Online Music Service and Recording Company Play the Song of “Mutual Benefit”

Management Control is in the Hands of the Recording Company-

After the incumbent president, Park resigns from his post, Kim Gyoung-nam, senior advisor of the Korean Association of Phonogram Producers and a senior figure in the music industry, is expected to take over management of Bugs Co., an online music service company. Kim will assume the responsibilities of settling the internal problems of the industry, including distributing stakes in each music companies, and the existing legal problems associated with Bugs.

Park, who owns 57 percent of Bugs, will remain as the largest individual shareholder of the company as he will keep 22.8 percent of the stake even after handing over management control.

Doremi, a company which participated in the agreement, said, “We had a sense of emergency that Bugs and the music industry could collapse together if the current situation continued,” adding, “We will try to normalize the management of Bugs from now on and provide quality online music services with the music industry taking the lead.”

Background of the Agreement-

Bugs has been engaging in negotiations to find a way to co-exist with the music industry. However, as the copyright issue was not yet settled, the company faced disruption in providing users with newly released songs on its website. This decreased the number of users, which, in turn, led to an increasing crisis in management, and the company presented a solution in which it handed over management control to the other party in the dispute.

According to, Rankey.com, an Internet ranking survey company, Bugs had been clearly ahead of other online music service companies, but was recently threatened by the rapid growth of “Melon” and “Music on,” music websites of SK Telecom and LG Telecom, respectively.

The music industry was also concerned that the rapidly growing telecom companies would dominate the market while it is preoccupied with Bugs and the litigation.

What Will Happen?-

The agreement is expected to bring about a big change in the free online music services market. The music industry recently started to sell music online by creating their own online music sites, but they are likely to use Bugs in teaming up against the music services of telecom companies or Internet portals.

Some major record companies, including Yedang Entertainment Company and Doremi, currently reached an agreement. It is predicted that other record companies which have yet to reach a consensus are likely to cooperate with Bugs, as the company’s management control and a large share of its stake is in the hands of the music industry.

Sang-Hoon Kim sanhkim@donga.com smhong@donga.com