In light of now Luhan's potential departure from EXO and SM Entertainment, allkpop has gotten into touch with insiders in the Korean entertainment industry in an attempt to shed some light on the baffling situation. Both Luhan and SM Entertainment are not providing a lot of details, and whatever they do say, seem to be in conflict with each other.
One industry rep revealed, "He is leaving because there is a problem with the distribution of revenue, but that problem is not related to distribution with the company, rather that there is a high number of members [in EXO]. Considering his level of recognition right now, he can promote in China with an even better environment and conditions, so he's trying to leave even if he needs to file a lawsuit. From [SM Entertainment]'s perspective, it is absurd. If there is no profit compared to the money invested, that is likewise a problem. It's a profit that is proportional to their level of recognition and popularity, but considering there are a lot of [members], there has been a ton of money invested in them and a lot of expenses, so there is considerable damage from [SME]'s perspective." The rep suggested that the reason the Chinese members were leaving first was that, unlike a native Korean, they would be protected back in their homeland and would be less likely to run into the entertainment industry; hence, they could freely sue, leave the country, and promote in their homeland. Meanwhile, it could be hard for certain aspects of Korean law to touch them as they are Chinese citizens.
A second rep revealed their thoughts on not just SM and its artists but the status of the Kpop scene overall to give an idea about how money could be distributed between the agency and artist, and why idols may choose to leave after having signed the contract.
The rep stated, "Currently, the revenue system margin is lower than expected for music agencies. Fundamentally, one singing group, the cost of on/off-line marketing, and if you especially include sajaegi and illegal music and albums to achieve first place [that some agencies can apply], [the cost] can reach hundreds of millions of KRW (millions of dollars).
The contracts that reflect the fair clause will split the profit 6:4 (60% to company 40% to artist) for about 3 years, and then afterwards it will be adjusted to 5:5. The Fair Trade Commission also found this to be the most reasonable after conducting a research on actual conditions.
There are more male idols from a foreign background who enter into a contract dispute than male idols from a Korean background. Once male idols with a big fandom win #1, they are able to bring so many on to their side. They start losing their original rookie mindset of desperately wanting to just make their debut, and instead start to think that their contract's profit distribution ratio is unreasonable compared to their busy schedule and the lack of income coming in initially.
[Once this period passes] there is hardly a case when someone files to get out of their contract after 7 years into it. This is because they finally begin to receive the income they think is fair.
This is why I think because some of these idols are young, they've made a rather hasty decision."
Thus, the rep seems to be indicating that if idols do stick around for the length of their contract, especially for at least the initial 3 years, they're able to start receiving much more income as the company starts making back their investment and the profit distribution becomes split evenly 5:5 instead of 6:4 during the initial 3 or so years. This is why the insider believes young idols may make hasty decisions early on into their contracts, but why the idols who've been around for longer end up sticking it out for the duration of their contract because they start receiving a different profit ratio after the initial years.
On the topic of why it seems that more idols from a foreign background seem to file disputes about their contracts, the rep added, "This is more often the case for those of a foreign background who have a different mindset and values, not only because they grew up differently and with a different mindset, but more because their understanding of the contract is low, and they also become faced with the reality that the glamorous life of being an idol they saw from the outside is not as glamorous as it seems once they're active as an idol in Korea.
Although I'm not saying all agencies are conscientious or honest, I do think that it is more on the fault of the singer if they are filing the dispute not even 5 years into their contract under an agency that is fairly well known.
The most important thing here is that the fair clause and the Fair Trade Commission have been implemented to protect the weak, and even if people say they hold no legal value, they were still made after sufficient research into actual conditions to protect the singer.
If you look at this in a broader perspective, you can see that it's not just SM's problems but that there is a widespread issue that includes the unreasonable music distribution system, and the illegal on and offline marketing. However it's currently being focused on as just a matter of a lawsuit against the representative agency of Korea.
My personal thoughts are that [with cases like this] the number of international members that are recruited will lessen, especially among those being recruited from China as the system there prevents many of international laws from being applied. "