Recently, the famous girl group NewJeans declared that they would terminate their exclusive contract with their agency, Ador. They noted, "We have already returned profits exceeding the investment funds to Ador and HYBE."
Ador is one of the major labels (subsidiaries) under HYBE, the largest entertainment agency in South Korea. NewJeans is Ador's only artist.
In response, Ador claims that the exclusive contract is still valid and has filed a lawsuit to confirm the validity of the exclusive contract. The contract period for NewJeans is until July 31, 2029.
On the 14th, NewJeans opened a social media (SNS) account called "jeanzforfree," aiming to differentiate themselves as the group "NewJeans" and actively pursue independent activities. The account currently has 3.18 million followers. Former Ador CEO Min Hee-jin liked their first post.
The members said, "(This account is) really us" and added, "We will meet here more often."
The account also features photos of NewJeans (see the screenshot below). It is notable that Min, the former CEO, participated as a special creative director. In the photos, the members used their own names instead of the group name.
NewJeans has reportedly made efforts to secure contracts with global luxury brands and advertising models (ambassadors) directly, excluding their agency, Ador.
If the artist has returned profits exceeding the investment funds, can they unilaterally terminate the exclusive contract and justify engaging in independent activities?
As of the 19th, reviewing the legal sector confirms that the contract between NewJeans and Ador has characteristics of "capital investment" differing from regular monetary lending. While lending involves returning the principal and receiving regular interest, investment contracts carry the risk of losing the principal. The generation of investment revenue and its extent depend entirely on the performance of the investment target.
In the K-pop market, there are two main reasons why agencies invest in artists despite their low success probabilities. There are immense rewards upon success, and revenue is guaranteed exclusively through the exclusive contract during the specified period.
Members Minji, Hanni, Haerin, Danielle, and Hyein all entered HYBE as trainees under another label, Source Music. They debuted in 2022 under Ador. During this process, they received not only financial investments from HYBE and Source Music but also intangible support such as education and training. At their debut, they attracted attention as the "sister group of HYBE's mega-hit group BTS."
In summary, the success of NewJeans is attributed not only to the individual talents and efforts of the members but also to the company's reputation (HYBE), the education and training from their time at Source Music, capital investments from HYBE in Ador, intangible support, and assistance from Ador employees. In return, NewJeans must share the revenue generated from their entertainment activities with Ador. Reports indicate that the settlement amount each member received exceeded 5 billion won last year alone.
If they attempt to unilaterally exit the contractual relationship before the termination of the exclusive contract period, they must pay a penalty. It is generally accepted that the penalty should be at a level that can compensate Ador for the expected future revenue during the remaining contract period. The standard exclusive contract stipulates that the penalty is calculated by multiplying the average monthly revenue of the last two years by the number of months remaining in the contract. Currently, the penalty for NewJeans is estimated to be around 500 billion won.
An industry insider said, "If an artist can unilaterally terminate a contract before expiration despite receiving substantial capital investment from the agency, no one would invest in the K-pop industry."
Another source noted, "NewJeans seems to be continuing activities with high risk (risk factors), such as opening an SNS account and independently pursuing advertising, even before a legal judgment on their exclusive contract," and added, "the ongoing confirmation of contract violations could negatively impact both the ongoing lawsuit and potential future penalty lawsuits."