Melon, Korea’s largest music site, is reportedly under investigation for embezzlement of royalties from copyright holders through a shell label called LS Music.
On June 2, news outlet The Hankyoreh reported that the prosecution conducted a search and seizure at the office of Melon, which is located in the neighborhood of Samsung, on May 27. Melon is being accused of embezzling royalties from copyright holders by creating a ghost music label called LS Music. LS Music was reportedly created sometime between 2009 and 2011, when Melon was operated by Loen Entertainment. The original royalties distribution system in 2011 gave 46 percent of the total profits to Melon, with the remaining 54 percent going to copyright holders. However, Melon reportedly embezzled billions of won (approximately $845,305) of royalties from copyright holders by registering LS Music as part of the royalties distribution system, through which LS Music acquired about 10 percent of the total profits. LS Music received their portion of royalties by sending records of classical music, of which the copyright holders are unclear, as a “gift” to users, adding it to the list of their downloaded songs, and receiving the copyright royalties that follow the downloads. Melon reportedly continued to embezzle royalties from copyright holders in various ways even after 2011. If the prosecution begins thorough investigation against Melon for their alleged fraudulent activities from 2009 to before the company was sold as a private equity in 2013, the amount Melon supposedly embezzled may total up to tens of billions of won (approximately millions of U.S. dollars).
For their part, Melon responded by confirming the search and seizure but saying the problem happened under different management, basically.
A source from Melon confirmed on June 3, “It is true that the police performed a search and seizure at [the office] last month. However, the investigation is happening due to a problem that occurred before Kakao’s acquisition of Melon in 2016.” The source added, “We do not know the details of the investigation.” The suspicions of unfair distribution of copyright royalties has been brought up continuously in the past, but this is the first time the prosecution directly initiated an investigation against a music site.
Because this doesn’t directly accuse specific companies or idols of wrongdoing, it’ll probably get less attention from people. However it’s obviously worth paying attention to as it has just as much or more impact on the industry.