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

Posted by Joseph Hwang Joseph Hwang 8/05/2024

Structure of an Exclusive Management Agreement for a K-Pop Artist (Standard Form Contract) - Part 14.

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 13 (Burden of Expenses)

① The Company shall, in principle, bear all expenses incurred for education (training), the acquisition, and improvement of the Artist’s ability to perform popular culture art services within the scope of its management authority.

② All expenses under Paragraph ① may be borne by the Artist with the consent of the Artist and deducted from the Artist’s future income. The Company shall ensure that the scope of expenses borne by the Artist does not exceed a reasonable degree.

③ The Artist shall not burden the Company with expenses unrelated to the popular culture art service.

Article 14 (Confirmation and Guarantee)

① The Company confirms and guarantees that it has the necessary human and material resources and has the appropriate capabilities to properly exercise the management rights and obligations of Article 5, Paragraph ①, and Article 12 concerning the Artist at the time of conclusion of the contract.

② The Artist confirms and guarantees for the Company that it ensures the following items.

1. that it has the necessary rights and authority to conclude with this Agreement validly

2. that the execution of this Agreement does not infringe any other agreements with third parties

3. that it will not enter into any contract with a third party that is inconsistent with the contents of this Agreement during the term of this Agreement.

***

Article 13 of the SFEC establishes who bears the costs of Artist education and training prior to revenue generation and how these costs will be treated in profit distribution. The Artist’s consent is essential in this regulation.

While it is beneficial to the Artist to be educated and trained at the Company’s costs and expenses to improve their abilities, once the Artist’s contract is terminated, the Company’s costs and expenditures will be turned almost always into sunk costs. Sunk costs occur when a company can’t recoup the cost once it’s spent, but in order for an artist to be marketable to the public, it’s necessary to educate and train them to improve their abilities. Companies are well aware of this and are usually willing to compromise with artists on a modest level.

For the Artist, education, and training are some of the most complex parts of making their debut, but they want to confirm that they get the best education and training possible to improve their abilities. However, the Company accepts the risk of increasing costs if it accommodates all of the Artist’s desires. Therefore, the Company and the Artist need to agree in advance on a situation where the quality of the Artist’s education and training is at a certain level but not too costly. I recommend that the Company and the Artist agree on and implement rules of practice, such as keeping documented evidence that they have approved the content and amount of expenses required (e.g., signing a monthly settlement document).

It’s crucial to engrave that the costs and expenses incurred for education and training will be recouped up to break even before the Artist shares any profits with the Company after their debut. Not all costs and expenses are free for the Artist and the Company.

Article 14 is the confirmations and guarantees of the Company and the Artist. First, the Company shall confirm and guarantee to the Artist that it has the human and material resources to support and assist the Artist’s activities during the Contract Period. Postponement of the Artist’s debut schedule is a hazard for the Company if it insufficiently has these capabilities and signs the Artist Trainee. This has often been a problem in the K-pop industry. Managing a multi-member K-pop idol group is more costly than you can think. When a trainee who signs a management contract with an underperforming company terminates the contract and tries to re-sign with another company, the dispute tends to escalate into legal action by the Company, which not only wastes the trainee’s time but also complicates the legal relationship with the new Company, which can harm the contract.

The Artist also confirms and guarantees that the Company has the right to enter into an exclusive management contract with the Company; this regulation was established because there are cases where an artist has a legal problem with another company and signs a contract with a new company under pretenses. In this case, the new Company trusts only the Artist and signs a contract without knowing the legal dispute with the previous Company, resulting in a double contract and being subject to a legal dispute with the former Company. Therefore, SFEC requires the confirmation process in advance for the conclusion of the Agreement to avoid any situation that may be unfavorable or damaging to the Company and the Artist.

* 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