Reverse Charting and Singer Reputation Value Changes... 'Securities' Claim Raised
Musicow "Legal Review Completed... Investor Protection Measures Also Prepared"
[Asia Economy Reporter Seungjin Lee] The financial supervisory authorities plan to announce next month whether the business model of ‘Musicow,’ the country’s largest music copyright investment platform with a cumulative membership of 1 million and transaction volume approaching 340 billion KRW, constitutes securities trading.
Conclusion on Musicow Controversy Next Month
On the 16th, a member of the Securities Review Committee stated, "Deliberations on whether Musicow’s transactions qualify as securities trading are still ongoing," adding, "A conclusion is expected to be reached within April." The Securities Review Committee, composed of the Financial Services Commission, Financial Supervisory Service, and experts, has begun examining whether Musicow’s copyright royalty participation claims (the right to claim copyright income) fall under securities trading.
Musicow’s main business model involves selling copyright royalty participation claims, which are rights to receive copyright income, divided and sold to customers. Musicow holds the music copyrights of singers and sells them in portions. Although this resembles securities trading, it is not classified as a financial investment product under the Capital Markets Act, so there are no related regulations. Consequently, there have been calls to classify copyright royalty participation claims as ‘securities’ to protect investors.
The key issue is whether the efforts of the investment promoter or a third party influence the change in value. In the case of cryptocurrencies, value changes occur by chance after acquisition, so they are not considered securities. For copyright royalties, value fluctuates due to factors such as increased consumption from a song’s resurgence, the singer’s reputation, and various events. The financial authorities hold the position that these can be regarded as ‘investment contract securities,’ a type of security under the Capital Markets Act.
Investor Protection Measures Also at Issue
There is also the obligation to implement investor protection measures. Musicow is classified as an electronic commerce and telemarketing business operator and thus has no obligation to provide investor protection measures for investment products. If classified as securities, it would need to establish investor protection measures through information disclosure.
Musicow stated that it has completed all prior legal reviews and is doing its best to protect investors. A Musicow representative explained, "Before launching the service, we conducted legal reviews and were classified as an ‘electronic commerce and telemarketing’ business operator under the relevant law," adding, "In case the company goes bankrupt and copyright royalty payments become difficult, the copyright trustee jointly fulfills this obligation, thus providing investor protection measures."
If the financial authorities do not judge copyright royalty participation claims as securities trading, there is a high possibility that Musicow will be designated as an ‘Innovative Financial Service (Regulatory Sandbox).’ Musicow applied for innovative financial designation in March last year.
Investors ‘Restless’ Amid Controversy
As the financial authorities’ deliberations deepen, the damage to Musicow investors continues to grow. User Yang said, "My investment of about 2.6 million KRW has now dropped to 1 million KRW," explaining, "People willing to buy the copyrights I purchased are offering prices lower than the initial purchase price, and there are so few buyers that even if I want to sell, I cannot."
The Musicow Copyright Price Index (MCPI) currently stands at around 208. Considering that this index was 383.5 at the end of August last year, copyright prices have halved with about a 45% drop over seven months. A Musicow representative said, "We are carefully preparing contingency plans based on the securities determination results and are doing our best to maintain close cooperation with the supervisory authorities."
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