South Korea Music App, Melon, Accused of Stealing Royalties

Melon, South Korea’s largest music streaming service, is under investigation for allegedly creating a ghost music record company and siphoning off billions of won in copyright fees that should have been returned to creators.

According to a report from a news outlet of The Hankyoreh, South Korea’s daily newspaper, the Cyber Investigation Department of the Seoul Eastern District Prosecutors’ Office raided the office of former LOEN Entertainment on May 27.

“We raided Melon’s former office on suspicion of misappropriating billions of won in copyright fees,” a prosecution official was quoted as saying. Mellon, which was started as an in-house service of SK Telecom in 2004, had been operated by LOEN since January 2009.

Prosecutors are looking into allegations that Melon created a ghost music label between 2009 and 2011 when it was a subsidiary of SK Telecom and siphoned off billions of won in copyright fees.

According to the report, if the prosecution’s investigation is expanded to cover the period from 2011 to 2013 when Melon was sold to a private equity fund, the amount of money it allegedly siphoned off could rise to tens of billions of won.

According to the Hankyoreh report, in 2009, Melon paid 54 percent of its income from recorded music to copyright holders and took the remaining 46 percent for itself. Copyright holders were paid in accordance to the download rate of their recorded music.

LOEN is alleged to have established a ghost label called LS Music and included it in the copyright fee distribution system and siphoned off a share of the copyright holders. LS Music received copyright fees by sending music with dubious copyright claims to subscribers’ “gift boxes” and included them in the total number of downloads.

The Hankyoreh suspects that LOEN took 10 to 20 percent of the royalties that should have gone to copyright holders through the ghost company, on top of the 46 percent share for itself. The amount of money LOEN had allegedly diverted from the copyright holders’ income is estimated at about 5 billion won.

Source: Business Korea