Focal points in shared talent contracts

By Tao Shan and Zhu Zhitong, Hylands Law Firm

The year 2018 is recognized as the first year of the era of the “Chinese idol group”. With the airing of the popular TV shows such as Idol Producer and Produce 101, talent agencies have adopted a new business method with duos and groups, through which two talent agencies – the original talent agency and the new talent agency – are able to share the management rights of a talent’s acting career.

Tao Shan
Hylands Law Firm

The original talent agency entered into a contract with a talent before the TV show. When a new idol group is formed after the TV show, the new agency enters into a contract with the original agency that the talent belongs to. The contract entered into between the original talent agency and the new talent agency is known as the “shared talent contract”. This article analyzes the focal points in shared talent contracts from a legal perspective.

For the talent agency, shared talent contracts can be categorized into split contracts and loose contracts. The former means that the new talent agency owns the exclusive right to arrange the talent’s work schedule within a given period, whereas the latter means that both the original and new agencies are entitled to arrange the talent’s work schedule.

Based on the work scope of the talent, shared talent contracts can be divided into all-around contracts and partial contracts. All-around contracts denote that the original talent agency co-operates with the new agency on all fronts, as long as it’s within the scope of the talent’s acting career. By contrast, a partial contract means that the co-operation between the two talent agencies is restricted to part of the work scope of the talent’s acting career, such as album or music activities.

Zhu Zhitong
Hylands Law Firm

Shared talent contracts can also be grouped into group contracts and individual contracts, depending on the form of the talent’s participation in the work. Under a group contract, co-operation regarding the talent’s acting career management is based on the talent’s membership of a group. Normally, a group contract stands only when the group exists, and the talent is often required to exclusively participate in, or give priority to, participating in the group’s activities. Individual contracts are signed based on the personal identity of the talent. The term of an individual contract is usually long and may even be the same as that of the contract between the talent and the original agency.

Timing of signing. The timing of signing shared talent contracts will directly affect the bargaining power of talent agencies and revenue distribution. The new agency has to recruit a large number of talents for the sake of a talent show, and signing contracts with the talents one by one takes much time and energy. However, if the new agency can enter into a contract with a talent prior to the show, it will have more bargaining power, secure more favourable terms, and avoid a case where the talent or the original agency refuses the contract after becoming famous during the show.

Conversely, if the new agency plans to execute a contract with a talent during or after the show, the original agency will have more bargaining power due to the increasing fame of the talent, while the new agency will fall into a passive position.

The authors therefore suggest that all parties prioritize the timing of signing contracts. To strike a balance between the interests of all parties, it is suggested to sign a contract with talents prior to the show, and set a condition for the contract to take effect, e.g., stating that the shared contract takes effect only after the talent makes it to a particular phase of the show.

Work schedule arrangement. The key to the negotiation on shared contracts is how to use the talent’s limited time and maximize the revenue generated from the arranged work. The new agency is inclined to enter into a split shared talent contract for the purpose of getting priority within a specified term to arrange the talent to undertake certain work based on the group membership.

Meanwhile, the new agency should also pay close attention to the performance of the contract between the talent and the original agency – in particular, the likelihood of being affected by the talent’s work arranged by the original agency. For example, any exclusive commercial endorsement contract signed by the original agency may hinder the new agency from asking the talent to endorse a competitor’s brand.

If a shared contract falls into the category of loose contract or partial contract, the work arrangement by the original and new agencies may conflict with one another and lead to a deadlock between the two. Therefore, the authors recommend both parties introduce a conflict resolution mechanism in the shared contract, such as weighing certain factors when any work conflict occurs (such as work payment, influence on the talent’s long-term development, etc.) and including a procedural clause that requires a prior notice.

Revenue distribution. Revenue distribution is the key to the negotiation on shared contracts. When drafting a revenue distribution clause, interested parties will consider various factors relating to time and work division. More specifically, there may be a clause specifying that the revenue distribution ratio of the original agency should decline, and that of the new agency should increase accordingly as the co-operation proceeds. The revenue distribution ratio of different parties may also vary depending on the source of the talent’s work. In other words, the party securing a work opportunity for the talent is entitled to obtain a higher ratio.

Interested parties should also pay due attention to the talent’s revenue payment. First of all, where the talent is not a party to the shared contract, there is no direct legal relationship between the new agency and the talent. In a case where the new agency directly distributes the revenue to the talent, it should include the talent as a party to the shared contract, or have written confirmation from the talent.

Second, the party distributing revenue to the talent is obliged by law to withhold and pay individual income tax. The party paying the tax should note that tax supervision on high-income groups, particularly those working in the film and television industry, has become increasingly strict. It is also suggested to add a clause stating the party that will bear the tax burden in the shared contract.

In summary, shared contracts involve a balance between resource integration, revenue distribution and many other factors. To avoid disputes, the authors suggest that interested parties reduce the ambiguity and loopholes in commercial clauses when drafting shared contracts. Only by forecasting and preventing legal and commercial risks can the interested parties achieve win-win co-operation.

Tao Shan and Zhu Zhitong are partners at Hylands Law Firm

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