We will reveal the exclusive contract SM Entertainment holds with its celebrities. Although this contract is the one between TVXQ and SM, it can be inferred that it is almost a basis contract for all the others. Also, as SM stated that the income division for TVXQ was the best they offered, one can surmise that the content of the contracts of other groups such as Girls’ Generation, Super Junior etc. will be worse.
In the contract, it states that TVXQ must pay for all of the expenses required for their activities and this implies the wages for their managers and road managers. “TVXQ must pay for their travel fees and rent fees, as well as their meals, make up and coordinators’ wages, dance crew and any other stage crew costs. They must also pay for the wages of their managers’ monthly wages (The wages of the manager is 800,000 per month and the wages of road managers is 600,000 per month, and this increases by 10% every year.)”
Exclusive Contract Periods – ‘TVXQ’ is 13 years and ‘BoA’ is 15 years
TVXQ’s Kim Jaejoong finalized his contract with SM on May 14th, 2003, Kim Junsu on February 12th, 2000, and Park Yoochun on June 30th, 2003. There were five changes to the contract after this. The contract period was extended from 10 years to 13 years and the income division was slightly increased for the celebrity. However, the clauses regarding the extended contract or compensation which were ruled by the Courts as unlawful were not changed. The five changes of the contract occurred in December, 2003, February, 2007, March, 2007, October, 2008 and February of 2009.
If you look at the contract, it can be seen that SM holds almost no obligations. All there is for the agency to do is to take care of the group’s popularity and tell them of their activities. On the other hand, TVXQ must follow the orders of the manager SM gives them, and cannot personally make any promises or contracts regarding activities.They cannot talk about the internal affairs of SM. If a show or performance has a setback for no special reason, TVXQ must compensate. They must make two full albums every year and must release an album six months before the termination of their contract and perform all activities diligently. TVXQ must get permission from SM to give any of their compositions or arrangements to a third party. But SM is allowed to give any SM singer TVXQ’s compositions without the consent of TVXQ.
Although the income division aspect has improved, they do not receive any money until at least 50K copies are sold. If they sell 50K~100K, the group receives 2% of sales, sell 100K~200K and receive 3%, sell over 200K and they receive 5% of total sales. The group must then split this income. If the appearance on a show is not regular, SM receives all the money for publicity. If the contract is terminated for any reason, TVXQ must pay compensation worth three times the investment money and twice the amount of their forecast income as well. This also applies when both sides have agreed to the termination or when SM is the cause of the termination.
Exclusive Contract Content
Clause 1 (Purpose)
For the effective celebrity activities of ‘B’ (TVXQ), all legal actions dealing with all activities, appearances and such will be dealt by ‘A’ (SM Entertainment) or the manager chosen by ‘A’. ‘B’ cannot make any personal promises or contracts regarding his activities and must only focus on what they have been given.
Clause 2 (Contract Period)
1. The contract period will begin at oooo. oo. oo(The latest contract signing date) and will end 13 years after the debut date of ‘B’ in the industry (album release, appearance as a supporting role in a movie or drama – movie: 20 scenes or more, drama: 12 scenes minimum per episode).
2. In the case that ‘B’ is unable to perform normal activities due to a personal reason, the contract period will be extended by that amount of time.
Clause 3 (Assignment of Rights)
1. ‘A’ has full rights for the maintenance of all of the TV appearances and activities performed by ‘B’.
2. During the contract period, ‘B’ must diligently perform all activities decided upon by ‘A’, ‘B’ is not allowed to perform any activities without the consent of ‘A’ during the contract period, and if this clause is violated, the appropriate consequences will be taken stated in Clause 11, subclauses 1, 2 and 3.
3. All TV appearances and authority of ‘B’ are held by ‘A’.
4. ‘A’ has the rights to all albums and recorded songs (including unreleased songs) that were created during the contract period. All income division after the contract period has terminated has already been determined by the exclusive contract.
5. ‘B’ must give ‘A’ all rights such as the right to reproduce goods, copyrights, the right to release albums, distribution rights, airing rights, performance rights, karaoke, right to create second hand goods regarding any compositions, arrangements or lyrics done by ‘B’.
6. ‘A’ is allowed to use the songs recorded and produced during the contract period in any form. (‘A’ is allowed to reedit and reuse any song in the form of L.P, M.C, CD, CD-FMV, DC-FMV, CD-I, CD-V, CD-G, L.D, VIEDO, limited edition albums, best albums, commercials, movies, picture, VIEDO filming, MP3, any music files.)
7. In order for ‘B’ to give a third party other than ‘A’ lyrics, compositions or arrangements, ‘B’ must get the permission of ‘A’ in advance.
8. The manager of ‘B’ must be chosen by ‘A’, and he must diligently work to maintaining the schedule of ‘B’.
9. ‘A’ is allowed to use any lyrics, compositions or arrangements that ‘B’ made in any album ‘A’ is creating other than the album of ‘B’.
10. ‘A’ is allowed to transfer and use all or a partial amount of the contract’s content in other businesses. But if ‘B’ says in advance that he is completely against this, this no longer applies.
Clause 4 (Contract Mandate)
What is under the maintenance of ‘A’ is listed here and this is applicable for all domestic and overseas activities, ‘A’ is allowed to transfer and use the rights of this contract, and can give the maintenance to another company.
1. Contracts for TV appearances and schedules (including the internet)
2. Contracts for domestic and overseas performances and events
3. Contracts for movies and commercials
4. Control of illegal use of pictures of ‘B’ (copyrights etc)
5. Contracts for use of lyrics, compositions and arrangements
6. Maintenance of any legal problems
7. All domestic and overseas activities
‘A’ will hold all ownership and copyrights for any goods created by ‘A’ during the contract period.
Clause 5 (The Responsibility of ‘A’)
1. Maintain the popularity of ‘B’.
2. Quickly report the schedule of ‘B’.
Clause 6 (The Responsibility of ‘B’)
1. ‘B’ is not allowed to reveal to the public of the contents of the contract or the internal affairs of ‘A’.
2. ‘B’ is responsible for adhering to all scheduled TV appearances or performances set by ‘A’ or the manager.
3. If a setback occurs during an appearance or a performance for a personal reason, ‘B’ is to tell ‘A’ or the manager in advance and if there was no special reason for such a setback, ‘B’ must take responsibility.
4. The manager of ‘B’ must be chosen by ‘A’, and he must diligently work to maintain the schedule of ‘B’.
5. Between the time of the contract’s termination and six months before said termination, ‘B’ must release one new album (recorded) that ‘A’ asks for, and perform activities for P.R. for said album (six months).
6. ‘B’ must, when ‘A’ wants, produce two full albums every year, and perform all recordings and activities accordingly, and work diligently in all areas. (‘A’ chooses the amount of time allotted for the creation of the album, and ‘B’ must follow accordingly.)
Clause 7 (The rights of ‘B’)
If ‘A’ asks for any demand that is not the duty of ‘B’, ‘B’ is allowed to refuse.
Clause 8 (P.R. and Production Fees)
1. P.R. will be done by both sides working together.
2. During the P.R. period, if ‘A’ feels there is a need to stop the P.R., ‘A’ is allowed to do so and if ‘B’ would like to stop activities, ‘A’ will make the final decision.
3. For the production of albums that is done by ‘A’ and ‘B’, all responsibility including production fees is incurred by ‘A’ and ‘A’ is entitled to all profits or losses.
Clause 9 (Profit Division-Album)
Clause 10 (Profit Division-TV Appearances, Events, Commercials, Rights)
Clause 11 (Compensation in the case of a violation)
1. In the case that ‘B’ violates any of the clauses in this contract, ‘B’ must compensate for the losses incurred, and any actions or situations that may affect the activities of ‘B’ will be held accountable by ‘B’. If ‘A’ feels that it will be hard for ‘B’ to continue on with his celebrity activities, ‘A’ has the right to stop the activities of ‘B’, and ‘B’ must compensate ‘A’ for the losses. (Compensation does not mean termination of the contract.)
2. ‘B’ must pay compensation that is worth three times the amount of investment (any money used for the purpose of ‘B’) and twice the predicted profit that would be gained in the years had the contract not been terminated.
3. Even if a termination of the contract is agreed upon by both ‘A’ and ‘B’, ‘B’ must still adhere to subclause 2.
Clause 12 (Disputes and other responsibilities)
If any misunderstandings occur due to a communication error in the contract, the problem is to be solved in a mutual agreement by ‘A’ and ‘B’ based on trust.
*footnotes to be added soon*