Recently, the popular girl group NewJeans declared that they would 'terminate their exclusive contract' with their agency, Ador. They stated, 'We have already given back profits that exceed the investment funds to Ador and Hive.'
Ador is one of the major labels under Hive, the largest entertainment agency in South Korea. The only artist under Ador is NewJeans.
In response, Ador claimed that the exclusive contract is still valid and filed a lawsuit to confirm the validity of the exclusive contract. NewJeans' contract period extends until July 31, 2029.
On the 14th, NewJeans opened a social media account named 'jeanzforfree,' aiming to differentiate themselves from the group 'NewJeans' and officially begin independent activities. The account has attracted 3.18 million followers so far. Min Hee-jin, the former head of Ador, liked their first post.
The members noted, '(This account is) really us' and added, 'We will meet here more often.'
The account also features photos of NewJeans' photoshoot (see capture below). It is notable that Min, the former head, participated as a special creative director. In the photoshoot, the members used their own names instead of the group name.
There are circumstances indicating that NewJeans has pursued contracts as advertising models (ambassadors) directly with global luxury brands, excluding their agency, Ador.
If the artist provided profits exceeding the investment funds, can they justify unilaterally terminating the exclusive contract and engaging in independent activities?
On the 19th, comprehensive reports indicate that the contract between NewJeans and Ador possesses the nature of 'capital investment,' which is distinct from typical lending.
While lending involves returning the principal with regular interest payments, investment contracts endure the risk of principal loss. Whether investment revenue occurs and how much revenue is generated entirely depends on the performance of the investment target.
In the K-pop market, the background for agencies to invest in artists despite low chances of success is primarily twofold: enormous rewards in the event of success and the guarantee of exclusive revenue through the exclusive contract during the contract period.
The members of NewJeans, including Minji, Hanni, Haerin, Danielle, and Hyein, all joined Hive as trainees under another label called Source Music. They debuted in 2022 under Ador. During this process, they received financial investments from Hive, Source Music, and Ador, as well as intangible support such as education and training. At their debut, they attracted attention as the 'sister group of the mega-hit group BTS.'
Overall, NewJeans' success can be attributed not only to the individual talents and efforts of its members but also to the fame of the company Hive, the training and education during their Source Music days, the capital investment from Hive into Ador, intangible support, and the assistance of Ador's staff. In return, NewJeans is expected to share the revenue generated from their entertainment activities with Ador. Reports indicate that each member received settlement amounts surpassing 5 billion won last year.
If they attempt to unilaterally escape from the contractual relationship before the exclusive contract period expires, they are obliged to pay penalties. The penalty should be at a level that can compensate Ador for the anticipated future revenue during the remaining contract period. The standard exclusive contract stipulates that the penalty amount should equal the average monthly sales over the previous two years multiplied by the number of remaining months of the contract. Currently, the penalty for NewJeans is estimated to be around 500 billion won.
An industry insider noted, 'If an artist can unilaterally terminate a contract before the expiration date after receiving a significant capital investment from an agency, no one would invest in the K-pop industry.'
Another insider pointed out, 'It seems NewJeans is engaging in high-risk activities such as opening an SNS account and independently pursuing advertisements before a legal determination regarding the exclusive contract is reached,' and added that 'the continuous confirmation of contract violation scenarios could work against them in ongoing lawsuits as well as potential penalty lawsuits resulting from this.'