In response to the Fair Trade Commission’s (FTC) investigation into Kakao Entertainment, EXO-CBX has issued a statement highlighting the unfair practices of SM Entertainment. The K-pop trio, consisting of Chen, Baekhyun, and Xiumin, accused their former agency of discriminatory music distribution fees. This issue was previously raised during a press conference, and EXO-CBX claims that SM Entertainment’s actions are at the core of the controversy.
On June 10, the FTC initiated an on-site investigation into Kakao Entertainment. This move followed a report by Big Planet Made earlier this year, which alleged that Kakao Entertainment was unfairly charging music distribution fees. The report suggested that Kakao Entertainment discriminated between agencies affiliated with its subsidiaries and other independent agencies.
EXO-CBX released a transcript from SM Entertainment’s Chief Administrative Officer, Lee Seong Soo, during their press conference. In the transcript, Lee proposed a 5.5% music commission rate through Kakao Entertainment. Big Planet Made has already submitted this information to the FTC.
EXO-CBX questioned Kakao Entertainment’s claim that affiliation with Kakao does not influence distribution commission rates. They argued that SM Entertainment’s actions provide evidence of Kakao Entertainment’s inappropriate practices.
The trio emphasized that the main goal of their June 10 press conference was to address the issue of unfair music distribution fees. They also aimed to shed light on SM Entertainment’s use of these fees to pressure them into renewing their contracts.
EXO-CBX stated that the FTC’s decision to launch a formal investigation and conduct an on-site inspection on June 10 indicates the severity of the issue. They accused SM Entertainment of using discriminatory distribution fees as a tool to coerce artists into renewing their contracts. The group believes that SM Entertainment is trying to divert public attention from the real problem.
EXO-CBX pledged to cooperate fully with the FTC investigation. They plan to submit all relevant evidence to ensure that the FTC can objectively assess the situation. The group believes that the FTC’s judgment will reveal the true nature of the issue.
The controversy began when EXO-CBX terminated their contract with SM Entertainment last year, citing unfair distribution of music profits. They claimed that SM Entertainment charged them higher distribution fees compared to other agencies. The trio also alleged that these excessive fees were used as leverage to pressure them into renewing their contracts.
In a statement, EXO-CBX reiterated that the core issue lies with SM Entertainment’s actions. They pointed out that SM Entertainment’s CAO, Lee Seong Soo, proposed a 5.5% music commission rate through Kakao Entertainment.
EXO-CBX has committed to cooperating fully with the ongoing FTC investigation. They believe that the FTC’s formal investigation and on-site inspection on June 10 demonstrate the seriousness of the issue. The group had previously filed a complaint with the FTC, accusing SM Entertainment of abusing its superior bargaining position.
The FTC’s investigation into Kakao Entertainment began on Monday, following allegations that the company charged higher music distribution fees to rival K-pop agencies than to its subsidiary music labels. Investigators visited Kakao Entertainment’s headquarters to gather information on the music distribution contract.
The antitrust regulator has been investigating Kakao Entertainment since March, following accusations by Big Planet Made in January. The agency claimed that Melon, a Kakao Entertainment subsidiary and Korea’s largest music subscription service, charged lower distribution fees for work produced under Kakao’s labels.
INB100, an affiliate of Big Planet Made and the agency representing EXO-CBX, also raised claims on Monday that SM Entertainment levied lower-than-average distribution fees when renewing contracts with its artists. SM Entertainment allegedly promised EXO-CBX members a lower fee if they distributed their music through Kakao.
During a press conference, representatives of EXO-CBX revealed a recording in which SM Entertainment’s CAO, Lee Seong Soo, mentioned a 5.5% commission rate if the trio distributed their music through Kakao Entertainment.
SM Entertainment refuted INB100’s claims, stating that no such clause was included in its written contract with EXO-CBX. The label claimed it had no control over fees set by another company and only offered to help EXO-CBX secure a better deal with the distributor.
INB100 stated that the FTC’s on-site investigation on Monday proved the existence of enough evidence to warrant scrutiny. The agency held an emergency press conference to address the discriminatory distribution fees imposed by Kakao Entertainment, which SM Entertainment allegedly exploited to persuade EXO-CBX to renew their contracts.
INB100 claimed to have secured more evidence of SM Entertainment receiving preferential treatment from Kakao Entertainment but did not provide further details.
The FTC’s investigation follows its approval of Kakao’s acquisition of SM Entertainment in May. The approval was conditional on Kakao taking corrective measures against Melon. Kakao Entertainment increased its stake in SM Entertainment to 39.87% in March 2023, becoming its largest shareholder.
Under the antitrust regulator’s conditions, Kakao was required to establish an independent entity to monitor and regulate Melon. The company was also banned from refusing or delaying music supply requests from Melon’s competitors without reasonable grounds. These measures are to be followed for the next three years.
