[비즈한국] Companies sometimes make decisions that are difficult to explain by money alone. Understanding the underlying laws and systems can provide a deeper insight into these situations. "Useful Business Legal Tips" introduces clues that help in understanding the flow of business.
In the entertainment industry, disputes over the validity of exclusive contracts occur frequently. Artists notify their agencies of the termination of their exclusive contracts and file for an injunction to suspend the effectiveness of those contracts with the court. However, such injunctions are rarely granted. This is because an injunction requires the completion of a verification process within a short period, which is practically difficult. Filing for an injunction to suspend an exclusive contract is equally challenging. Recently, however, the situation has changed. This is because courts have begun to recognize the failure to fulfill settlement obligations as grounds for terminating an exclusive contract due to "loss of trust."
The turning point occurred when the agencies' argument that "there are no profits to distribute because we are in the red, and therefore no need to provide settlement data" was rejected. Agencies have generally argued that since expenses exceeded activity income, there was no settlement money to distribute, and thus no reason to provide settlement documents.
A case where this became an issue is the judgment by the Incheon District Court, Bucheon Branch, on May 20, 2022 (Case Nos. 2021Gahap101054, 2021Gahap104763). Four members of a girl group repeatedly requested settlement statements, but the agency refused to provide the data, citing a lack of profit. The agency claimed that because there was no settlement money, they had no obligation to provide settlement data.
However, the court rejected the agency's argument. It reasoned that an exclusive contract is a long-term, continuous contract based on a high level of trust; that settlement data is the core information for verifying the appropriateness of profit distribution; and that if a celebrity does not receive this, they have no way of verifying sales, costs, deductions, or whether a break-even point has been reached. The court ruled that even if there is no amount to be paid out, the agency must provide data that allows the verification of income and expenditure records and settlement results. In other words, an agency carries the obligation to settle and provide settlement data monthly, regardless of whether there is an actual settlement amount to be paid.
The agency argued that it had provided some expenditure records belatedly, but there was no objective evidence that they had provided corporate accounts, personal accounts, and receipts together. The court determined that the agency had failed to provide sufficient data and ruled that the celebrities' contract termination was lawful. It was not the non-payment of settlement money, but the act of failing to show the basis for the settlement that became the grounds for termination.
Recently revised laws are in line with these court rulings. In 2022, as it became known that a singer had not been properly settled for music royalties by the agency they had been with for 18 years, demands to reform settlement regulations grew. The National Assembly passed an amendment to the Act on the Development of Popular Culture and Arts Industry in September 2024, and Article 2-3 of the Enforcement Decree, which specifies the details, has been in effect since April 23, 2025.
Article 14 of the Act on the Development of Popular Culture and Arts Industry stipulates that agencies must separate and manage the costs and fees for planning work for each affiliated artist and prepare and keep accounting books. When a celebrity requests it, the relevant accounting records and matters regarding the remuneration to be paid must be provided without delay. In principle, when service fees are received from a third party, the contractual remuneration must be paid within 45 days from the date of receipt.
Added to this is the obligation for periodic disclosure (Enforcement Decree Article 2-3). Even without a request from the celebrity, the agency must provide documents at least once a year detailing the accounting records related to that celebrity, the amounts the agency received from third parties for that celebrity's services, the remuneration to be paid, and the timing of such payments. The method of provision is also specified as written delivery (including electronic documents), mail, or email. The practice of calling artists to the office to only view documents without providing copies has been blocked.
It may seem like a small change, but it has corrected the tilted playing field to some extent. Previously, celebrities had to ask first, and asking meant confrontation with the agency. It is difficult for a celebrity who needs to continue their activities to bear that burden. Now that the rules have changed so that agencies must provide information without a request, the fact that a celebrity did not say anything no longer serves as a shield for the agency.
As a result, the responsibilities of agencies have become much heavier. They now bear statutory obligations of separating accounts, keeping books, providing documents at least once a year, and paying within 45 days, as well as civil liabilities for violating exclusive contracts. The latter poses a greater practical risk because the mere fact of not providing data could lead to losing an up-and-coming artist entirely.
In return, the scope of protection for affiliated artists has expanded. Previously, the only weapon a celebrity effectively held was a single contract, and settlement clauses were usually abstract. Now, the law specifies the items, frequency, and method of disclosure, and case law has supplemented the depth of content. The right to verify the settlement structure has shifted from being a subject of negotiation to a legal right. This is a clear step forward, considering that this is a field where asymmetric bargaining power has been entrenched for a long time.
However, there is some concern. The statutory and contractual obligations listed above are either infrastructure already present in large agencies, or issues that can be solved with budget if they are not. They have accounting teams, settlement managers, and external accounting firms. If new obligations arise, they just add a line to their processes.
The problem lies with companies that manage three or four artist teams where the CEO also doubles as a manager. Separating books for each artist, creating settlement statements to send annually, and keeping records of them practically requires hiring new personnel or using external services. Considering the scale of their revenue, these are not light fixed costs.
So, what will happen in the future? The gap will widen between companies that can afford compliance costs and those that cannot. From an artist's perspective, choosing a place with transparent settlements is rational, so large agencies gain another advantage in the competition to recruit new talent.
The concern is well-founded when considering where the vitality of the industry comes from. The current K-pop industry was not built by only a few large companies. Small companies that started with seemingly reckless planning expanded the base of the market. If increasing the level of protection reduces the number of agencies to which artists can belong, that is a paradox.
Even so, the path for agencies is clear. Instead of responding after regulations are tightened, they must separate books for each artist and create settlement statement templates. As always, the cost of preparing in advance is always cheaper than the litigation costs incurred for failing to do so.