＂Capital is really a good means＂, and online celebrity’s economic interest game is seen from the Li Ziqi incident.

For several months, Li Ziqi, a short video creator in online celebrity, stopped updating his accounts on major video platforms, even during the Mid-Autumn Festival, which triggered widespread discussion and speculation on the Internet and the media. Although Li Ziqi’s video production cycle is long and the release frequency is low, her last video work was "Chai Mi You Yan Jiang Vinegar Tea" released on July 14, 2021, and this vacuum period was quite abnormal.

According to media reports, the reason why Li Ziqi stopped working is that she recently fell into an equity dispute with the online celebrity brokerage company (MCN) she signed with. Li Ziqi’s total number of fans on major video platforms exceeds 100 million, and the traffic is amazing, which has considerable cash value. The huge benefits arising from this are mastered by Hangzhou Weinian Brand Management Company (referred to as Hangzhou Weinian) behind her.

After 50 days off, Li Zikai replied in his social account at the end of August 2021 that "capital is really a good means!" , passed the gap between her and the capital.

What is the reason behind Li Zikai’s stop? From this incident, we can get a glimpse of the business model deduction and benefit distribution structure of online celebrity economy, and discuss how the corporate governance mechanism can balance the game between stakeholders.

The cooperation framework is divided into two parts.

Li Ziqi, whose real name is Li Jiajia, started shooting and making short videos on the theme of food in 2015, and initially released her works mainly on American films. In early 2016, Sina Weibo launched a program to support content creators. Thanks to this, Li Ziqi began to move to Weibo.

At this time, Liu Tongming, the founder of Hangzhou Weinian, got in touch with Li Ziqi, and began to provide services such as Weibo resource promotion for Li Ziqi by contract mode in September 2016. In November of that year, Li Zikai became famous for the short video "Lanzhou Beef Noodles" fire. With more professional software and hardware support, the quality of Li Ziqi’s video production has been further improved, and remarkable progress has been made in video picture composition and light application.

In May 2017, Li Zikai disclosed his life experience due to cyber violence and announced that he would "temporarily stop". The incident prompted Li Ziqi and Hangzhou Micro-reading to cooperate deeply. In July 2017, the two sides jointly invested 1 million yuan to establish Sichuan Ziqi Culture Communication Co., Ltd. (referred to as Ziqi Culture). Li Ziqi holds 49% of the shares in her real name, Li Jiajia, and serves as the executive director and legal representative of the company; Hangzhou Weinian holds 51% of the shares, and Liu Tongming is the company’s supervisor.

The cooperation between Li Ziqi and Hangzhou Micro-read adopted a common mode in online celebrity’s economy, which divided IP creation and commodity realization into two parts. Ziqi Culture is operated by Liziqi himself on a daily basis, focusing on the content itself and providing quality video production to create Liziqi IP. As an MCN organization, Hangzhou Micro-Reading provides background support and is fully responsible for the promotion, realization and supply chain operation of Liziqi consumer brand.

Deduction and upgrading of business model

The theme of Li Ziqi’s video includes not only traditional China delicacies such as peach blossom wine and loquat crisp, but also traditional crafts such as pen making and embroidery. Her works are both antique and pastoral, and are widely welcomed by netizens. With the increasing number of fans on major video platforms, how to realize traffic has become the focus of Hangzhou micro-reading business model.

The simplest mode of realizing video traffic is advertising. However, the income from advertising is not high, and the utilization efficiency of traffic is not good. Hangzhou Weinian is relatively restrained in commercial realization. It has not implanted advertisements in Li Ziqi’s videos, nor adopted the live broadcast mode of Viya and Li Jiaqi. Instead, it has chosen to cultivate and accumulate its own brands and realize it through e-commerce sales.

After Liziqi’s fans in Weibo exceeded 10 million, Hangzhou Weinian launched Liziqi Tmall flagship store in August 2018. The main products of Liziqi brand are traditional foods with regional characteristics but no well-known brands, such as snail powder, lotus root starch, flower cakes, etc. Soon, its sales exceeded 10 million yuan and began to grow at a high speed. According to the statistics of "The Most Growing New Consumer Brand in China in 2021", the sales of Liziqi brand reached 1.6 billion yuan in 2020, a year-on-year increase of 300%.

After the brand sales increased, Hangzhou Weinian began to strengthen the penetration of the supply chain to ensure the quality of products. For example, Hangzhou Weinian first chose Guangxi Zhongliu Food Company for snail powder OEM, and then established Xingliu Food to produce snail powder in July 2020, and introduced Chuangliu Food with its OEM background to hold 30% of the shares. In this way, the company’s supply chain has evolved from the entrusted processing mode to the self-produced mode, further enhancing its profitability and industrial control.

Online celebrity economy drives local industries.

More than that, Li Ziqi’s promotion of local cuisine can also promote the development of local industries.

Take the most typical snail powder for example. Although Liuzhou municipal government attaches great importance to the snail powder industry as a local specialty snack, the overall productization and branding of Liuzhou snail powder are not high. In 2018, Liuzhou also issued a number of policies and measures to comprehensively promote the industrial upgrading and development. However, local brands of snail powder such as Haohuan snail, Xiluohui and snail overlord can only achieve monthly sales of hundreds of thousands of bags. In 2018, the output value of bagged snail powder in Liuzhou was about 4.5 billion yuan.

Since July 2019, Liziqi began to publicize and promote snail powder. The monthly sales of "Liziqi" brand snail powder soon exceeded 1 million bags, exceeding the sales of local brands accumulated for many years. In 2020, the single product sales of "Liziqi" brand snail powder reached 500 million yuan.

Moreover, the entry of Liziqi brand greatly increased the social exposure of snail powder, which promoted the rapid development of related industries in Liuzhou. In 2019, the total output value of snail powder in Liuzhou exceeded 6 billion yuan. In 2020, Liuzhou will achieve the goal of "three billions" of snail powder industry: the sales revenue of bagged snail powder will reach 11 billion yuan, the sales revenue of supporting and derivative industries will reach 13 billion yuan, and the sales revenue of physical stores will reach 11.8 billion yuan.

In addition, Li Ziqi’s video has a high degree of attention on overseas video websites such as YouTube because of its strong national style. The People’s Daily once issued a document affirming her positive role in cultural output. Li Ziqi’s overseas influence has driven the rapid growth of Liuzhou snail powder export. The export value of Liuzhou snail powder in 2019 was less than 1 million yuan, but the export value increased to 30 million yuan in 2020, an increase of 34 times.

On August 15th, 2020, Li Jiajia was elected as a member of the 13th All-China Youth Federation. Three days later, Liuzhou Municipal Party Committee and Municipal Government held a special investment meeting with Liziqi brand to introduce Hangzhou Weinian to invest in the local snail powder factory.

Affected by the epidemic, economic growth in many areas has been weak since the beginning of 2020. However, the snail powder industry in Liuzhou City took advantage of this opportunity to stimulate sales demand through the online celebrity effect, showing a thriving trend. In 2021, Liuzhou City also proposed the goal that by 2025, the comprehensive output value of the whole industrial chain of snail powder will exceed 100 billion yuan.

Brand creates great value.

Hangzhou Weinian was founded in 2013, formerly known as Hangzhou Weinian Technology Co., Ltd., which is a online celebrity brokerage company. Hangzhou Weinian mainly deals with IP incubation, brand research and development, video production and e-commerce operation in the fields of food life, fashion and beauty, and the overall team size is about 500 people. Hangzhou Weinian has strong traffic resources on Sina Weibo and other platforms. KOL (opinion leaders) incubating or cooperating on major platforms also include some online celebrity with millions of fans, but their influence is far from that of Li Ziqi.

Since 2016, a large amount of capital has begun to lay out the MCN industry in China. After Weinian Technology obtained the angel round investment from Qiyi Capital in May 2016, it actively sought and cultivated online celebrity with potential. Liu Tongming began to get in touch with Li Ziqi and started preliminary cooperation. In May 2017, when Li Zikai suffered cyber violence, Huaying Capital and Zhuoshi Capital, which are well-known in the TMT field, made tens of millions of A-round investments in Micro-reading Technology. After deeply bundling Li Zikai, Weinian Technology introduced the equity investment of Chenhai Capital in November 2017. Just before Li Ziqi’s Sina Weibo fans were close to 10 million, and they were about to begin to realize their cash, Micro-Reading Technology received a series B financing of 80 million yuan invested by Mango Wenchuang Fund and Sina Weibo Fund in May 2018.

Micro-Read Technology positions itself as a video organization with online celebrity incubation ability, brand research and development ability, commercial realization ability, supply chain integration ability and rising channel of film and television. According to reports, the company had 75 million fans in the B round of financing, with 1 billion monthly broadcasts. The incubation cost of each active fan was about 0.2 yuan, and it had a certain scale of operating cash flow before it was commercialized on a large scale.

In August 2019, the first anniversary of the launch of Liziqi Tmall flagship store, Hangzhou Weinian introduced Hongfan Capital and Suibi Qiushi for the C round of investment. The success of Liziqi Tmall flagship store shows that the company’s business model of building IP and realizing brand realization has gone through. In July 2020, Hangzhou Weinian changed its original company name to Hangzhou Weinian Brand Management Co., Ltd., and the industry changed from "other technology promotion services" to "Internet retail" to emphasize the company’s cross-border new consumer brand positioning. Shortly thereafter, Huaxing New Economic Fund and Zhongyuan Capital made a new round of equity investment in October.

In July, 2021, Hangzhou Weinian introduced ByteDance’s Quantum Leap as a strategic shareholder, holding 1.48% of the shares, and some old shareholders such as Huaxing New Economic Fund raised their stakes and followed suit. According to media reports, the valuation of Hangzhou Weinian in this round of investment is as high as 5 billion yuan.

It can be seen that the successful creation of Liziqi brand has created great value.

Unbalanced distribution of interests

However, it was ByteDance’s high share price that stimulated Li Jiajia. Capitalists are enjoying the successful feast of "Liziqi"!

First of all, the founding team of Hangzhou Weinian benefited the most. The biggest beneficiary is Liu Tongming, chairman and general manager of Hangzhou Weinian. As the largest shareholder of the company, he directly holds 19.5% of the shares, and ultimately benefits from 20.2%, worth about 1 billion yuan. Ranked second is Lou Yongjian, the company’s director. In July 2020, Lou Yongjian first appeared in the company’s shareholder list. He also served as the chairman of key subsidiaries such as Xingliu Food and belonged to the company’s core entrepreneurial team. His ultimate beneficial share is 16.5%, worth more than 800 million yuan. In addition, Luo Yi, the director of Hangzhou Weinian, also holds 3.9% of the shares, with a value of nearly 200 million yuan.

Lou Yongjian not only holds 2.2% of the shares directly, but also reflects the rest of the shares through the 15% held by the two shareholding platforms, Micro-Nian Xingchen and Micro-Nian Xingyao. However, Lou Yongjian is a 95% funded LP in these two partnerships, while Liu Tongming can control the two partnerships by holding only 5% of the shares in Weinian Sea as a GP. Through this structure, Liu Tongming can directly control the total shareholding of 34.5%, exceeding the "one-vote veto" ratio of 33.3%. It can be seen that although Hangzhou Weinian has been diluted by seven rounds of financing, Liu Tongming still has a strong control over the company’s equity.

The B-round investor Mango Wenchuang Fund withdrew in July, 2020, and achieved a lot of returns in the investment period of only two years. Although the early investors have made a profit of more than 10 times, with the traffic support brought by ByteDance’s shareholding, Hangzhou Micro-Reading still has the potential for further development and appreciation.

However, as the founder of Liziqi IP and the biggest contributor to the company’s traffic, Li Jiajia himself did not hold the equity of Hangzhou Weinian and could not benefit.

Li Jiajia’s income mainly comes from the cooperation and sharing contract she signed with Hangzhou Weinian, and the sharing ratio is probably not high. Li Jiajia’s failure to cash in advertising and live broadcast is not conducive to her own income sharing, but mainly cultivates the value of Liziqi brand. However, under the existing benefit distribution structure, Li Jiajia can only get a share of income, but can’t enjoy the appreciation of the equity of the company where the traffic is realized, thus missing the largest part of the value-added income of "Liziqi" IP.

Vividly speaking, she has become a "tool person" in the industrial chain of MCN institutions. If the brand Liziqi is widely recognized by the market, Hangzhou Micro-Reading will gradually weaken Li Jiajia’s role, and her previous efforts will only be to make wedding dresses for others.

Game of creative subject governance

At present, Ziqi Culture is the authentication subject of early publicity accounts such as Liziqi Weibo account and Liziqi WeChat official account account, and also owns most trademarks related to Liziqi IP. The company has a small number of people, and there is no board of directors, only one executive director. Li Jiajia holds 49% of the shares in the company, as a legal person and executive director, with great influence and one-vote veto.

However, Hangzhou Weinian is the largest shareholder of Ziqi Culture and has relative control. According to the Company Law, the replacement of executive directors and legal representatives is a general voting matter that can be passed only with more than half of the voting rights. If there are no special provisions in the articles of association of Ziqi Culture, Hangzhou Weinian, which holds 51% of the shares, has the ability to forcibly remove Li Jiajia and take over the company. In addition, the company’s daily business policy and investment plan, the company’s profit distribution plan, etc. are all general voting matters, and they are also within the scope of Hangzhou’s ability to make decisions.

Moreover, Liu Tongming, as the supervisor of Ziqi Culture, not only has the right to propose an extraordinary shareholders’ meeting, but also enjoys a series of rights, such as checking the company’s finances and proposing shareholders’ meeting proposals, and can check and balance when Li Jiajia does not cooperate.

According to the mandatory provisions of the Company Law, Li Jiajia can veto the resolutions on major issues that require more than two thirds of the voting rights, including amending the Articles of Association, increasing or decreasing the capital and changing the company form, etc. However, Hangzhou Micro-Reading does not need these actions to fully protect its interests. That is to say, although Hangzhou Weinian holds less than two-thirds of the shares of Qiqi Culture and does not have absolute control, its designed corporate governance mechanism can still be used in Li Jiajia, and it can effectively control the use rights of major accounts and trademarks such as Li Ziqi and Weibo.

It is worth emphasizing that the important realized accounts such as Liziqi Tmall flagship store and Liziqi YouTube account are registered by Hangzhou Weinian in the name of the company after signing the contract, which is not directly related to Li Jiajia. Hangzhou Weinian has the legal right to refuse Li Jiajia to log in to the relevant accounts. Hangzhou Weinian is still trying to apply for other trademarks related to "Liziqi" in the near future to enhance its control over this IP trademark.

Thus, with the existing corporate governance structure, Li Jiajia is quite weak in the game with Hangzhou Micro-concept.

Prior game lacks experience.

Li Jiajia was born in a poor family in Mianyang, Sichuan, and experienced rough times. In the early stage of his business, he lacked the experience of negotiation and game, so he was easily bound by the contract trap set by the other party.

The ideal cooperation framework is that Li Jiajia uses the company he controls to register all platform accounts and holds the related trademark of "Liziqi". Later, the company was used to cooperate with Hangzhou Weinian to set up a new company, and the "Liziqi" brand and related accounts were authorized to the new company. Among the companies holding "Liziqi" IP, Li Jiajia should hold more than 2/3 shares, and the bottom line should be more than 50%. In this way, she can still have strong checks and balances after the "Liziqi" brand is authorized.

In fact, in June, 2020, Li Jiajia established the Shanghai Chenxiangli Creative Planning Studio, which is 100% owned. If it can be established before the cooperation, it can be used to hold the "Liziqi" IP.

Even if the equity arrangement in the cooperative structure is not ideal, there is still room for remedy through the arrangement of the company’s articles of association. According to the Company Law, the shareholders shall exercise their voting rights at the shareholders’ meeting in proportion to their capital contribution, unless otherwise stipulated in the Articles of Association. The voting structure of the same share with different rights is beneficial to entrepreneurs with insufficient financial strength, which helps them to introduce a lot of funds from strategic investors in the early stage of their business, but there is no risk of losing control. Li Jiajia may require that the articles of association of Ziqi Culture stipulate that she has more than half of the voting rights. Moreover, Li Jiajia can also propose to stipulate in the articles of association of Ziqi Culture that the replacement of the executive director and legal representative requires the consent of more than 2/3 shares or even all shareholders.

In addition, in the contract signed between Li Jiajia and Hangzhou Weinian, it is of great significance to recover the IP of "Liziqi" and the compensation clause for violation of non-competition. If Li Ziqi didn’t agree to a particularly high compensation at the time of initial signing, he would have more room to move later.

If Li Jia Canon fully considers these matters before the cooperation negotiation, she can better guarantee her own interests and have stronger checks and balances on Hangzhou Micro-thoughts afterwards.

Redistribution of benefits to avoid lose-lose

Generally speaking, MCN institutions generally control the intellectual property rights such as the stage name, self-media account number and trademark of NetRed in the cooperation through contracts, and sign a low share ratio with online celebrity in the initial stage. Before online celebrity became famous, they could only accept these "unequal" treaties. However, once online celebrity is recognized by the market and its value is discovered, it is rarely willing to accept previous contracts.

Similarly, Li Jiajia, as a grassroots online celebrity, tends to ignore the protection of intangible assets such as patents and brands, and lacks the right to bargain when its own value is not reflected, so it can only accept a relatively weak cooperation framework. The company she holds is only responsible for the video production, and it is rarely realized; The commodity sales brought by the IP spillover effect of "Liziqi" realized the benefits in Hangzhou Micro-idea, and Li Jiajia himself did not hold the shares of the company. At present, Li Jiajia has great influence based on her own characteristics, so she is naturally dissatisfied with the weak interest distribution pattern in the past.

Although Hangzhou has considered all aspects of potential threats, the control of Liziqi brand can be guaranteed through corporate governance arrangements and contract constraints. However, the success of Liziqi brand depends to a great extent on Li Jiajia’s personal charm and ability, which are difficult to be specifically bound in the contract. The recent suspension of Li Ziqi’s video is exactly Li Jiajia’s resistance to the unbalanced interest arrangement. The continuous intensification of the contradictions between the two sides will cause great damage to the brand Li Ziqi and the value of Hangzhou Micro-reading.

Li Ziqi’s stop-watch incident shows that the distribution and balance of interests in online celebrity’s economic cooperation model are quite critical. Li Jiajia is an excellent video content creator, but she can become the online celebrity at the top of the pyramid, thanks to the professional background support and traffic operation provided by Hangzhou Micro-Reading. On the other hand, Hangzhou Micro-Reading can make profits from the sales of a large number of commodities, and it is also inseparable from Li Jiajia’s unique "Liziqi" video. It can be seen that the cooperation between Li Jiajia and Hangzhou is a win-win situation, while the confrontation is a loss. The two sides may renegotiate the distribution of benefits of the "Liziqi" brand to avoid a lose-lose situation.

(The author is a professor at Shanghai Institute of Advanced Finance, Shanghai Jiaotong University)