South Korea’s Fair Trade Commission (KFTC) has launched an investigation into potential abuse of power over subcontractors in South Korea’s K-Pop industry. Major players in the industry, such as HYBE, SM Entertainment, and YG Entertainment, are at risk after the KFTC sent investigators to their offices on Tuesday.
Allegations of gapjil, or abuse of power, against large entertainment agencies has caused shares in K-Pop powerhouses to slip on Wednesday. HYBE saw its stocks fall 1.92 percent while SM Entertainment saw shares drop 1 percent and JYP Entertainment slipped 0.15 percent.
Under scrutiny is how subcontractors, who produce albums and merchandise for large entertainment agencies, are treated in terms of payments and contracts. The KFTC, South Korea’s antitrust watchdog, is looking into whether verbal contracts without issuing them in writing, unfair contracts, or delayed payments have been made.
Read more: K-Pop Boy Group Files Antitrust Suit Against SM Entertainment
Yonhap, South Korean local media, reported that the companies have allegedly violated the nation’s ‘subcontracting law.’ HYBE also reported 410.6 billion won ($315.9 million) in January-March quarter sales; out of that, 44.9% came from albums and 16.8% from merchandise and intellectual property, according to a Shinhan Investment & Securities report on Tuesday.
According to FTC Chairperson Han Ki-jeong, “The content industry is in the spotlight as one of our core industries in the global economy and a critical part of our soft power, but the reality is that there are many malpractices within the industry. The agency will probe the relationship between companies and their subcontractors and whether companies put unjust causes in their official contract, as well as improper verbal contracts and late payments.”
When contacted by CNBC, South Korea’s FTC said they could not confirm or deny the Yonhap report. Hybe said that it has no comments, while YG Entertainment and SM Entertainment did not respond to requests seeking comments to the Yonhap report.
The FTC investigation team also launched an on-site investigation to game publishers such as Krafton and Kakao Games last month.
The FTC is putting its foot down against any and all firms engaging in malpractices and it is becoming evident that the K-Pop industry is no exception. Whether HYBE, SM Entertainment, and YG Entertainment are guilty or innocent of the charges being leveled against them is yet to be seen and the investigation is still ongoing.
