The Dark Underbelly of the K-POP Merch Market Exploiting Fan Loyalty...Widespread Illegal Information Trading and Privacy Violations

The problems within the merch market, where K-POP fanbases’ strong purchasing power is exploited, are receiving intense scrutiny. Record labels pursue excessive profits by taking advantage of fans’ devotion, while illegal information trading and privacy violations have also reached serious levels. The core fanbase sizes of HYBE, SM Entertainment, JYP Entertainment, and YG Entertainment—the four major entertainment companies—are estimated at around 3.42 million people. The total scale of the fan economy driven by these groups amounts to approximately 8 trillion won. The MD business is the most profitable segment among all of an entertainment company’s operations. HYBE reported 178.1 billion won in indirect revenue from MD and licensing, content, and fan club activities in the first quarter of this year, accounting for about 36% of its total revenue of 500.6 billion won. In particular, sales in the MD and licensing category surged by 75% from 60.7 billion won in the same period last year to around 106.4 billion won this quarter. Last year, sales in this sector had already increased by 29.1% to 420 billion won. The most frequent criticism directed at record labels is the issue of “price inflation.” Fans purchase merch to support their favorite artists, but labels exploit these fans’ emotions by setting prices that are wildly high compared to production costs or normal market rates. It is common for simple stationery, accessories, or basic clothing to be sold at prices several times higher simply because they bear the artist’s logo or name. The problem of “declined quality” is also severe. A loyal fan of an idol from a major agency, referred to as A, criticized the situation by saying, “Merch pages are extremely poorly detailed just because of the ‘celebrity premium.’ There are also many items without actual photos. It’s already lucky if delivery arrives after a month, and returns or refunds are not even possible.” This indicates that a level of service refusal unimaginable in regular online stores has become standard practice. Last year, the Fair Trade Commission issued corrective orders and imposed a total fine of 10.5 million won on HYBE, SM, YG, and JYP for their “abusive practices” regarding merch. It was revealed that these companies arbitrarily set terms and deadlines for cancellation of purchases on their own online stores. Under the Electronic Commerce Act, consumers are entitled to cancel purchases within 7 days of receiving the goods, but HYBE’s Weverse Shop stated that “compensation is difficult if more than one month has passed since the item was shipped in cases of loss or return.” Additionally, they violated consumer protection regulations by refusing returns for opened packages or refusing refunds when the product’s value decreased due to removal of the original box. Kang Yujung, a member of the Democratic Party, pointed out that “the 3 million won fine imposed on HYBE is merely 0.000025% of the astronomical revenue generated from merch sales.” She emphasized that such lenient penalties allow abusive practices to continue. Meanwhile, illegal information trading is also at a serious level. Behind the unofficial merch market, estimated to be worth 800 billion won annually, exists a culture of “home masters”—individuals who track idols’ movements and illegally trade personal information. These home masters sell details such as idols’ flight information, departure times, and gate numbers in open chat groups for 1,000 won each. Sellers claim to have obtained this schedule information through insiders, which even entertainment agencies do not disclose, and insist it is “100% accurate.” In 2023, an employee of a Hong Kong-based overseas airline, identified as A, entered idols’ names and dates of birth into a global airline reservation system, leaking over 1,000 pieces of information related to famous artists like BTS. This data was traded at prices ranging from 1,000 won to 20,000 won per piece, generating profits of over 10 million won. Some well-known home masters earn annual incomes exceeding 100 million won, often selling products they produce themselves without registering as business owners or filing tax returns. Tax experts note that “repeated sales activities are subject to value-added tax and income tax, and business registration is required once a certain scale is reached.” The merch sold by home masters involves complex legal issues such as copyright, portrait rights, and right of publicity. Using images taken without the artist’s consent for commercial purposes or selling them can result in civil lawsuits for infringement of portrait rights. While major agencies like HYBE and SM Entertainment have established dedicated teams to consider legal action, home masters frequently change their accounts, move between platforms such as Telegram, Twitter, and Instagram, log in using foreign IPs, or use anonymous open chat groups, making effective enforcement difficult.