Friday, December 31, 2010

Closer look at the profit distribution

I've stated what I think regarding the 13 year contract term, (Click here to read that post) so let's look at the distribution of the profit. Please note that the contract I'm using was downloaded from the Korean Central Court website, so it is an official document. (Link to Korean Central Court website)

There are many fans who bashes SM for exploiting their artists with such "slave" contract after reading many biased articles regarding the profit from blogs, fan sites, k-pop sites, but once you know the details of the contract and learn how to read it, your opinion will change. If you haven't already, check out this post and read the translation of the contract.

As you can see from the contract, there are more sections than what those articles mention. Glance through the distribution of the profits, and what do you see? There are categories that give no profit to TVXQ, but there are also portions where TVXQ get 70% of the profits. Check out where most of the higher percentage shares are for: Overseas Activities. As we all know, TVXQ had most of their activities in Japan and the contract pays them highest percentage of profits from the overseas activities.

Now look at the parts where the profit share is lower. Most of them are income generated without much involvement from TVXQ themselves. In other words, those are revenues generated by utilizing existing contents, so most of the work is done by the company so it makes sense for the company to get more share (e.g. licensed products, toys etc) Also look at the 10% from the overseas activities. TVXQ gets 10% from the actual amount received, which means whatever cost there is need to be deducted from the remainder of the payment.

When you negotiate a contract, you give up some, and you gain some. There's no such thing as a 100% satisfying contract unless one side gets 100% of everything. So it is natural for some parts to look unfair, and some parts to look fair, and even for the sections that look unfair, you won't see the whole picture unless you know exactly how much can be made from each sections. Also, you need to know about that particular industry the contract is written for because "fair" distribution is not the same for different contracts.

Now let's talk about the most popular sections of the contract SM bashers like to bring up, the album sales. I did explain about the album sales briefly on my other post, but here it is again. You see that 2%-5% share TVXQ get, and you naturally think that it's a total ripoff. TVXQ only gets up to 5% and SM gets to keep at least 95%, right? Not so fast!!! You need to see that 2% is from the SALES, not from the profit. We all know that there are costs involved in selling CDs. There are copyright fees, studio costs, session musicians, manufacturing costs, paying the distributors etc. So SM doesn't keep the rest, they need to pay for the costs before seeing any $$$. I do not know exactly how much SM makes, but let's see how much a US artist supposed to make from the sales.

Check out this link: http://entertainment.howstuffworks.com/music-royalties6.htm

Above link shows how much an artist who sells one million CD's make. You can read the article above, but the conclusion is that after deducting all the costs, the artist make less than 1% of the sales. Well, you know your profit percentage increases as you sell more CD's since some costs stays the same, which means TVXQ who's best selling album was Mirotic(about 500K), would've made much less than 1% of the sales according to that calculation. For TVXQ's other albums, I think they would've either lost money or barely broke even if paid like US artists.

So if you look at it that way, the 2% TVXQ gets after selling over 50K looks really great. With 50K sales, the company definitely would've lost money, but the contract still pays TVXQ. Over 200K sales? I don't know exactly where the break even point for the company is, but I hightly doubt company made much there either, but TVXQ still gets paid, and they get paid 5% compared to less than 1% for US artist. I'm sure company makes more money than TVXQ, but US record labels are the same way. According to the above link, US companies take about 70% more or less, but they have to pay for their cost of doing business as well, and so does SM (it costs money to run a business and they need to make money too).

So from this, you can see the distribution is reasonable, and it's definitely not a "slave" contract.

Also, if you read the court documents (not translated yet, will be done some day), it shows that the contract was amended 5 times, last changed on February of 2009, so you know TVXQ were continuously renegotiating their contract and SM is open to changes.

One more thing, the portions of the contract that was amended in Feb 2009 include better percentages for the albums sales, and SM applied the new figures for the Mirotic album, which was released in the previous year even though they didn't have to. SM is really a bad company, isn't it? :)

By now some of you may heard the news that the Korean Fair Trade Commission(KFTC) approved the amendments made voluntarily by SM to the contracts of SMTown artists. SM changed 3 sections of their standard contract, and the profit distribution WAS NOT one of them, which means there was no problem with the distribution of the profits to begin with according to KFTC.

Next: I will analyze other parts of the contract, and that means more translation...(sigh)

71 comments:

  1. WOW! Everything has become clearer! ^_^ 

    As an international fan that kows 0% korean, I thank you for taking the time & explain :-] 

    You know, while I sympathized with JYJ's cause at the beginning, something kept telling me that if everything they said was completely true then Homin would have left too. This is why: When I became a DBSK fan at the end of 2009, my initial vibe of Changmin along with Yuhno was that they seem level headed, smart and true to themselves. For that reason, I trusted and continue to trust their decision to stay- They dont want to risk everything they have accomplished. But don't get me wrong, I love JYJ but...there are important things in life that are simply not worth risking, specially for money :-(

    Question: Now that everything seems to be going to their side, do you think JYJ might return to SM? 

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  2. @Wickedstar19

    Glad to know it helped. There are much more info that international fans do not have access to, and I'm going to try to provide as much info as possible.

    Your view of HoMin is absolutely correct. They've been consistent and patient thruout this ordeal without any complaints. I'm sure it was really tough for them.

    I was always wondering why most fans don't even wonder why HoMin decided to stay or don't even care, and glad to know there are people like you who can think logically. :)

    As for JYJ returning to SM, my short answer would be most likely not (99%). You'll find out why from my future posts.

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  3. thank you

    it's such a difficult task, trying to open fan's eyes in this fandom. I'm very grateful to you for doing it.
    happy new year

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  4. @pichyasa

    I'm with you about this fandom LOL.

    Happy New Year!!!

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  5. Hm. I had to comment. Yes it is true that TVXQ get 70% of the overseas profit but you need to factor in that AVEX and SM Japan first divide it between each other. We don't know what the percentage SM Japan gets. It could be very high and it could also be very low. SM Japan is subsidiary under SME (Korea). I'm pretty sure that I read in one of those reported news that SME own over 90% of that company that means that it is basically an extension of SM under a different name. SME and SM Japan divide the money that they get from AVEX and through this pile TVXQ get their income.


    For the percentage of the album I quote a report

    "Prior to late 2008, DBSK’s contract states that no member will earn any profit off of any album that sells less than 500,000 copies. Despite their success and consumption throughout Asia at the time of release, none of DBSK’s albums have hit that 500,000 mark. Therefore, prior to July of 2008, DBSK members have earned nothing off of sales from their first album in 2004 to their most recent Korean album in 2008, as well as the numerous albums and singles in between.

    On July 1st, 2008, DBSK’s contract was modified so that each member would receive 1% of profit for every album that sold over 200,000 copies. Anything below that would earn them 0%-0.6%. Despite this modification, however, SM has failed to follow through with this policy, therefore leaving the members with a 0% profit, regardless.

    In sum, DBSK members have earned 0% of any revenue earned off of the sale of all of their albums and singles prior to 2008, and SM has therefore kept 95%+ of all DBSK album-generated profit since their debut."

    That means that only after 2008 they were guaranteed any earning from CD sales and they got no payment from any CD they released before Mirotic.

    The amendment of the contract shows that SM is quite as stubborn as many fans describe them but obviously the disagreement between the board of SME and three members didn't reach compromise. Whether SME was right or JYJ, I can't really say but likely the latter thought they had no choice but to sue SME - after all, who would wake up one day and say "Hey, let's sue the most powerful entertainment company in Korea"

    The lawsuit wasn't only about the income division. I see that you have already commented on the 13 years but there were more factors.

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  6. I meant not quite as stubborn

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  7. @sakura

    I've read all the articles you mention on your reply, and I will cover them in the future. To answer you briefly, SM testified in the court that SM Japan gets 4-5% of TVXQ profit as cost of management. As for the album sales part, it's not much different than what I wrote on my posts already. Simply, you just don't make money off of album sales. I've also read many news articles with incorrect info regarding the contract, and my posts are based on the actual contract downloaded directly from the court.

    I will cover other parts of the contract soon.

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  8. I must said that, the news didn't mention what KFTC has asked SM to comply regarding contract terms for their artists. The title of the news has misled many people to believe that all the contract terms were revised.

    Do you think you can find out what have been instructed by KFTC? As you have mentioned, the profit sharing portion remain the same.

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  9. I know what are changed. Contract terms, Breach of contract penalty was revised, and added a clause that gives rights to the artist to refuse unreasonable request. I think the last section replaced an existing clause, but not sure which one.

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  10. thanks you so much for this information. This is exactly what i always think since the lawsuit start ... Ppl were blinded by the number 2% or 5% and didn't take in consideration all the cost ... i read translation of the contract from difference source and there always something that doesn't much (sales/profit) which make me questioning its legit ...
    Your effort is much appreciated ... i wonder if u're waitting to finalized your works to spread it around or else? I don't want to spread it around without ur permission tho

    Thanks you so much

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  11. I have to thank you again. What I got from this whole lawsuit is that JYJ and their parents want to do their cosmetic business using TVXQ's name which can make big money, but Homin and their parents do not want to risk and get involved. SM also thinks that business will ruin TVXQ's reputation. This is why JYJ decide they cannot work with SM anymore so their lawyer used this 13 year slave contract as excuse to get them out of SM. Am I correct?

    If JYJ is really having problem with SM treat them bad and stuff and the contract duration, how come they don't raise lawsuit back then? why until now? Also, Homin had no problem I don't see why JYJ have problem. This is why I think the big problem is not the contract it is that business they want to do.

    I also speculate why JYJ is promoting so hard on their name now, if their name become big as TVXQ maybe they can use JYJ to do their cosmetic business. I feel JYJ had changed. Their dream is not same as homin anymore. I doubt they would ever go back to work in SM. They are good with beautiful words and lies to fans. I am sorry but I am totally upset with their decision.

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  12. @sinful09

    Your reply is pretty much correct, but you really need to know the details of what happened to get a full grasp of things that happened. I think someone can make a pretty good movie or a TV soap opera out of this whole situation LOL.

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  13. @kendalove

    Thank you for your support.

    As for spreading this blog, I was going to wait until it had enough info, but I think people are already spreading it on youtube & twitter, so I don't mind spreading it. Even with this little info, I think it's much better than nothing.

    I think if people are smart, at least they'll realize there's another side to this story after reading my blog.

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  14. Hey, thanks a lot for clarifying a lot of this stuff. I always thought homin were the smarter of tvxq and I did question why they didn't leave the group if it was so bad as jyj claimed. You need to get the word out more. Homin has suffered so much because of this controversy and Cassies have stopped supporting them, because they don't want to support SME. It's really ridiculous!

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  15. @sinful09

    I know that you were not talking to me but you mentioned the cosmetic company.

    SME has already sued CreBeau because of their ties to JYJ but they lost the lawsuit (or was it CreBeau that sued SME but SME lost? the same point). Now the exact same lawsuit is going on Korea and the SME hasn't mentioned winning the case, which I assure you they would definitely if they win, we can assume it is still pending.

    A JUDGE sided with the cosmetic company and I really can't see how that doesn't tell the whole story.

    Who are you to know if JYJ really dropped TVXQ for a measly cosmetic company, one -which I might add- I had never noticed before the lawsuit? Would you agree with me that the value of TVXQ is higher than CreBeau and its side chains? If you agree, don't you think that the members that lived and breathed the name would have noticed.

    And by the information that is on this web SME and Jaechunsu have redrawn the contract a few times, once in 2009. It can tell you that they wanted to be in the group but didn't like something about the contract. Both sides tried to negotiate. That didn't work so we have the current situation.

    At last: You remember why the name JYJ was chosen? Because it was supposed to be a temporary group for the Thanksgiving Concert. They didn't choose TVXQ because they were waiting for the other two.

    The name stuck to them when Avex sold DVD's of this concert. And they sold well.

    Btw. Lawsuits are very expensive and if they lose, they will have to pay high amount of cash. That just might be the reason why they are putting out so much stuff instead of focusing more on the lawsuit itself.

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  16. good lord, I my comment to OP disappeared.

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  17. Repost
    @ precious

    Precious said...

    @sakura

    I've read all the articles you mention on your reply, and I will cover them in the future. To answer you briefly, SM testified in the court that SM Japan gets 4-5% of TVXQ profit as cost of management. As for the album sales part, it's not much different than what I wrote on my posts already. Simply, you just don't make money off of album sales. I've also read many news articles with incorrect info regarding the contract, and my posts are based on the actual contract downloaded directly from the court.

    I will cover other parts of the contract soon.


    Can you give me a link to the article about SM Japan or better yet a translation. I don't want to sprout some words that might well be wrong.

    I saw your other post and at that you are insulating that SM is producing CDs in much the same way as here in Hollywood. First off, it is obvious that SM produces their music cheaper than say Universal(has some composers on paycheck though they sometimes look for others outside the company, directors and sets and machines are owned by the company, they get paid for appearing on music show unlike here and so on).

    Secondly you are guessing that they are making little to money in net profit. Here, I agree that they do not make much in CD sales however are with this and some other points like guest appearing we seem to be on a different page. My opinion is that because they do so much promotion that even if they get little for each time, when it adds together it is quite a sum.

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  18. @OP

    Can you give me a link to the article about SM Japan or better yet a translation. I don't want to sprout some words that might well be wrong.

    I saw your other post and at that you are insulating that SM is producing CDs in much the same way as here in Hollywood. First off, it is obvious that SM produces their music cheaper than say Universal(has some composers on paycheck though they sometimes look for others outside the company, directors and sets and machines are owned by the company, they get paid for appearing on music show unlike here and so on).

    Secondly you are guessing that they are making little to money in net profit. Here, I agree that they do not make much in CD sales however are with this and some other points like guest appearing we seem to be on a different page. My opinion is that because they do so much promotion that even if they get little for each time, when it adds together it is quite a sum.

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  19. @ Sakura

    You do not know all the facts. It was Crebeau that sued SM for defamation and obstruction of business because SM mentioned them during the trial and press releases, and the case was dropped because Korean DA found that SM had sufficient reason to believe JYJ was heavily involved with the company. As matter of fact, the DA found JYJ owned 62.5% stake in the company. I will explain on my post why they quit TVXQ for the cosmetics company.

    BTW, I have no idea where you got the info about a Judge siding with Crebeau. If you are talking about the lawsuit between the distributor and Crebeau, you got that info all wrong too.

    There are so many twisted, misinterpreted info on the web, and I will clarify most of them. I already showed people a single word change (Sales & profit for album sales) can make a drastic change from the truth.

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  20. @ Sakura

    The statement about SM Japan is from court sessions. I'll get to it when I can.

    As for CD sales, it really doesn't matter how much profit SM makes since I just needed to show that TVXQ's share is not out of line with US artist, and besides, TVXQ's rate is far better than the US artist anyways. I don't even know how u can say it is obvious SM makes CD's cheaper. Do you have any evidence that is so?

    As for TV appearances, as I said on my post, sometimes they get paid so little the company loses money on the guest appearances, so I don't know how you can be sure they will add up.

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  21. lol are you deleting my comments or the system.

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  22. @OP
    62,5 percentage stake. Please link what articles you are reading because I'm pretty sure the three members invested a little less than 150k USD in total and if that is enough to own so much in a company, that hires top hallyu stars and promotes it's products around east Asia, I should open one of my own.

    search for "tvxq has nothing to do with the cosmetics company promotion"

    Kind of strange that even I, an international fan has read this while you, a fan that can read Korean hasn't. It was even posted on website DNBN. I'll wait for your link to comment on more of this matter.

    About CD sales, well as I said in my comment previously. The systems don't work the same way. The stars even get paid for appearing on music shows. How can that not lower the cost? I mentioned the other points about less production cost above and if you want to search for yourself, look up the the person who wrote 'Hug'. But fine, we defiantly have different view on this case.


    /6th try

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  23. I'm gonna post in parts now.Hope that this will appear

    1. Part
    Please link what articles you are reading because I'm pretty sure the three members invested a little less than 150k USD in total and if that is enough to own so much in a company, that hires top hallyu stars and promotes it's products around east Asia, I should open one of my own.

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  24. search tvxq has nothing to do with the cosmetics company promotion

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  25. 2. part
    Kind of strange that even I, an international fan has read this while you, a fan that can read Korean hasn't. It was even posted on website DNBN. I'll wait for your link to comment on more of this matter.

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  26. last part
    About CD sales, well as I said in my comment previously. The systems don't work the same way. The stars even get paid for appearing on music shows. How can that not lower the cost? I mentioned the other points about less production cost above and if you want to search for yourself, look up the the person who wrote 'Hug'. But fine, we defiantly have different view on this case.

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  27. that just took like 7 to 8 tries. I think I will go to a bakery now, because I really deserve a cake

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  28. oh before I go, the source about the judge is in comment two, between part 1 and part 2

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  29. @ Sakura

    LOL, I went to sleep right after I posted my last comment, so didn't have a chance to delete your post. Anyways, even if the systems don't work, I proved that at the least, the CD sales is not as bad as those articles tries to tell. Those articles were lies no matter how you try to defend them. About Crebeau, I know what articles you've read, and I can also prove those are lies as well. Like I posted on my other comments towards you, I'm not going to start debating about everything in these comments and waste my time, so please wait until I cover everything. Just like the original articles I debunked, the ones you've read are misleading and lies, so stay tuned.

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  30. @ LMAO at least that is good to know. Guess this system doesn't like links or longer posts???(it wasn't that long though o.o;

    Well, I will wait and see what you will post

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  31. @ Sakura

    I won't delete anyone's post unless one goes out of line and start cursing etc., but then again, it's my blog, so I can do whatever I want. :)

    I have no clue why you had problem posting. It's either blogspot or something on your end.

    BTW, I know where you are coming from, and I've probably read most of the articles you've read. Like I said on my "Why I started this blog...", I decided to start this blog because most of those articles are from JYJ biased sites, and many have wrong or misinterpreted info. Even the original Korean articles are biased to begin with, and naturally, JYJ biased fansites chose those articles to translate. Because of that, many international fans only get to read biased articles.

    I'm guessing you are biased toward JYJ (BTW, everyone is biased in some way or another, including myself, so that's not a knock on you), but I think you also have an open mind unlike some fans who'd just say I'm lying without even thinking about my points, so bear with me until I present my case. Even if you don't agree with me, at least you get to see a different point of view. :)

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  32. Well, JJ is one I knew first about in DBSK so that might be. you?

    OK, I don't know if you have read my comment on the other post about the translators. (If it is not gone, hope not, otherwise have you read it?) I suggested you used Tohosomna's article to pick apart because they are so widely distributed and acknowledged.

    Another reason is that experience is that Tohosomnia's translator are have positive attitude towards Homin, they are not likely to add some bullsh*. Though my opinion is that all the regular translators that help the fandom (aside from the ones on twitter, know too little about them) like all the five members, even Sharingyoochun despite it's name.

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  33. @ Sakura

    I read all the post you wrote. Like I said, even the original Korean articles are biased, and I am going to cover them as well.

    BTW, Sharingyoochun is heavily biased towards JYJ from what I've seen so far.

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  34. @ Sakura

    Believe it or not, I never had any particular bias toward any members. I do now, obviously.

    BTW, if you can answer me honestly, did you know all the point I am making in my posts before reading my posts? Have you ever heard that there was a court testimony regarding SM Japan only getting 5% from TVXQ (whether that is true or not). Did you know that 2% was from the sales instead of profit? Did you know a US artist makes less than 1% even after selling a million CDs?

    If you didn't know some or all of them, then the knowledge you have is not 100% correct either. From what you told me so far, most of your knowledge about this issue came from those fan sites which I am trying to prove wrong. That was the whole point of starting this blog, so I really don't see the point of you trying to convince me otherwise. I've read them too.

    The questions you've raised so far will be covered in the future posts. I was planning on posting about everything you've asked me anyways.

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  35. sry i dnt wnt to sound rude or nething but i culdnt just read nd not say nething... ur basically lyk all of the jyj biased fansites. ur basically blaming jyj nd saying that they were being selfish nd greedy. no one from the general public knows the whole truth, so to jus blame them its kinda wrong. they personally said themselves that when they came to this decision that they were preparing to forgo their future as singers. wuld someone who was n it jus for the money do that? we dnt kno when they began to feel this way, so therefore we cnt say why it took them so long to come to this decision. u dnt evn kno how homin feels (they culd feel the same but jus didnt wnt to go through the whole lawsuit thing). jyj isnt the only artist to have major disputes w/SM. i dnt think they had disputes bout money generated from album sales cuz i (who dnt evn wrk n the business) kno that majority of artists dnt make money from album sales... it had to b other reasons. nd bsides they didnt wnt to leave @ 1st, they wntd to renegotiate their contracts @ 1st.

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  36. @ xxarleix0890

    That's kewl, you have your opinion and I have mine. I can only judge with information available to me. I am going to post what I know, and you can decide then if I'm right or wrong when I'm done.

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  37. @OP

    No and that is why I am asking about links as I do not like to comment about some matters about this case without having read all the information. My motto is that I will only say (write in this case) things that I will not regret later. So far I have mostly held true to this but anyway, I am getting off topic.

    The profit about the CDs, yes. I have read the link that you provided about what artists get in profit in USA and it was also there that I noticed the difference between the US model and the model SM uses.

    About SYC. They have not posted all topics about Homin just as they have not posted everything about JYJ and I have never read any post talking bad about the members. I have noticed, though that most of the comments there are jyj biased. Let's agree to disagree on this matter because this is not a important thing.

    At last, are you saying that because I have only read what have been translated on English websites I am not allowed to form an opinion or they are inferior to yours?

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  38. @ Sakura

    About CD's, at least I have shown that TVXQ's share is not unreasonable like it seem. Many thinks SM get 98% vs. TVXQ's 2%, which is definitely not true.

    You can form your own opinions, and I'm saying your opinions are formed based on incorrect info. Are they inferior? If they are based on the wrong info, then I'd say they are, but your opinion may differ. :)

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  39. @OP

    Let’s agree to disagree on CD sales. We have said all things that there are to say on about the CD sales and if continuing the argument is just repeating said words, I see no reason. It’s obvious that this argument is leading us to nowhere and and we both have very firm opinion on this.

    “You can form your own opinions, and I'm saying your opinions are formed based on incorrect info. Are they inferior? If they are based on the wrong info, then I'd say they are, but your opinion may differ. :)”

    That is the thing really. So far, what I have seen here seem to be 50% translating what suits for your side of argument, 10% explaining and 40% inserting opinions. And I am being generous with the percentages. Why inserting opinions but not explaining? Because many reasons on this site are arguable but not facts and thus they are your opinions. Opinions are all good and equally right because both of us know just a fraction of the story. You have more access to news but at the same time you are first colored by the opinions of the reporters and then your bias. (same goes for me)

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  40. @ Sakura

    I think you would've been satisfied if I just posted translations of the documents and left it at that.

    Like you said, I have more access to info than you do, so my fraction is higher than your fraction of the whole story.

    I don't even know why you are arguing about posting my opinions because I never denied that.

    I agree that my posts have facts, explanations, and my opinions so let's leave it at that.

    I also agree I have my own bias.

    I have asked you repeatedly that I am going to cover a lot of subjects, and wait for them, but you keep insisting commenting on everything I've said, and even started to copy your comments on other posts, and it's getting out of hand.

    You can always start your own blog. :)

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  41. Hey precious... I hope you don't mind me tweeting the link you gave to the Korean Court site... some people are saying that you don't provide sources and links and I wonder if they actually read the blog or just what others said about the blog. Thanks again!

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  42. @ hyeonmu
    No problem. I mean those are websites for the public to get info.

    I bet those people just glanced thru my posts without reading them. Maybe I should put the links in red letters. :)

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  43. To be honest, while your translations/explanations/comments seem to be factual, we really don't know how SM's accountings are really done. For all we know, everything that they've listed under "operating expenses" may be grossly exagerated to keep net profits low. So until we are able to get our hands on the real accounting documentations, I really do not think it is fair to say that the calculations are reasonable.

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  44. @ Nikki
    Accounting docs are checked by each members every time the profit is calculated. If there was a problem with operating expenses, then CJS should have raised issues when they signed them.

    SME is a public company, and I'd think their accounting is more accurate than private companies since they're always audited by a 3rd party accounting firm. They're also closely being watched by shareholders and there's much less room for any manipulation than other companies.

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  45. @Precious

    Didn't you just say in your response to me that artists have got no say in anything at all? If that was the case, wouldn't voicing out any concern be a problem to begin with?

    I happen to work for a large multinational company and you'd be surprised how anything can be manipulated. So to assume that SM's accounting is accurate would be an assumption at best.

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  46. @ Nikki
    Right, but assuming that SM's accounting is manipulated is an assumption as well. It really can't be argued either way.

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  47. @ Nikki
    Anti-SM fans are using the clauses of the contract to claim that the contract is a "slave" contract, so I'm showing the whole contract to show that it's fair. Whether the accounting is correct or not is a separate issue.

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  48. Dear Precious,

    Korean entertainment industries are DIFFERENT than American entertainment industries. Please don't compare them if they are not the same.

    Let me tell you this:

    It is not surprising that the contract states that DBSK will be paid by the number of records sold because it is like that in the US as well: "The mechanical royalty is paid to the recording artist, songwriter, and publisher based on the number of recordings sold."

    This may seem seem like a good thing BUT IF the US industry is similar to the Korean one in this aspect, then IT IS FAR FROM GOOD.

    American musicians DO NOT make a living out of royalties. Most of the time, those artists never even see the royalties they earn because of all the expenses that must be paid. Please read the website you quoted carefully. As the website you quoted says, "The artist won't see any royalty money until ALL OF THE EXPENSES ARE PAID."


    IN OTHER WORDS, the percentage that the artists earn as royalties are converted back to the company AND NEVER GIVEN THE ARTISTS because they are still in debt to the company. It is only natural for the artist to repaid his or her debt BEFORE making any money. This is 100% true in America.


    IF the Korean industry IS THE SAME as the American industry, then DBSK would see their 2-5% share of their money reduced because they owe money to the company for the recording fees, manager fees, hiring dancers, choreographers, basically, everything that you have already named AND MORE. Some are even billed TRAVELING FEES. In American industry, the artists are paid 8-25% of the records sold (in contrast to DBSK's 2-5%), NO MATTER THE AMOUNT OF CDs SOLD, as you can see by the website that you have quoted. EVEN WITH 8-25%, THEY CANNOT MAKE A LIVING OUT OF IT BECAUSE OF THE FEES!!


    So you must be wondering, WHY ARE LADY GAGA AND JUSTIN BEIBER SO RICH??


    Well, in American entertainment business, there are many types of deals that can be made when an artist signs a contract and negotiations are made. Depending on what the artist wants, they will have different deals, for example: singers can be signed for 3 albums, so the singer MUST produce 3 albums and only then will the contract expire. Some others sign contracts for a certain number of years(which could be compared to DBSK's situation, if they were american artists).

    Usually, the MONEY THAT IS PAID UPFRONT IS MOST IMPORTANT because that is what he or she gets no matter how well or badly album sales are. As long as you fulfill your contract as an artist, YOU WILL BE PAID, EVEN IF YOU WIND UP IN JAIL LIKE LINDSAY LOHAN. As long as the contract IS NOT BREACHED, you will get money.

    DEPENDING ON WHO YOU ARE, YOU MIGHT BE PAID MILLIONS OF DOLLARS UPFRONT IN AMERICA.


    As it is stated in the website you quoted, When a signed musician writes commissioned music(depending on the contract), SHE OR HE DOES NOT OWN IT because it was written as part of A JOB FOR THE RECORD COMPANY. THEREFORE THE RECORD COMPANY OWNS THIS MUSIC. All royalties go to the company and not the artist. However, since you WORK for the company, presumably, you are paid by the company beforehand or after the competition of your set job. You are simply NOT PAID ROYALTIES because the song does not belong to you.


    Plus, ANOTHER FUNDAMENTAL DIFFERENCE is that American entertainment industries DO NOT MENTOR TRAINEES. Korean industries do.


    Please see David Choi's videos about record companies if you any questions about the American system. http://www.youtube.com/watch?v=BQF7gYwxIFk

    ReplyDelete
  49. @ Kaithy

    Both industries are different, and that's why their profit rate for the album sales are different. I was comparing the bottom lines of US artist and TVXQ on album sales, which are comparable.

    I am not really sure what you are arguing about because the point of my post was that both US artist & TVXQ cannot make a living from their album sales which basically is what you are saying.

    TVXQ's 2%-5% is pure profit, and from US artist's 8%-25%, the expenses are deducted, so after everything is considered, both artists are getting paid similar money.

    I don't know what the Korean trainee system has anything to do with this article since I was just comparing the album sales profit, but if you really have to compare the two industries, Korean entertainment companies are making riskier investments on their trainees compared to US record labels since US labels usually sign artists who already established themselves somewhat on local level, but Korean companies recruit trainees with just raw talents and shapes them into artists. Who's paying for the cost of training? The company does.

    Unless you are a proven artist who sells millions, you won't get any meaningful up-front money from US labels.

    To repeat myself, you simply don't make any money off of album sales in either system, so TVXQ's contract is not unfair in that regard.

    ReplyDelete
  50. @Precious

    I am sorry for causing any misunderstanding.

    It is difficult to judge a contract because we do not know the main points of the contract*:
    "Where the recoupable expenses are applied. Do they get applied before the royalty rate is calculated, or after?
    The kinds of extra deductions (like packaging costs, breakage, freebies, etc.) that are taken.
    The size of the advance. Since the advance may be the only money you ever see, you want it to be as large as possible."

    Also, I don't think it is fair to compare the two systems: american and korean.

    American industry can't be compared to the Korean industry because the contracts are different and the royalties are different.

    In America, musicians depend more on the upfront payment than on the royalties. In most places outside of America, or in indie labels, (I suppose this is how it works in Korea) artists get paid with a cut from the Net profits.

    Let me explain what that is:
    The net profits is the money leftover from the label takes all the money earned from gross receipts for the album and deducts all of the direct costs.

    Net profits = Gross receipts(all the $$ earned) - Direct Costs(all the money used to produce, promote, etc)

    In America, this way of calculating is very difficult for the musicians to gain profits because you have to "break through into the top 5% of albums and go gold or platinum."*

    This Net profits is what DBSK earns in all overseas activites and gets a 70% cut from. And we all know, DBSK has many activities in Japan. BUT depending on what the direct costs are, they might be earning a lot or very little.


    This(Net Profit) is not the same thing as the sales amount and the royalties associated with it. (Which is DBSK's 2-5% sales profit share from Korea.)

    Royalties based on sales is when you get money for every CD you sell, regardless of the amount that you have sold. The percentage you receive for each album sold is negotiated in your contract (anywhere from 8%-25%). For this method to be beneficial to the (US) recording companies, the company can take a percentage(20-25%) packaging fee out of the royalties earned by the artist.

    Also, the artist might be charged for all kinds of fees associated with producing the album (promotion, MV, touring, etc.). American labels recoup their spending on the band via royalties (and if it is not recouped or if the musician does not do well, she/he is dropped, their album is shelved, etc.)

    That is why an (amercian) artist never see the money from the royalties.

    The advance money that a musician is paid upfront is very likely to be the ONLY money they will ever see, since the royalties get converted back to the company, as I have mentioned earlier.

    Because of the Advance payment system, the contracts in the US are VERY short termed, usually 2-3 albums long, sometimes it goes by 1-3 years (often with options**).

    To contrast, the Korean entertainment industry has LONG term contracts. There is no such thing as advance payment in Korean entertainment(if there is, I did not know it).

    If DBSK does not get paid advance payment, then were does the money come from? As you see and as you have said, it is impossible to survive from album sales.

    Anything that says Net Profits(even if it is 70%) is not valid because we do not know what the direct costs are, so we do not know what DBSK's real earnings(Net Profits) are. Not even DBSK knows.

    We cannot say the contract is fair based on american artist because they earn money from advance payment (most of the time) and DBSK earn from Net profits(based on your translation of the contract).

    These are two different systems. Please do not mix them up since you might cause confusion...

    *http://entertainment.howstuffworks.com/recording-contract3.htm

    ** http://entertainment.howstuffworks.com/recording-contract6.htm

    ReplyDelete
  51. I hope this becomes more clear. I did not want to offend, only to tell you want I feel.

    I personally think that the term contracts are pretty fair for DBSK, except for the fact that it is 13 years long(and day taken off as holiday and army years must be "repaid").

    The reason JYJ sue SM is because they want to see the contract, but Sm does not show it. They want to see the aspects I wrote above :

    "Whether the percentage is calculated on the wholesale, channel price of the album or the retail price; Where the recoupable expenses are applied; The kinds of extra deductions"

    This is very important in contract because SM can deduct anything they want if DBSK sign a bad contract.

    Another reason is that SM is strictly against the boys from doing ANY independent activities, as we could have seen from SM's reaction to JYJ's investment in Crebeau.

    I can understand this reaction because in America, ANY OTHER ACTIVITY by the signed artist MUST be approved by the label. From what I have seen and read, the controversy comes from the approval....

    Sorry for making misunderstandings. I took a long time writing all this and my friend help me a lot too. I hope you understand why I think JYJ sue SM. Thank you for your website.

    ReplyDelete
  52. @ Kaithy
    I still don't think you are reading my article correctly.

    You are just repeating what you said before, so let me answer you AGAIN.

    I am ONLY comparing the profits gained by ALBUM SALES between the two systems. The rest of the TVXQ's profit is not related to the US system at all. Please read my post again.

    Also, one thing you are not aware is that SM always go over the paperwork with each members before paying them, and the members go over all the expense reports before signing the accounting paperwork, so they know exactly what all those costs are. SM is a publicly traded company, they are audited all the time by the 3rd party accounting firm, and it's harder for them to manipulate the accounting.

    I have no idea where your claim of SM not showing the contract is coming from. Either you are using the wrong word, or you are mistaken. The contracts are signed by the members, and I have no idea where you got that info. Can you elaborate?

    ReplyDelete
  53. @ Kaithy

    Also, your argument has many assumptions, and you cannot make your case with assumptions. You are assuming that SM could manipulate the operating cost, but as outsiders, we cannot prove it either way, so there's no point in introducing assumptions in any debates.

    Many people argue that the contract is unfair by just using the numbers on the contract itself, so I have refuted those claims by using the number on the contract itself, and that should be the end.

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  54. "Also, one thing you are not aware is that SM always go over the paperwork with each members before paying them, [...]it's harder for them to manipulate the accounting."

    Do you have proof of that... if you do, then please show me? No one is allowed to know company internal affairs, it is illegal(based on contract article 6).


    Also, (this is assumption:) even if they KNOW the costs, they cannot necessarily reduce them because all the receipts are there. If DBSK want to change the amount of money paid to the back-up dancers, they cannot because it has already been decided. It is written in the contract what costs are and what must be paid by DBSK and how much already.

    That is what a contract is. Everything is decided beforehand and if they have an objection, no one can do anything because they have already signed the contract (given their consent). The contract must be changed and revised and that is what they are doing now with lawsuit (I think).

    Contract is signed by parents of DBSK, not DBSK because they were too young.

    No one really knows about the contract... You probably say that this does not count since it is Junsu's father's quote(from 6.25 meeting) but I will post it anyways...

    "[Junsu's father][...] we do not know about the Japanese contract. TVXQ boys don’t have contract for Japan, don’t know what the term is or when it ends. Because the kids had some plans, they needed to know when the contract ends so they know when they would renew the contract, so they asked about it because they were curious, but they didn’t see it. I asked Junsu when it would end. Why? So we don’t affect Avex in bad way. He told me March or April. Then I asked him if he signed it, and he said no. Did you see it? No, didn’t see it. He said he didn’t see anything."

    and another quote:
    "Q. Sir, Avex and SM (???), do they have part of the contract separate? Tohoshinki itself...

    A. I would tell you what it’s like if the kids or I saw the contract, but we don't know. If I give a wrong answer, then (people) may say I lied. So it's going to be difficult to answer because I don't know about the contract. As you know that there's SM Japan between SM and Avex. I don't know how they're related and... Kids are curious about it too. They are scheduled to work 12 months a year in Japan or Korea, but because we didn't see..."

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  55. In America, it is the norm to jack up to the operating costs("direct costs"). Ent. company can do it and it is legal and NOT considered manipulating accounting because it is in the contract:

    "For example, the record label may be paying personnel $10 per hour but charge a retail price of $40 per hour when charging the cost of the personnel to the album as a direct cost. Part of that is justified [...] But the markup is probably 100%. So the label is making a nice profit off of these expenses, and may still be making money even when the artist is making nothing."

    http://entertainment.howstuffworks.com/recording-contract3.htm

    Many American artist who have made hits have signed stupid contracts and ended up on well-fare. Contracts like this are everywhere. Maybe DBSK signed one like this. You are right; it is just an assumption, but you cannot deny that unfair contracts exist, regardless of how good/bad the profit distribution looks. As long as we don't know the balance of the cost, we cannot judge.

    No one outside of SM and DBSK knows the details of the contract: Article 6 "① The Artist cannot disclose the details of the contract and the Company's internal affairs to an outside agent."

    These details are most important for any contract. As they said, always read the fine print. So I say you cannot conclude that contract is fair based on your analysis of the contract because the contract is incomplete.

    In article 10 of contract, they state EXAMPLE of costs, but they do not say the exact amount of total to how much everything costs. So no one knows. No one can say it is fair or unfair.

    Also, I am just saying that it is more acceptable for American artists are treated with low sales royalties because they have the right to an advance payment for a 1-2 year contract. (Even so, many hit US stars starve/on wellfare/bad pay)

    But Korean artists do not have an advance payment(or maybe they do, but I don't know ) for the 13 years of work. It is normal; 13 years is too long and with inflation, etc., it is difficult to pay longterm. If their sales royalties is also low, then how does SM pay DBSK?

    Anyways, it does not matter what the percentage is because sales royalties(in the US, as I said before) are taken back by the company to pay all costs. Royalties are never given to artists, they are used to pay the debt of promo activities etc. It takes many years before the royalties are paid to artists. Advance payment is the only way to get money.

    That is why it is not justifiable for Korean to be using the PART of the system of the US and for the contract to still be called "fair".

    Do you understand? I'm sorry for my bad explaining....

    ReplyDelete
  56. By the way, I want to precise my point.

    The problem is not profit distribution, it is WHAT is being distributed after all the costs are subtracted.

    As I said, profit for company can be made by subtracting extra costs from the gross receipt. DBSK need to know the COSTS that are being subtracted. This falls under article 10, that is why many people misunderstand because the title of article is

    "Distribution of Profits - TV, Events, Commercials, Copyright etc"

    So they think, like you, that something is wrong with distribution of profits, but many things are included in this section...

    This is what DBSK needs to know and wants to change....

    ReplyDelete
  57. @ Kaithy
    It was stated in HoMin's parents' statements, there was a TV show in Korea showing the contract all signed by the members and their parents, also there was court testimonies saying that the members checked the paperwork, and CJS side never disputed that. CJS is only claiming that they cannot trust SM's accounting, and the court will determine if it's true or not.

    You are saying that you cannot determine the fairness of the contract because of many unknowns, then you also cannot say the contract is unfair for the same reason. Since you cannot prove that the contract is unfair according to your argument, you cannot say that CJS filed the lawsuit because of unfair contract either.

    I can easily make the same argument as you are doing. MAYBE SM is minimizing the operational cost to by paying some costs on their own. You see how "Maybe"'s can work both ways? So let me repeat again. YOU CANNOT DEBATE WITH ASSUMPTIONS, SO PLEASE STOP WASTING YOUR AND MY TIME ARGUING WITH ASSUMPTIONS.

    BTW, the contract that Junsu's father is talking about is the one between SM and Avex which TVXQ members DID NOT sign, and the contract that's available for everyone is the contract TVXQ signed with SM. They are two different contracts.

    You seem to be so preoccupied with your own thoughts, you are not realizing the fallacy in your own statements. You are introducing many "maybe"s in your statements and trying to prove something.

    I have compared two sides ALBUM SALES PROFIT PERCENTAGE, and shown they are comparable. I have no clue what the actual cost is, but neither do you, so we can ONLY COMPARE THE NUMBERS ON THE CONTRACT. Which part of what I just said don't you understand?

    How about this? When you just look at the details of the contract, the contract looks fair; therefore, you cannot say the contract is unfair by just looking at the contract.

    You should be able to agree to that.

    ReplyDelete
  58. @ Kaithy
    If the problem is not what's actually on the contract, then the contract is fair, period.

    Many fans claimed the contract is unfair by just looking at what's on the contract, but you seem to agree that the numbers are fair.

    Again, you are arguing "As I said, profit for company can be made by subtracting extra costs from the gross receipt" Well prove me that SM did that, then I'll agree with you. You can't can you? Because you want to vilify SM some way, and you are just introducing your assumptions to justify your thoughts.

    ReplyDelete
  59. But I never say it was unfair, I only tell you that YOU cannot say it is fair because you say it all the time and everywhere.

    Just because something is not unfair does not mean that it is fair...

    AND just because you say it LOOKS fair does not mean that it actually is.

    I think you cannot pass a conclusion based on your research results and say that it is fair because you don't know.

    I present my arguments to you to say that your side of things has still many holes and more information is needed before you can make conclusion that the contact is fair.


    The problem is in the category of article 10 Profit Distribution. It is inside the article 10 of the contract. That is why newspaper/court says that JYJ is sueing SM for profit distribution(which is article 10). Accounting is included in this section of contract.

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  60. @ Kaithy

    I see. Then can you please tell all the anti-SM fans that they cannot say the contract is unfair?

    At least the contract LOOKS fair, but anti-SM fans are arguing that the contract LOOKS unfair.

    Also, please bring me some facts that SM jacked up the cost, then I'll agree the contract is unfair, but until you can do that, it's only your thoughts.

    Until you can prove me otherwise, I can only judge from the contract itself just like other people are doing, and the contract is fair.

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  61. @ Kaithy

    BTW, can you tell me where in any of my post that I said the contract is "fair"? I only wanted to show that contract is not a "slave" contract, and it definitely does not look "unfair", so I don't even see why you are arguing with me. I even said some part of the contract look "unfair".

    ReplyDelete
  62. Precious, thank you so, so much for all your hard work, it is really meaningful to international fans who don't speak Korean or Japanese.

    I commented on you very first post in this blog, but somehow it doesn't show up. :(
    So once again: I'm very grateful for your articles, because many fans really WANT to know some straight facts behind all those twisted and fragmentary information we get on ordinary fansites, so it is really good to read your version of most documents, stated there.
    Furthermore even if we know already some facts about the TVXQ case, it is impossible for us to link them together to get one whole picture, but you do kindly explain all the related information to us.
    Thank you very much for all of this. ^^

    I read almost most of your posts regarding the lawsuit and there is one big question I have: you explain all those facts very well to us and I think many of us do understand pretty well why the contract can not be labeled as a "unfair" contract. But why did the court agree to JYJ's first injunction then? If the contract case is clearly not unfair, shouldn't it be easy for SM to win the whole lawsuit?

    ReplyDelete
  63. Oh, please forget the question about the lawsuit, I found the related article which answers it ^^;;;

    Anyway, thank you so much for your hard work, I really can't thank you enough. I think it will take me some time to read all of your posts plus all the comments plus read your articles again... well, hello sleepless nights xp

    ReplyDelete
  64. @ pfau
    Your comments were in the spam folder. Blogspots spam system is a bit sensitive when a user posts multiple comments within short period of time, it moves the posts into spam folder.

    ReplyDelete
  65. When they made the contract,did SM made it themselves and present it to TVXQ and their parents for them to approve it or not or did they undergo a collective bargaining agreement like process wherein both parties are present in determining its clauses? Sorry I'm just curious.

    Your blog is great though. I have been reading it for almost a week now and all the time I was like: Yeah, it all makes sense. Thanks for your hard work! :)

    ReplyDelete
  66. So when you say that the raw income TVXQ makes isnt that bad, how much are we talking about here? Judging from what I have read from music royalty articles, pop singers/dancers don't make that much since they (most groups I would assume) don not write their own songs. The songwriters, publishers, and managers of pop groups under a lable would make more than them in the end. Plus, record companies really just care about profit...they have lawyers or people like them that can make a contract so long, complicated, and ambigious that it would take a day oer two to understand that, not to mention it could be worded in a way that is open to INTERPRETATION (so when a member is complaning about such and such section of the agreement, the people that work for the record lable can say "Oh, this really means this, ect,ect). I also vouch for the members of pop groups, because they put in more effort than most of the people involoved helping them (they have to get up a 7am and work till 5pm 7 days a week, with little to no holidays, can't see their family, can't go to public or private places their managers or cam crew following them). At the end of the night they must be more exgausted than Obama! If they are lucky, each member of TVXQ will end up with a net worth of $200,000 after their 13 year 'slave' contract is up which is hardly worth the effot they put into their carriers. Arent their living expenses for staying at their dorm, and buying food or does the record company give them that (I saw a video with SNSD at their dorm)?

    ReplyDelete
  67. To precious, i read all n it seems you worked hard to proove something that already prooved for it self.LOL
    You argued with much of viewers and nobody end up with accord with you.
    And continue to put some high information to elaborate the 'truth'
    Sue one of the biggest company entertaintment in Korea who trainned them since they were very young?! Those courage is not compare to the greeve issue, since this giant company can set anything, so why tho this company didn't win easily
    See anything in global way, contracts is full of tricks even if you read it rightly something happened in real that bring us to re read the contracts, since they involved with so much money in it.

    ReplyDelete
  68. According to wiki, the company didn't win they reject all n jyj can do their activity without sm intervenir.

    ReplyDelete
  69. Have no vacation, no right to say it wrong or right working hard day n night n never have a chance to spoke n communicate what they want. Have no freedom about themselves just do what had been thought, is more than slave. Their grown up in pain, think of it twice, then we know they have been so bravely to do the right things.

    ReplyDelete
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