Structure of an Exclusive Management Agreement for a K-Pop Artist (Standard Form Contract)

Posted by Joseph Hwang Joseph Hwang 7/12/2024

Structure of an Exclusive Management Agreement for a K-Pop Artist (Standard Form Contract) - Part 6.

Joseph Hwang

* Attention: This article is based on the latest version of the "Standard Form of Exclusive Contract for Musicians (hereinafter referred to as "SFEC", Notice No. 2024-0021, Ministry of Culture, Sports and Tourism of the Republic of Korea, amended on June 3, 2024)."

** Contract parties: Artist (hereinafter referred to as "Artist"), and artist management company (hereinafter referred to as "Company")

***

"Article 5 Management Rights and Obligations of the Company (Promoter), etc.

① The management rights and obligations of the Company (Promoter) to the Artist (Singer) under this Agreement shall be as follows.

1. Conducting or entrusting any education for the acquisition and improvement of abilities necessary for the popular culture art service

2. Negotiating and concluding contracts for popular cultural arts services as described in Article 4, ①

3. Negotiating appearances on the media referred to in Article 4, ②

4. Publicizing and advertising the Artist's popular culture art services

5. Collecting and managing payments from third parties for the 'Artist's' popular cultural art services

6. Planning, organizing, directing, and scheduling of popular cultural art services

7. Planning, production, distribution, and sale of entertainment content

8. Other support for the Artist's popular culture art service

② The Company shall have the right to conclude a contract with a third party on behalf of the Artist by negotiating and adjusting the terms and conditions of the contract and the method of execution of the contract for the Artist's popular culture art service. However, the content and schedule of the contract shall be explained to the Artist in advance, and the contract shall not be concluded contrary to the Artist's' express intention to sign.

③ The Company may request the Artist to fulfill the obligations under the contract according to ② faithfully, and the Artist shall faithfully fulfill such obligations unless there is a justifiable reason such as physical or mental readiness.

④ If a third party infringes or interferes with the Artist's use of popular culture art services, the Company shall take necessary measures to exclude such infringement or interference.

⑤ The Company shall not require the Artist to perform any act that infringes or may infringe on the privacy or personality rights of the Artist other than the Artist's public cultural art services or preparation for public cultural art services under this Agreement.

⑥ The Company shall not request unreasonable monetary compensation from the Artist.

⑦ The Company may transfer all or part of its rights or status under this contract to a third party after obtaining the Artist's prior written consent.

⑧ If the Artist is subjected to sexual harassment or sexual violence by an employee of the Company and notifies the Company of the fact, the Company shall verify the fact and exclude the employee from work and take other appropriate measures."

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Article 5 of the SFEC, regulates the rights and obligations of the Company towards the Artist. First, the obligations. The obligations of the Company are almost as the support for the Artist such as education, development of skills and entertainment talents, and protection of infringement from the third parties to fulfill the entertainment activities of the Artist. The rights of the Company, secondly, most of the rights are relevant to the representative rights on behalf of the Artist as an agency for completing the entertainment business in the rest of the Artist's activities such as negotiating and concluding rights of contract, receiving and collecting rights of payments instead of the Artist, adjusting tasks of schedules for the Artist, etc.. The Company should perform its duties regarding the production tasks for the Artist's entertainment services and activities such as planning, producing, distributing, sales of products, and concert tours.

It is important to note that the Artist authorizes the Company to act on his/her behalf. In principle, an Artist's precious self-rights should be exercised by the Artist. Still, since the nature of the entertainment industry is that a human being with a personality is a commodity, profits are generated only when the rights are exercised externally against a third party. The Company must safely and efficiently utilize the agency rights granted by the Artist to cast and sign contracts for the Artist's activities and exercise the process and final contract rights on behalf of the Artist. This means that the Company's business conduct must be trustworthy and objectively verifiable to maintain high integrity.

Second, although the Company may exercise the Artist's rights on the Artist's behalf as mentioned above, it is an agency right that the Company exercises with the Artist's personality as collateral, so it is necessary to control the Company's exercise of external rights so that it must not exercise them against the Artist's will or opinion and personality. Therefore, the SFEC has stipulated in "Article 5, ②" that the Company must have a procedure to obtain the Artist's consent in advance to prevent the Company from arbitrarily conducting business against the Artist's will. If the Company conducts external business or legal acts such as signing a contract without the Artist's consent the Company can be held liable to the Artist, business counterparty, or both. Therefore, the Artist Consent Process is one of the most important regulations that the Company must follow. It seems a good method to record documented proof that the Company obtained the Artist's consent. And the Artist needs to think carefully about any request for agreement from the Company.

Third, the Company has been authorized the representative rights of the Artist to defend against infringers of the Artist's rights and to pursue legal remedies on the Artist's behalf. It's a no-brainer. The illegal infringement of another's rights harms the Artist's interests and the Company shares that harm with the Artist. The Company should protect the Artist's privacy and personal rights to the fullest extent possible and take precautionary measures to prevent harm in situations where they may be violated. In addition, the company itself may be a party that can cause damage to the Artist, so the Company must educate its employees and not hire ineligible persons as required by law. Therefore, Article 5, ⑧ of the SFEC separately stipulates that the Company must take measures to prevent crimes of sexual violence or sexual harassment against Artists.

Finally, Article 5, ⑦ is one of the most important provisions in recent years. Since the early to mid-2000s, entertainment companies in South Korea have been actively pursuing mergers and acquisitions to go public. Even now, some entertainment companies are operating intending to go public. However, the value of an entertainment company is derived from its "goodwill" and "assets" just like companies in other industries. The "goodwill" and "assets" of these entertainment companies are mostly generated and defined by the artists themselves or the content about them. Therefore, the assets of an entertainment company are mostly intangible.

Let's say you are an entertainment company that wants to go public. The scheme for this company to increase its chances of going public as an entertainment company is to sign a famous and powerful artist as an exclusive entertainer. The more famous or high-potential artists the company signs, the more "goodwill" and "assets" the entertainment company has, and the better promising its future as a for-profit company becomes. As "goodwill" and "assets" grow, the likelihood of going public through M&A or an IPO increases.

The problem is that this power is based on the persons with personalities. When an artist chooses a management company, it is not only the size and network of the company that matters but also the personal relationship with the private manager in charge of the artist's management. Therefore, if the company an artist has signed a management contract with is sold or merged with a company they don't know or have a personal relationship with, the artist is more likely to terminate or cancel the management contract or emotionally dissolve the personal relationship with the company. During the M&A boom in the South Korean entertainment industry, there were cases where companies ignored the special nature of the entertainment business and pursued M&As too aggressively, resulting in disputes with artists. The court's yardstick of judgment was whether the management agreement authorized the transfer of the artist's exclusive rights to a third party. Thus, even if the Artist's management agreement grants the Company blanket exclusive rights, the Company must obtain the artist's separate consent before transferring the Artist's exclusive rights.

* Standard contract analysis continues in the series.

** References and quotations:

https://www.mcst.go.kr/kor/s_data/ordinance/instruction/instructionView.jsp?pSeq=2413

Series Articles

Overview

https://www.musicbusiness.co.kr/2024/05/structure-of-exclusive-management.html

Part 1.

https://www.musicbusiness.co.kr/2024/05/structure-of-exclusive-management_26.html

Part 2.

https://www.musicbusiness.co.kr/2024/06/structure-of-exclusive-management.html

Part 3.

https://www.musicbusiness.co.kr/2024/06/structure-of-exclusive-management_16.html