TYGlobe

Introduction

MCN (Multi-Channel Network) initially referred to institutions engaged in the systematic management of personal channels owned by a large number of creators on the YouTube platform. Businesses providing support for creators' channels were once known as ITC (Internet Television Company), OVS (Online Video Studio) and other titles, and were later gradually collectively referred to as MCN. At the global level, as MCN institutions have moved away from their dependence on YouTube, their businesses have further expanded comprehensively to all online platforms, traditional media and mobile communication platforms. Together with content creators, content enterprises and online merchants, MCN institutions have exerted a profound impact on the development of the social networking industry, e-commerce industry and advertising industry. Most online influencers (hereinafter referred to as "influencers") publish content on self-media platforms with the support of MCN institutions, and the influence of the information they produce and disseminate sometimes even exceeds that of traditional media.

In China, MCN institutions currently generally refer to collective operators of online influencers' accounts, which function as intermediaries between social media platforms and online influencers and share advertising revenues with content creators and platforms. They have registered explosive growth in the past few years as a result of significant financial support from platforms. In terms of online influencer incubation, the business scope of MCN institutions covers providing commercial resource docking services for online influencers, and offering support including topic selection, shooting, photography and video editing for content creation to ensure sustained content output of relevant accounts. Besides, such institutions have a development trend of fully undertaking the performing arts brokerage business of online influencers.

The success or failure of MCN enterprises hinges on "human elements", with the competence of content creators as the top priority. In recent years, self-media content creators have been rising rapidly, the trend of "Internet celebrities moving towards professional stardom and celebrities operating as Internet influencers" has been growing, and the commercial operation of influencers has increasingly aligned with the performing artist packaging model in the entertainment industry. However, a large number of emerging MCN institutions in the market, which emphasize the personal bond-based nature of cooperation, adopt an asset-light operation model, and operate in an industry with insufficient standardization, have created great difficulties for influencers in selecting MCNs to sign contracts with, implementing bilateral cooperation, and safeguarding their legitimate rights and interests. Lured by the so-called "secrets to gaining massive online traffic", some influencers sign agreements rashly with high expectations, only to face the harsh reality that the resources provided by the MCN are not commensurate with its prior commitments, the ownership of their personal accounts is misappropriated, and they are required to pay exorbitant liquidated damages upon contract termination.

In this article, the author will, on the basis of past experience in business negotiations concerning influencer contracts and litigation case handling, and particularly drawing on first-hand practice of self-media operation and contract signing obtained through personal participation, conduct analysis of contract terms for a wide range of influencers who either aspire to enter the industry or have already become top-tier influencers in the sector. After all, only by mitigating risks at the stage of agreement drafting and negotiation can the situation be more controllable for influencers in the event of future disputes.

This article is divided into the following sections:

First, The Bet on the "Unexpectedly Emerged Top Talent" — A Dynamic Game Between Revenue Sharing Ratio and Resource Exchange

Second, Business models for cooperation between MCNs and online influencers, the establishment of legal relationships between the two parties, and their impacts on contract termination

Third, Will All Efforts Come to Naught? — The Battle over Account Ownership

Fourth, Can Even "Top Celebrities" Be Stripped of All Their Entitled Interests? — Settlement Delays and Excessive Control

Fifth, A Good Tree Provides Good Shade — The Convenience and Costs of Intellectual Property Rights Protection

Sixth. The Cost of Becoming a "High-Traffic Entity" — Exorbitant Liquidated Damages and High Contract Termination Costs

First: The Betting on "Unexpectedly Emerged Top-tier Talent" — Dynamic Game between Revenue Sharing Ratio and Resource Exchange

Powerful MCN institutions, when dealing with influencers with a small basic follower base, will generally propose revenue sharing schemes such as the 70/30 split (whereby the MCN obtains 70% of the revenue and the influencer obtains 30%) if they have self-incubation plans. For influencers with certain growth potential and an established fan base, MCN institutions will further put forward more favorable revenue sharing ratios and forms after evaluating the development potential of such influencers. The finalization of the revenue sharing ratio is ultimately determined by the bargaining power of both the MCN and the influencer. However, such bargaining power will change dynamically in accordance with the influencer's data performance after the contract is signed. If no tiered revenue sharing mechanism is preset, disputes may arise between the two parties at a later stage when the influencer's data, popularity and revenue soar.

After obtaining the revenue sharing commitment from MCNs, KOLs often lower their guard, only to find that the amount actually received has been further exploited at the time of subsequent settlement, which results from the MCNs' definition of the base for the revenue sharing amount. Once gross profit is taken as the revenue sharing base, MCNs will deduct operating costs from the total revenue in advance. The deducted operating costs may include not only the expenses of photography, videography, editing, makeup and styling provided for KOLs as well as tax costs, but also the expenses incurred from investment attraction, publicity, platform docking, human resource support, traffic support, business entertainment for investment attraction for KOLs, as well as third-party agency fees and service fees deducted by platforms. Even if KOLs are granted the right of objection to the amount within several days after receiving the bill, it is still difficult for KOLs to be informed of and control the amount of costs deducted by MCNs, and they are placed in a highly passive position when accepting the revenue sharing. (For other issues arising in the settlement, the author will elaborate on them in Part IV of this article, so no redundant description will be made herein.)

While the blueprint of riding the wave of live streaming in partnership with MCNs is undeniably attractive, influencers with long-term entrepreneurial ambitions still need to further consider a variety of issues in depth, such as the ownership of actual shares and control rights of their personal brands, whether the revenue sharing method is sales volume-based revenue sharing or fixed-proportion revenue sharing, and whether the MCN has the capacity to assist them in achieving their sales targets, among others. Different MCNs have different resource advantages. Some MCNs have completed the transformation from the content publishing model to the e-commerce livestreaming sales model, and possess the capability to provide e-commerce operation services for influencers including opening and operating online stores. They can carry out a series of work such as influencer brand strategic planning, online store decoration, product selection planning, product sales, customer service and sales support, data analysis, streamer training, and even own their own livestreaming bases. However, MCNs that truly have the capacity to integrate the entire industrial chain of influencer incubation while holding supply chain advantages are still relatively rare in practice, and most of such MCNs are top-tier institutions.

If an influencer has ranked among the top echelon of leading livestreamers and serves as the business pillar of the MCN, or the MCN is established specifically around a certain livestreamer, the MCN company usually forms a deep binding relationship with the livestreamer through such forms as equity incentives and revenue sharing. Under such circumstances, matters including the type of company, decision-making methods, deliberation procedures, holding of control rights and exit mechanisms shall be arranged in advance by the livestreamer with the assistance of professionals, so as to avoid a lose-lose situation similar to that in the Li Ziqi v. Weinian case as far as possible.

The author recommends that influencers first formulate basic plans for their own development positioning and target fan group profiles, then carefully examine the level of detail and executability of the MCN's account positioning, packaging and planning proposals, as well as the institution's existing influencer resources, litigation-related status and the accuracy of the target fan group profile. In the meantime, influencers shall investigate and verify the matching degree between the MCN's actual resource support capacity and their own resource requirements, so as to minimize information asymmetry and obtain more negotiation leverage. If an influencer accepts that the MCN is entitled to a higher revenue sharing ratio and longer account period, the influencer may require that guaranteed traffic investment fees, guaranteed commercial cooperation orders, guaranteed base salary and other relevant items be explicitly stipulated in the contract. It is also advisable to establish a tiered distribution mechanism under which the sharing ratio is dynamically adjusted in line with the influencer's development progress, and extend the probationary cooperation period during which the influencer enjoys the right to terminate the contract unilaterally, so as to safeguard their own legitimate rights and interests to the maximum extent.

Second, Establishment of legal relationships between MCNs and bloggers and its impact on contract termination

(I) Exclusive Full-Service Performing Arts Brokerage Contract Model

Recently, a large number of Multi-Channel Networks (MCNs) provide so-called "template contracts" to online influencers when entering into contracts with them. Such contracts usually include provisions stipulating that the MCN shall act as the agent for all activities of the influencer related to their performing career and public image on all platforms and through all channels. In terms of content, the said "template contract" is actually similar to the exclusive full-term brokerage contract for artists in the film and television industry (hereinafter referred to as the "full-term brokerage contract"). The full-term brokerage contract model indicates that MCNs are no longer confined to internet platforms, and show a tendency to develop into performing arts studios and media institutions. That is to say, apart from providing content support for influencers, MCNs also attempt to implement an upstream development strategy, and leverage the popularity of influencers to carry out a wide range of offline commercial activities such as brand building, song release, variety show participation, album distribution, and film and television drama shooting.

In judicial practice, full brokerage contracts are generally recognized as innominate contracts by the courts. Such contracts are comprehensive commercial contracts that simultaneously bear the attributes of intermediation, agency, commission agency, mandate and labor service, or a combination of the aforesaid attributes. Different final determinations on the nature of a contract will lead to different legal effects, which ultimately affect the difficulty for internet influencers to terminate the contract and the payment of liquidated damages. Provision of full entertainment brokerage contracts to internet influencers indicates that the MCN intends to obtain the exclusive right to all online and offline transaction opportunities of the influencer, and fully represent the influencer in external quotation formulation, business negotiation and contract signing, namely, to obtain the exclusive right to the competitive advantages derived from the all-around packaging of the influencer for development into a performing arts star. The so-called "exclusivity" usually means that the influencer may not conduct negotiations on account-related matters on major cooperation platforms and other platforms, nor authorize their own cooperating parties to carry out relevant negotiations. Any such negotiation shall be subject to the written consent or filing for record of the MCN, and shall be handled by the MCN with the third party. Some MCNs with strict terms will also require that, for income obtained from unauthorized negotiations, the influencer shall compensate the MCN with the higher amount between a specified multiple of such income and the fixed liquidated damages.

(II) Contract Model of Internet Platforms

In addition to the full talent management contract model, it is a common practice for influencers to entrust MCNs as their exclusive agents for accounts on specific platforms or across all platforms. The agency for accounts on specific platforms is similar to the semi-management contract in the talent management sector, which refers to a talent management contract covering specific fields, specific businesses, specific platforms and specific scopes. Compared with full talent management contracts that are modeled on the performance management of professional artists, more detailed platform-specific management contracts restrict the scope of cooperation to performance activities on all Internet platforms or on several designated platforms. Online performance activities generally include multiple forms of online performances such as live webcasting, short video performances, online radio stations, online fan meetings and text-based interviews. Where the content of a contract involves live streaming of on-site cultural and artistic performances, the MCN concerned shall also obtain a Commercial Performance License.

(III) Labor Relations Model

Except for circumstances involving extremely strong personal dependency such as full-time live streamers on live streaming platforms, it is relatively rare in judicial practice for the relationship between influencers and multi-channel network (MCN) institutions to be recognized as a labor relationship. Many contracts provided by MCN institutions contain explicit clauses stipulating that no labor relationship in any form exists between the two parties. MCN institutions will further refrain from imposing attendance requirements or requiring influencers to abide by their internal rules and regulations. This is not because MCN institutions adopt more open-minded management approaches, but to prevent the aforesaid systems from leading to strong subordination of influencers to the institutions, which would make the relationship between the two parties bear the attributes of a labor relationship. Where a labor relationship is established, the influencer may unilaterally terminate the contract after giving a 30-day prior notice, which is extremely unfavorable to MCN institutions that have already incurred costs for the influencer. MCN institutions may also be required to pay retroactive social insurance contributions and compensation for failure to conclude a written labor contract. Most importantly, if a labor relationship is formed between the two parties, except for certain statutory circumstances, the influencer may not be required to pay a high amount of liquidated damages upon termination of the contract.

(IV) Business Cooperation Relations

If you intend to "go it alone" and establish a studio independently, the open-ended non-exclusive cooperation agreement is a relatively appropriate form of contracting. Specifically, the MCN party only acts as an "intermediary" providing online influencers with opportunities for brand cooperation consultation, and the cooperative relationship between the two parties is relatively loose. MCN entities accepting such cooperation may not be MCNs in the traditional sense, and most of them are companies only possessing business resources covering advertising and public relations, model brokerage and store cooperation.

Then what type of legal relationship established with an MCN is the most beneficial outcome for influencers? The answer to this question may vary depending on the differences in influencers' personal career plans. Whether to sign an agreement with a single platform or all platforms, and whether to exchange loyalty and good faith in cooperation for more preferential resource allocation, are all commercial issues that influencers need to consider. With the assistance of professionals, influencers can achieve risk containment through bilateral commercial consultations and contractual clause arrangements, so as to reduce potential future concerns for the effective performance and smooth termination of the contract thereafter.

In light of the varied forms of online performance adopted on different internet platforms, internet celebrities are known by a variety of names: apart from the general term "hongren (celebrities)", they are also called wanghong, online talents, bloggers, live streamers, etc. Due to space limitations, this article mainly focuses on bloggers engaged in the creation of original short videos and image-and-text works who are active on platforms including Xiaohongshu, Weibo and Douyin.

(Please stay tuned to the "Pan-Entertainment and New Media" column on the WeChat Official Account of Shanghai TYGlobe Law Firm for the middle and lower parts of this article.)