On-site probe of Kakao over music distribution fees begins

Korea's Fair Trade Commission (FTC) began its on-site investigation into Kakao Entertainment on Monday on allegations that the firm had charged higher music distribution fees to rival K-pop agencies than it had to its subsidiary music labels.

Kakao's office in Pangyo, Gyeonggi [YONHAP]

Korea's Fair Trade Commission (FTC) began its on-site investigation into Kakao Entertainment on Monday on allegations that the firm had charged higher music distribution fees to rival K-pop agencies than it had to its subsidiary music labels.

The FTC sent investigators to Kakao Entertainment’s headquarters to obtain information on the music distribution contract, industry insiders said the same day. The antitrust regulator has been investigating the company since March when K-pop agency Big Planet Made first accused Kakao Entertainment of running the unfair fee scheme in January. The agency claimed that Melon, a Kakao Entertainment subsidiary and Korea’s largest music subscription service, charged lower distribution fees for work made under Kakao's labels.

INB100, an affiliate of Big Planet Made and agency of EXO-CBX, a subunit of boy band EXO, also raised claims on Monday that SM Entertainment had promised lower-than-average distribution fees when renewing contracts with its artists.

SM Entertainment promised EXO-CBX members Chen, Baekyun and Xiumin a lower fee if they distributed their music through Kakao — the majority shareholder of SM Entertainment — under their new agency, the trio’s representatives said in a news conference on Monday.

The representatives revealed a recording at the news conference in which a man alleged to be SM Entertainment CAO Lee Sung-soo tells the boy band members that only a “5.5 percent commission rate” would be levied if they were to distribute their music through Kakao Entertainment.

Boy band EXO-CBX members Baekhyun, Xiumin and Chen [INB100]

SM Entertainment refuted INB100's claims in a statement Monday evening, saying that no such clause was included in its written contract with EXO-CBX. The label said it had no control over “fees that another company decides,” and that it had “only offered to help CBX members to get a better deal with the distributor.”

In a statement released Wednesday, INB100 said Monday's launch of the FTC's on-site investigation proved the existence of enough grounded, plausible evidence to warrant the antitrust regulator's scrutiny.

“We opened an emergency press conference to correct the discriminatory distribution fees levied by music distribution giant Kakao Entertainment, which SM Entertainment exploited to persuade EXO-CBX in renewing their contracts,” the agency said.

The agency said it had secured more evidence of SM Entertainment receiving preferential treatment from Kakao Entertainment but did not provide further details.

Representatives from INB100, EXO-CBX's agency, speak to reporters in a press conference held on Monday in central Seoul. From left are: Lawyer Lee Jae-hak, attorney of the three EXO members and INB100; Cha Ga-won, majority shareholder of One Hundred, the holding company of INB100; and CEO Kim Dong-joon of INB100 and One Hundred.[NEWS1]

The action follows the FTC's approval of Kakao’s acquisition of SM Entertainment in May, which was issued on the condition that the firm take corrective measures against Melon. Kakao Entertainment increased its stake in SM Entertainment to 39.87 percent from 4.9 percent in March 2023, becoming its largest shareholder.

Under the antitrust regulator’s conditions, Kakao was ordered to establish an independent entity to monitor and regulate Melon so that it does not give preferential treatment to artists affiliated with Kakao and SM Entertainment. It was also banned from refusing or delaying music supply requests from Melon's competitors without reasonable grounds. The company is required to abide by the measures for the next three years.

BY KIM JU-YEON [kim.juyeon2@joongang.co.kr]