The creation of an operating/marketing company between influencers, artists and their management

Introduction: The challenges of the traditional management contract

In today’s world, where influencers and artists are becoming more and more important, they often face the challenge of finding the right management or agency. The classic route here is via a management contract. But this contract has its pitfalls: it is often severely limited in time and offers only limited opportunities for post-contractual compensation. Case law has set clear limits here. The result? Many young influencers and artists face the problem of management being reluctant to invest in them. Why would they also put time, money, and resources into building an influencer when that influencer could leave management as soon as success comes?

In addition, current discussions on platforms such as LinkedIn further illuminate the issue. With the rapid rise of platforms like TikTok, many new “managers” have entered the market, often with little experience or expertise. This has led to a flood of complaints and discussions about alleged poor management. Many influencers complain about unprofessional approaches, lack of transparency and unfulfilled promises. At the same time, there is a growing debate about influencers frequently switching between different managements. This raises questions about the loyalty and long-term intentions of both parties.

Another burning issue is the position of micro-influencers. Despite their authenticity and dedicated fan base, many of them struggle to find the right management. They are often overlooked by large agencies that focus on established names. This creates a divide in the industry where young, emerging talent is often left without professional support and struggles to effectively market and monetize their brand. It is clear that the industry is facing a number of challenges that require a reassessment of existing structures and approaches.

A new model from overseas: the marketing company

While the traditional management contract dominates in Europe, a different model has become established in countries such as the USA. Here, artists and their management jointly establish a marketing company. All of the artist’s rights are bundled in this company – from the exploitation rights to music tracks and lyrics to content and videos. In return, management contributes its long-term services and know-how. A win-win situation is created: the artist benefits from the management’s expertise and resources, while the management benefits from the artist’s revenue and success.

I have been introduced to this concept several times in recent weeks, and it has piqued my interest because it has already had many successes outside of Germany. What makes this model special is that the manager or management agency sets up their own marketing company with not just one, but every single artist, band or group they work with. This means that for each artist or group there is a separate society, whereby the interests and rights of each individual are clearly defined and protected. This approach ensures individualized attention and prevents potential conflicts of interest that could arise if multiple artists were consolidated into a single company.

Through this structure, both management and the artist can ensure that their specific needs and goals are addressed without being compromised by the interests of others. It also provides a clear separation of finances and responsibilities, resulting in more transparent and efficient collaboration. It is no wonder that this model is gaining popularity and is seen as a forward-looking alternative to the traditional management contract.

The potential for Germany: Why the marketing company could also work in this country

Although this type of collaboration is not yet widespread in Germany, it holds great potential. Both parties could benefit from such a construction. But what are the concrete advantages of founding a marketing company? And just as important: What disadvantages could result? In the following review, I would like to highlight both the positive aspects and the potential challenges and risks of this model in order to present a balanced picture of the issue. It is essential to look at both sides of the coin in order to make informed decisions regarding this innovative form of collaboration.

Advantages of the marketing company:

• Long-term cooperation: Through the joint company, artists and management are bound to each other in the long term. This not only promotes cooperation, but also creates a stable foundation for joint projects and ventures. A long-term commitment also means that both parties are investing in the other’s future, which leads to a deeper connection and a higher level of engagement. It also minimizes the risk of premature breach of contract and creates a reliable partnership. In an industry often characterized by short-livedness, this offers valuable consistency.
• Bundled rights: All the artist’s rights are centralized in the marketing company. This not only facilitates marketing, but also creates clear relationships in terms of ownership and usage rights. It prevents legal gray areas and ensures that all parties involved know exactly who owns which rights. This is especially important at a time when intellectual property and digital rights are becoming increasingly complex. A clearly defined framework protects against possible conflicts and misunderstandings.
• Mutual investment: Both parties – the artist and the management – invest in the joint company. This can be financial, but also in the form of time, expertise and other resources. This mutual investment creates a strong sense of belonging and shared purpose. It also fosters a sense that both parties are equal and contribute equally to the success of society. Such a model of partnership can result in both parties being more motivated and engaged.
• Flexibility:** A marketing company offers more flexibility than traditional management contracts. It allows for individual agreements that are precisely tailored to the needs and goals of the artist and management. This may be in terms of finances, creative control, or other aspects of collaboration. In a constantly changing industry, it is essential to be able to adapt quickly to new trends and circumstances. A flexible structure supports this and allows both parties to be proactive rather than reactive.
• Security for both parties: The joint company provides a safety net for both parties. The artist has the certainty that the management will stand by him in the long term and invest in his career. Management, on the other hand, has the security of knowing that they will share in the artist’s success and that their investment is protected. In an often uncertain industry, this provides valuable stability. It also creates an environment of trust where both parties can communicate and collaborate openly.
• Formalistic company law: German company law is known for its formalism. But this formalism can strengthen the bond between the parties. The clear structures and regulations ensure transparency and reliability in the cooperation. It ensures that all parties know their rights and obligations and that there are clear mechanisms for conflict resolution. In an industry where contracts are often vague and unclear, this provides a valuable framework for fair and transparent cooperation.
• Possibility of external investments: The structure of a marketing company is particularly attractive for external investors. It provides a clear and transparent platform for investment, whether from traditional investors, record labels or other service providers. This opens doors to additional capital, resources and networks that might not otherwise be accessible. It also allows for clear separation of investments, which reduces risk for investors. In addition, even entire investment companies are conceivable that would like to invest specifically in the growth of influencers or, in particular, microinfluencers and their ancillary activities. Such investment companies could benefit from syndication effects by investing in a group of influencers and thus diversifying risks. They would be more willing to invest in a well-structured marketing company, as this offers more security and professionalism than investing directly in individual private individuals without adequate security. Overall, it increases the attractiveness and credibility of the company in the market and attracts potential investors who believe in the future success and growth of influencers.
• Scalability: With a fixed structure and clear responsibilities, the company can grow more easily and adapt to changing market conditions. This is especially important in a fast-paced industry like entertainment. The ability to scale quickly allows the company to take advantage of opportunities as they present themselves and adapt to new trends and developments. It also ensures that growth is sustainable and controlled, minimizing the risk of overexpansion or malinvestment.
• Independence: Joint control of the marketing company allows artists and management to act more independently of external influences. This gives them the freedom to make creative and business decisions that are in line with their own interests and vision, rather than the wishes of external stakeholders. This independence can lead to more authentic creative expression and ensure that artistic integrity is maintained.
• Network and synergies: Establishing a marketing company can facilitate access to a broader network of industry experts, partners and resources. This allows the use of synergies that benefit both the artist and the management. An expanded network can lead to new business opportunities, creative partnerships and expanded audiences. It can also facilitate access to resources and expertise that would otherwise be difficult to reach. Overall, this can significantly increase the success and reach of the company.
• Expansion of business areas: A marketing or operating company offers the advantage that it is not limited to classic copyrights or advertising marketing. It can serve as a platform to facilitate and develop a variety of business activities. This could include selling merchandise, launching their own product lines, or even operating restaurants or other business units. Such activities are often not covered under a traditional management contract. By using a joint company, influencers and artists could pursue these business opportunities without the need for additional legal structures or company formations. Management would be involved in such ventures in a spirit of partnership and fairness, ensuring clear structures and professional support. This allows influencers and artists to focus on their creative work while benefiting from the experts in management who help them successfully implement and market these new businesses.

Possible disadvantages of a marketing company:

Of course, I don’t want to hide the possible disadvantages of a marketing company, even though after some careful consideration I can see a lot of charm in a marketing company.

• Complexity of incorporation: Establishing a marketing company can be more complicated and time-consuming than simply signing a management contract. It requires careful planning, legal advice, and often a larger initial investment. It is essential to draw up individual contracts that are precisely tailored to the needs and requirements of both parties. Standardized 0815 contracts, as often used for management contracts, are not appropriate in this context. Every detail must be carefully discussed and defined to avoid future misunderstandings or conflicts.
• Higher ongoing costs: managing a company can involve higher ongoing costs, including accounting, tax advice and possibly management fees. These costs can be a challenge, especially for young artists or smaller managements. It is important to consider these costs in advance and ensure that they can be covered by the Company’s expected revenues. Again, a detailed agreement and contract is essential to ensure that both parties understand and can meet their financial obligations.
• Sharing of ownership: unlike a management contract, where the artist usually retains all rights, the formation of a company often means that the artist cedes some of his or her rights to the management. This can lead to concerns about creative control and financial participation. It is therefore of utmost importance that the exact terms of ownership distribution and rights are clearly stated in the contract. Standard contracts cannot be applied here; instead, an individual agreement must be reached that protects the interests of both parties.
• Potential Conflicts: When there are disagreements, it can be more difficult to make decisions, especially when both parties are equal partners in the company. This can lead to delays or even standstills in business operations. To minimize such conflicts, it is important to establish clear communication channels and decision-making mechanisms. A customized contract, tailored to the needs and requirements of both parties, can help. There should also be a mechanism for conflict resolution to resolve disputes efficiently and fairly.
• Difficult exit: If one of the partners wants to leave the company, this can be more complicated and costly than with a simple management contract. Legal disputes may also arise, which can be both time consuming and financially burdensome. A clearly defined exit plan set forth in the contract can minimize such problems. It is important that this plan is individualized and takes into account the specific conditions and requirements of both parties. A standard contract would not suffice here and could lead to further complications.
• Liability issues: Depending on the legal form of the company, both parties may be held liable for the debts or legal obligations of the company. This represents an increased financial risk, especially if the Company runs into financial difficulties. It is therefore important that both parties understand exactly what liability risks they are taking on and that these risks are clearly defined in the contract. An individually designed contract that takes into account the specific conditions and requirements of both parties is also essential in this area. Standard contracts could overlook important issues and expose both parties to unnecessary risk.
• Possible brand dilution: if the Company invests in too many different projects or business units, this may lead to dilution of the artist’s core brand. This can affect the value and perception of the brand in the eyes of the public. It is therefore important that both parties have a clear vision and strategy for the brand and define it in the contract. A customized contract can ensure that the brand is protected and that all business decisions are made in the best interest of the brand.
• Loss of autonomy: An artist may feel they have less control over their creative direction or business decisions, especially if management plays a dominant role in the company. This can lead to frustration and creative differences. It is therefore important that the contract contains clear guidelines for creative control and decision-making. A customized contract that takes into account the artist’s needs and requirements can ensure that their creative vision is respected and protected.

Conclusion:

The establishment of a marketing company? Not only does this sound like a breath of fresh air compared to the old familiar management contract, it IS! I am firmly convinced that this model has great potential in Germany. Why? The advantages are obvious.

It’s high time we said goodbye to outdated thought patterns and boldly forge new paths in the collaboration between artists and management. After numerous inspiring conversations with clients and prospects, I am more excited than ever about this idea. And I cannot stress enough how important it is that we develop customized contracts in this regard – moving away from one-size-fits-all GTCs to individual solutions.

I see a real opportunity here to take the industry to a new level. Imagine us helping influencers with targeted investments and training, and then reveling in success together through an operating company. From my perspective as a lawyer, this is not only an exciting field, but also a game changer. I am excited about this concept and can’t wait for more and more clients to follow this innovative path. Let’s shape the future together!

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.