There was a Court hearing in Seoul related to the JYJ’s lawsuit against SM Entertainment (SM). According to very early translated tidbits, SM still hasn’t turned over all the financial documents for TVXQ and still haven’t paid the members for their huge Mirotic album sales.
The witness at the hearing was “Mr. Yoon”, the person SM put in charge of handling financial matters related to TVXQ.
In Court, SM presented a document calculating money owed to TVXQ for their first single Hug from way back in 2004. Yes… 2004… and that’s it, according to early translated reports. One report says, “SM failed to produce any more evidence beyond the single document from 2004.”
But that’s not all. Its already ridiculous that, according to their contract, SM only has to pay members $50,000 dollars ($50 million Korean Won) when an album sells 500,000 copies. But when TVXQ finally achieved this goal with their Mirotic album, SM didn’t pay them any of that money and had no valid excuse in Court for why they hadn’t.
What’s worse is that according to another translated report, SM only counted sales of Mirotic once. Hence, SM paid TVXQ for selling 480,000 copies instead of 500,000 because they purposely stopped the count at 480,000. To my understanding, what that means is SM paid TVXQ for selling 480,000 copies, and the other 60,000 copies were absorbed by SM. In other words, SM seems to have purposely split up the album count so they wouldn’t have to pay TVXQ for selling the full 500,000+ copies.
The Court asked SM why they refused to pay members and, at first, SM lied claiming that Mirotic only sold 480,000. However, JYJ’s attorney presented evidence in Court that the sales for Mirotic were 540,000 copies.
According to translated reports, SM said they didn’t pay TVXQ because TVXQ had to release another album before they could get paid for Mirotic. This response was so unsatisfactory to the Judge that he interrupted the attorney for SM. It went downhill for SM from there.
More translated reports (Naver, Mongeul blog) state that SM charged the members for everything, and I mean, everything. TVXQ were paying for everything out of their cut of the money, including the expenses of SM executives and Staff members.
SM charged the members for:
snacks
SM executives and Staff members expenses
parking fees
cold medicine
meals
transportation (plane, car, etc)
rent
costs for concert agents
music videos
dancers
various taxes and expenses (which should have been covered by SM)
Ignorant people once criticized JYJ by claiming that SM was spending “all that money” on them so they should be grateful. It caused a rift between a few fans who wanted to blame JYJ for this mess.
If you remember, SM publicly claimed to have “invested” very large sums of money in the training and care of TVXQ. They claimed the money-split between the company and TVXQ was to make up for these large investments. But as many fans already suspected, SM was charging TVXQ for every single thing they had… right down to the damn snacks!
SM may have paid a bit of upfront costs in the beginning, but SM wasn’t really spending its own money. Instead, everything was being charged towards TVXQ’s portion of whatever little income they were given. It appears that SM may have been using these upfront costs as an excuse to continue an incredibly lopsided income distribution between itself and the members.
At the March 15 hearing, money matters were the focus. In 2008, SM had some 14.7 Billion Korean Won (14.7 Million dollars) in royalties. 2008 was the year that TVXQ’s popularity, particularly in Japan, climbed even higher than it was before, but SM claimed that only $1 Million of that came from TVXQ.
For the record, the group had its first #1 single on the Japanese Oricon charts, “Purple Line”. What followed was a string of high sellers and #1 songs in Japan including “Doushite Kimi o Suki ni Natte Shimattandarou”. Then their blockbuster album Mirotic was released and, in a matter of months, had sold over half a million copies.
It seems entirely too implausible that of $14.7 Million USD SM took in that year, less than 7% of it was earned by TVXQ in a year when TVXQ’s popularity and sales skyrocketed in Asia and they were setting musical records in Japan. SM claimed artists like CSJH, BoA and Koh Ara made up the majority of that money. Yeah, right. These artists are still under SM rule, of course.
According to the report, courtroom observers broke into laugher when the Judge asked SM if Koh Ara (Korean actress under SM) really bought in more money than TVXQ that year.
The list of grievances continued with SM refusing to pay JYJ the contractual 10% of TVXQ’s digital downloads sales for 2009. SM also deducted for “agent’s fees” from the amount they were supposed to pay TVXQ from their world tour; a tour that generated about $3.4 million USD (3.4 billion Korean won) in earnings.
In addition, it was revealed that SM handed out advances which they later “deducted as personal taxes”. The translated report says, “If only [SM] had done their accounting properly there would have been no need to pay such taxes on these advances.”
The Court also said that if SM couldn’t provide any more relevant documentation that it would issue an order right then and there. This was apparently done to force SM to provide the Court with the relevant documentation they have been purposely withholding from both the Court and JYJ’s attorneys.
According to fans, so far there are very few news reports to translate right now. One report from SPN EDaily reportedly only covers what SM’s witness had to say in a completely one-sided manner with no detailed quotes or information about what JYJ’s attorneys said or any information about the Judge’s rebuke of SM’s behavior.
The next hearing date is scheduled for April 19 with SM Japan CEO Nam So Young scheduled to testify.
Source Mat:
http://en.wikipedia.org/wiki/TVXQ
http://thejyjfiles.wordpress.com/2011/03/16/110314-court-hearing-the-reason-why-jyj-had-no-choice-but-to-sue/
http://www.soompi.com/forums/topic/355679-official-the-jyj-thread/page__st__2840
Additional Information
The following is an account of the court hearing that was held on March 15, 2011 on the case between JYJ and SM Entertainment for invalidation of JYJ’s contract with SME. The summary was provided by a fan, and he/she noted that he/she is writing on whatever he/she heard that day at the trial and because she has no knowledge about laws, there might be discrepancies
Questioning by SeJong (the attorney representing JYJ)
Person to answer: Yoon Sung**, the person in charge of balancing accounts from the latter half of year 2007.
Q: During the meeting for revenue calculations, JYJ members, finance director, parents, and manager have attended. However, has there been a time when a legal expert or a financial expert took part in the meeting?
A: Occasionally there is. However, the 3 members have never requested for that.
Q: When calculations and checking of the revenues are made, you mentioned all the details/breakdown are cross-checked in 6 month periods… you show [the document] and get [the artist’s] signature, but do you show all revenue-related documents such as the contents of the bank account, receipts, album contract, commercial contract, overall contract and so forth?
A: We’ll show them if they request for it. But the 3 of them has never requested it.
(Writer’s note: so does this mean that JYJ has never seen such documents before?)
Q: There probably are circumstances whereby no contracts are written and transactions are made through cash. Under these circumstances, are there any ways that JYJ will be able to check and rectify the contents?
A: No.
They spoke about issues with regards to the calculation of accounts for the latter half of year 2008, from July until the end of the year, including commercials, photo book, goods, overseas activities revenue calculations, local album sales revenue (Mirotic), and so forth…
Q: For example, were the payouts for attendance of fan sign meetings and other 60 small or so activities and publications events revealed?
A: We never did. These are not subjects of accounting calculations. And, small amounts of attendance payouts are not subjects of accounting calculations (those about 20~300, 000 Won; USD200 ~ 270). They had many activities that DIDN’T have payouts for attendance. Under the contract terms, the full amounts of revenues for those non-regular activities like publicity events will all go to the company [T/N: BTW, these “non-regular” activities include the regular appearances TVXQ had on music programs such as music core, popular song, music bank, etc. AND their appearance on variety shows such as X-Men, Happy Together, Come and Play, etc.]
[T/N: is a contract which provides no compensation for an activity, however small, really fair? 60 or so small events paying out about USD 200-270 each really does add up. And think about how many of these small events TVXQ must have had throughout their career].
From the money earned from TVXQ’s activities, fees such as transportation, food and snack expenses, are all shared among the members and company under a proportional rate.
Q: In 2009, for the incomes which falls under digital music, 10% has been accounted for in the account balance calculations. However under the distribution allotment [of the contract], from the total revenue amount of USD 530, 000, there should be a payout of USD 58, 000 but there was none.
A: I’m unsure about this.
Q: From 2007 to 2008, under the contract which promised [TVXQ] a payout of USD 3 million for attending Seoul and Asia concert-related events, the public relation agency promised to account for all related expenses. However, TVXQ was charged USD 800,000 for expenses [T/N: under the contract, this should have been covered by the public relation agency]. Why is that so?
A: I’m not sure.
Q: With regards to albums, once the sale of the albums has started, there will be one balance calculation after 2-3 months. Is there no more balance calculations with regards to album sales after that?
A: During the calculations, we will have a forecast of the possible album sales after that [2-3 month] period of time and make payouts based on forecast.
Q: For instances like the Mirotic album, the album sales was a total of 540, 000 copies. The initial sale was over 460, 000 copies for a period of 4 months. Based on the balance calculations on 5th February 2009, about 12, 000 copies extras were considered so for convenience sake 480, 000 copies to be sold were forecasted and put into calculations. HOWEVER, if the sales EXCEEDS 500, 000 copies, there was a condition stated on the contract that there would be an ADDITIONAL payout of USD 44, 000 to each of the members. Perhaps, it is because of this that there was a RUSH to conclude that the album sales would be of 480, 000 copies?
A: I don’t know.
Q: After Mirotic, was there an additional payout of USD 44, 000?
A: NO. From what I know, the album has not exceeded [500,000 copies]. [T/N: Actually, according to a statement released by SM themselves on 1/8/2009, SM states that “Mirotic” exceeded selling 500,000 copies (502,837 albums total on 1/8/09) source – http://www.mydaily.c…901080837271131. Where is the USD 44,000 that SM owes to each member?]
Q: Under instances that the sales exceed 200, 000 copies, [members] are promised a payout of 5% of the album sales but, based on the album sales of USD 3.7 million, (the payout) should be over USD 176, 000. Why was USD 88, 000, an amount much less than 5%, given as the payout?
A: it’s not 5% of the lump sales, but based on section criteria. Like, how many percentage if it’s over 10, 000 copies and how many percentage if it’s over 100, 000 copies. Using this method, the payouts would fall between 2~5% (of album sales).
Q: It is said that the members would not need to be accountable for any expenses in relation to album production. What are the categories that this particular expense falls under?
A: Filming of jacket, printing expenses, recording expenses, songs fees (T/N: payment for copyright of songs), filming of MV, dance chorography are all… inclusive..
Q: However, (looking through expense report) MV production fees, showcase fees, and even international calls fees are all being accounted for by the members… why?
A: it is not everything, but there were probably parts of the expenses that were being used for broadcasts. From what I know, those kinds of expenses are being categorized as PR expenses. [T/N: Refer back to Yoon’s answer in the previous question. He HIMSELF stated that expenses for MV production were inclusive in SM’s coverage for album production. He is contradicting himself here.]
Q: Under the exclusive contract, production fees are being termed as operating expenses, so the company and members are both accountable for these expenses. However, members were held accountable for accommodation expenses, cleaning lady expenses, parking expenses, car gasoline expenses, external security expenses. Why?
A: I’m not too sure. The payment document that came from the production team has different colors and differentiates accordingly… the finance department will then classify those accordingly. [T/N: according to reports from fans who got a close look at SM’s expense report, SM held members accountable for the smallest things such as Junsu’s cold medicine 
]
Q: With regards to issues of overseas revenue in 2008, TVXQ only is responsible for making USD 880, 000. Who is responsible for the remaining USD 11, 500,000 worth of revenue? SNSD started their activities in Japan in 2010 August. Who are the ones who brought in those revenue?
A: The revenues come from Go Ara, Trax, CSJH, BoA’s activities. (Writer’s note: Everyone present laughed.) And, the company has other revenues that have nothing to do with all these artists. Japanese activities have accounted for 70%.
[From @Spring_Breezes:
Boa, CSJH and the Trax ALTOGETHER sold the following number of albums and DVDs in 2008. : 65,750 (single album), 185,388 (reg album), 25,695 (DVD). Go, Ara did one drama “누구세요” (“Who Are You?) in 2008 according to wikipedia.
I’m sure these artists generated other types of revenue for SM other than what’s listed above. They are talented ppl and fans loved/still love them. But loyalties from these four artists/groups for 2008 is… 13.7 billion KRW? Really? Based on the number of albums and DVDs sold in 2008, it’s hard to believe that they made that much in 2008, don’t you think?
Cr: 김떡뽂 at DC Inside + wikipedia ]
Q: According to Japan Tax Law, after calculations of the Japan tax, (roughly USD1.1 million) the payouts are made, and of course after the deduction of corporate tax in Korea, USD 1.1 million should have been received… how was that portion of the money being accounted for?…
A: (the question was ambiguous so it was passed)
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(Writer’s Note: The hearing ended with talks about the next hearing which will take place on 19 April at 2pm.)
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Translation by. Inhye87 of withJYJ