but they shouldn't be so stringent that they affect the overall storytelling.

“While most of the guidelines shared were part of the ASCI guidelines, there are a few key additions that will impact content. The main impact would be on video content where the influencer, apart from disclosing it in the caption, has to also call it out in both audio and video,” noted Gupta.

He explained, “Imagine an influencer narrating an emotional story, has to say-this video is in collaboration with XYZ brand. Apart from the platform algorithm that reduces the distribution of the branded post, if the storytelling also takes the hit, traction on the post will reduce even further.”

Appealing through a social proof is the pillar of influencer marketing. The disclosure mandate is undoubtedly going to impact the audience as well as brand emotions with regard to influencers, especially in the micro and nano category, opines Vineet Bajpai, Founder & CEO, Magnon Group.

Engagement rates to fall? 

Now the question is: Why do brands and celebs avoid declaring their “paid partnership” deal while promoting a brand on social media?

There are several reasons. While certain brands want the content to appear organic, some brands don't want to be seen as too commercial, which often turns off social media users resulting in poor engagement rates.

“The engagement rates on social platforms witness an immediate fall when posts are tagged as ‘paid partnership’ or ‘sponsored’,” says Vineet Bajpai, Founder & CEO, Magnon Group.

It is common for influencer engagement rates to decrease when they are posting sponsored content. This is because followers may view the content as less authentic and less likely to be relevant to their interests. Additionally, the influencer may be promoting a product or service that is not a good fit for their audience, which can also lead to a decrease in engagement, experts say.

A 2022 study published in the Journal of Interactive Advertising found that sponsored posts by influencers had lower engagement rates compared to non-sponsored posts. The study also found that the more followers an influencer had, the more likely they were to have lower engagement rates on sponsored posts.

Swati Nathani, Co-founder and CBO at Team Pumpkin, “When influencer marketing started getting big about 10 years back, the entire idea for brands was to showcase the fact that their products are endorsed by popular people. Even until now, we use influencer marketing as a “middle of the funnel” activity which not only drives branding but also sales for our brands.” 

The new move obviously puts a restriction on the “organic” perception of influencer content, and frankly, it’s not going to be liked by a lot of marketers because declaring the arrangement with the brand damages the purpose of choosing influencers over performance marketing, she added.

In a landscape like this, specialized platforms and talent aggregators like Talentrack become even more relevant as they help brands with advanced curation and leverage the influencers across categories to suit their products and campaigns, Sawant points out.

“Aggregators and agencies will strengthen their position as a bridge between these influencers and brands sustaining the transaction on both ends, “ Sawant said.

Sawant adds that the reign of content is here to stay. There are several examples of branded content keeping consumers hooked. In a nutshell, good content by influencers from any category will continue to appeal to and win the hearts of the audience, with or without endorsement disclosures.

Asked if celebs will pay heed now, Kapoor said, “Penalty and ban are expected to serve as deterrence to influencers who used to get away with just deletion of social media posts after ASCI’s notice for violation.”

What do the guidelines say?

Titled the "Endorsements Know-hows!" the guidelines aim to ensure that social media stars do not mislead their audiences when endorsing products or services and that they are in compliance with the Consumer Protection Act.

Before endorsing, the product and service must have been actually used by the endorser. In case of default, the consumers can seek legal action.

For pictures, disclosures should be superimposed over the image such that the viewers are able to 'notice'. In the case of videos, disclosures should be placed in the video and not just in the description (of the video).

The guidelines further require that disclosures should be made in both audio and video format. In Live streams, disclosures should be displayed continuously and prominently during the entire stream.

The guidelines also provide a non-exhaustive list of benefits and incentives, which would establish the existence of a material connection: Monetary or other compensation; Free products with or without any conditions attached, including those received unsolicited, discounts, gifts; Contest and sweepstakes entries; Trips or hotel stays; Media barters; Coverage and awards; Any family, personal or employment relationship.

They are also applicable to 'virtual influencers', identified as – fictional computer-generated 'people' or avatars who have realistic characteristics, features and personalities of humans, and behave in a similar manner as influencers.

“While the guidelines attempt at providing a clarification by specifying that creators would be ones who advertise products and services ‘with a strong influence’ on the purchasing decisions or opinions of their audience, it doesn’t specify the criterion/manner for/of determination of presence of a ‘strong influence’ by a creator. In absence of specification of this threshold/criterion, there would be ambiguity on whether or not an individual with minimal followers (for instance 100) would be required to comply with these guidelines or not,” writes legal expert Gaurav Bhalla in his blog post published at Mondaq.