This article was first published by INMA on 14th February 2023

In the world of brand sponsorship, there has been a significant shift in priorities in recent years. Gone are the days when brand sponsors were solely optimising for reach and engagement-led vanity metrics.

Today, brand sponsors are seeking a level of attributable performance from their influencers. They seek data and want to establish a direct relationship with audiences.

Sponsorships have long been a go-to strategy for brands wanting to get their name out there. The average person likely sees hundreds of brand sponsorships in a day and thinks nothing of it.

This is especially true with the rise of digital content sponsorships, where brands support, promote, or provide funding for digital content. This type of sponsorship has become especially common in the digital age as companies seek to reach new audiences and build brand awareness in a crowded online landscape.

But even brands’ decades-long love affair with sponsorship deals isn’t safe from rumblings in advertising. For far too long, there’s been a lack of data on whether sponsorships really produce their expected ROI. Global macro-economic factors such as rising inflation have also caused brands to wonder whether they are getting their money’s worth with their sponsorships.

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The bubble is about to burst

One survey commissioned by The Drum shows that influencers in the United States and United Kingdom are already feeling the pinch as brands rethink their spending:

• 33 respondents revealed the brands asked them to lower their fees.
• 18 had delayed payments.
• 16 had brands cancel campaigns altogether.
• 40% of influencers reported working with fewer brands in 2022 than in 2021.

Some influencers aren’t shy about letting their followers know times have changed. Personal finance YouTuber Nate O’Brien once tweeted he lost six figures worth of brand deals in just 30 days last June. Similarly, esthetician and beauty influencer Dorian Holguin explained that a brand deal fell through with a make-up brush company simply because they didn’t have enough inventory to give out free products.

The sponsorship bubble has already burst for some companies. Sponsorships tied to the declining cryptocurrency exchange FTX are down the drain after FTX filed for bankruptcy last November.

Among the affected companies is Semafor, which received an undisclosed investment from FTX CEO Sam Bankman-Fried as part of a US$25 million funding round. Earlier this year, Semafor announced plans to surrender all of Bankman-Fried’s investment amidst criticisms of keeping dirty money.

Yet even publications backed by larger, more legitimate venture capital funds aren’t spared. Future, Andreessen Horowitz’s (also known as a16z) foray into tech media, announced it would be shutting down last December. While a16z tried to use Future to influence conversations around technology, the publication was hobbled by factors such as an inconsistent publishing schedule and decreasing site traffic.

Sponsored podcasts are also feeling the crunch. New industry figures show the number of new shows has dropped by 80% in the previous year. This affects even podcasts backed by streaming giants like Spotify, which pulled 11 original podcasts from its platform and laid off employees at in-house studios Parcast and Gimlet. There are even arguments that Spotify’s earlier business decision to back popular podcasts has failed entirely: Despite hosting a sleuth of podcasts from personalities ranging from Joe Rogan to the Obamas, only 14% of podcasts earn Spotify any money.

The number of sponsored publications and podcasts having to return money or even shutting down completely stresses just how fickle sponsorship really is as a business strategy. With all industries expected to wrestle with future economic challenges, it’s no surprise brands are thinking twice about investing in sponsorships.

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Measuring performance becomes important

With the privacy regime, it’s becoming increasingly harder to track user activity across apps. This puts a dent in targeted online advertising.

The removal of targeted advertising could potentially hurt sponsorships by reducing the effectiveness of sponsorships in reaching the desired audience. Furthermore, the lack of targeting may result in broader and less personalised messaging, potentially leading to less engaged and less responsive audiences.

It’s hard to discern whether a customer has bought a product or service specifically because of sponsorship or some other factors. Some brands work around this with affiliate marketing (and using affiliate links to give celebrities/influencers a commission on sales). However, most of the time, it works in the context of e-commerce brands where the purchase amounts are smaller and sales are impulse-based.

On the other hand, when the sales cycles are long, or brands want to establish a long-term relationship with users, they look to capture first-party data and start engaging with users via their own customer relationship management (CRM) strategies.

It’s difficult to say whether sponsorships are worth it because their performance is hard to track. Ultimately, the worthiness of sponsorships boils down to the goals of the business, its target audience, the type of content being sponsored, and the resources available to the business.

In the meantime, brands would do well to search for marketing strategies that are more proven, cost-effective, and, most importantly, measurable.

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