What is going on with the battle for K-pop juggernaut SM Entertainment?

In recent weeks, the biggest topic in the world of K-pop has undoubtedly been, yes, a series of high-profile releases, including high-profile ones from the likes of BTS (Jimin and J-hope), EXO (Kai), and a forthcoming aespa album (more on that later).

But the biggest story, by far, is the battle for SM Entertainment.

There are a few pieces I’ve seen that go into the business dealings, interpersonal drama, spoken with parties, and/or have discussed the entertainment industry issues that led us to here, but nothing that’s really given a broad overview.

Having started covering this story years ago (see below) without really realizing exactly how complex it would get, I feel like it’s time to do a fairly straightforward timeline of some of the biggest moments. This isn’t an intensely reported piece, and I’m definitely missing out on some things because I want to keep this rather brief and to the point, but I just feel like this Note on K-pop can help bring some clarity to people about how we got here and where we may go.

Disclaimer: This is an all over the place rundown, coming from my stream of consciousness late at night. Please refer to other outlets for more details, and interviews with the parties at hand to get more than just a brief overview of the perspectives that I’m doing my best to relay here.

Who are the players? If you’re just tuning in: SM Entertainment, home to many popular K-pop acts and considered to be the first K-pop company, is currently embattled between several parties in several different forums: SM’s executives  announced in early February plans for the SM 3.0 rendition of the company, which reportedly severed ties without warning with founder Lee Soo-man.

Once the news broke internally at SM, talent, employees, and executives reportedly took sides, with some saying the company needed a new direction separate from Lee, who they felt was holding the company back, while others felt Lee is still integral to the SM brand.

A whole slew of mud slinging back and forth publicly to the press and on Blind (think South Korea’s glassdoor+linkedin but anonymous). Co-ceo Chris Lee released several videos sharing several allegations against Lee Soo-man, including a company in Hong Kong through which he was allegedly evading taxes, and plans by the founder to force an environmentalist narrative onto SM artist lyrics, partially to help his own real estate ambitions. This allegedly led to aespa’s upcoming album being pushed back from February, since the members were upset by planned lyrics (it’s now planned to come out in April). There was also something about marijuana-legalized K-pop casinos.

Following his first two videos, there was some backlash publicly towards Chris Lee, Lee Soo-man’s nephew by marriage, and he ended up later stating that he’ll step down as co-CEO at a shareholder meeting in March, but he still hopes to be part of the music creation team at SM moving forward. Afterwards, there were more videos from SM’s executives, all through the company’s formal YouTube channel rather than Chris Lee’s personal one. In them, they shared public plans for the company and their deal with Kakao Entertainment.

What deal, you might be asking?

After SM 3.0 was announced and the rumors began circulating about Lee Soo-man being caught unawares, SM’s executives announced a deal with Kakao Entertainment, the entertainment subsidiary of tech giant Kakao. Kakao would purchase enough shares to become the company’s second-largest shareholder, second only to Lee Soo-man.

Lee Soo-man then countered, with his legal team filing for an injunction of that deal. Then he made his own deal, selling his shares to Hybe Corp., best known as the home of BTS, but also a rising giant not only in South Korea’s entertainment industry but also in the global entertainment and fandom tech worlds. Hybe also announced plans to acquire an additional portion of SM’s shares from investors, planning to acquire a total of 40% of SM. All hell broke loose, as you can imagine, as Hybe only a few years ago was a small company known as Big Hit Entertainment, while SM Entertainment has been a giant in the field for decades.

What is the big deal?

As the month progressed, SM and Hybe’s executives and PR teams battled things out, with SM execs calling the Hybe move a hostile merger and acquisition (aka a hostile takeover) that would ruin SM, and Hybe expressing why that wasn’t the case and claiming SM would still have creative control, and their investment would benefit SM artists and shareholders.

On February 22, the first hearing was held for Lee Soo-man’s requested injunction of the SM-Kakao deal (his side claims it was illegally done without his notice as the then-largest shareholder of SM). No ruling was made, but more details of the Kakao-SM deal came out, including things like plans for Kakao to exclusively buy more shares, distribute SM’s content, and plans for a joint venture between Kakao and the US.

Hybe, accordingly, said this is a problem, declaring that this undermines shareholder interest and the deal will make Kakao acquiring SM even more of a possibility. The company is reportedly contemplating but, as of writing, hasn’t yet taken any legal action.

Amid all this, SM’s executives offered  clarity about their plans, both with the 3.0 agenda and Kakao partnership. There’s a lot there, so go watch the video on YouTube if you’re interested. The biggest news for most fans was the end of NCT’s unlimited expansion, with NCT Tokyo’s planned debut in 2023 the last new NCT team as per SM’s co-CEOs.

Beyond the business practicalities, SM executives have claimed to be unaware of Lee Soo-man’s extravagant, allegedly illegal, dealings, which they say Hybe is disregarding. While Hybe has countered that they benefited from everything and are only sharing details now to hurt the Hybe-Lee Soo-man deal. Hybe executives have allegedly said that SM’s 3.0 plan and deal with Kakao are old hat for Hybe, and only a deal with Hybe will take SM in a progressive slant.

SM and shareholders have also expressed upset at Hybe’s tender offer for the shares, but Hybe says it won’t increase its offer before it closes at the end of February. SM and its partner want Hybe to pay more, saying the company is worth more than what Hybe has offered to pay per share.

How did we get here?

We should be blaming the finance bros and financial greed here, to be honest. I’m mostly joking, but there’s a lot of good memes going around about Succession coming to an end so the SM HBO drama can rise and like… yea, that’s how it feels to be honest.

This whole situation comes about because of demands for profitability from a company - SM- that investors, and competitors, feel should be more profitable. K-pop firms have always been driven to create art that produces profit (a frequent fan complaint is that companies feel fans are “ATMs”), but in recent years investors have become incredibly more vocal, and things have become more dramatically, publicly, financially-skewed.

Anyway… Back in July 2019, a time that feels like it was aeons ago, I wrote a piece for Forbes about SM Entertainment reorganizing its leadership after shareholder complaints. Nowadays, the current co-CEOs of SM are Chris Lee Sung-soo and Tak Young-jun, but neither of them were appointed in that period (that came in early 2020). Rather, a different series of executives were put into positions of power at SM and various subsidiaries.

The changes came about because shareholders were upset, particularly by Lee Soo-man’s company, Like Planning, being used as an outside consultancy and being paid heavily despite Lee’s position at SM being intangible at best. The deal with Lee, who has traditionally been the executive producer of SM albums, was seen as too heavy handed, when production could be done for cheaper either internally or with other outside support.

Not much actually ended up changing immediately beyond the internal executive changes, but this is the first time I remember writing about this saga. I may have written more pieces before, but this Forbes piece is the one I kept thinking of in recent months as Align’s concerns led to 2022’s developments, is it gave a big example, years ago, of how SM was responding to shareholder concerns.  Things continued, with shareholders calling for changes - and the issuance of dividends- ever since.

Begun in 2021, Align Partners, a new activist firm, took up the mantel intensely moving forward, leading to 2022 ending with SM declaring that Lee Soo-man’s Like Planning contract was going to be terminated and SM planning to reorganize its executive board to make a better situation for investors.

That same year, Lee Soo-man was looking to sell his shares.

SM has been public for decades now, since 2000, but investors have only recently really taken umbrage with everything that’s been going on as Hybe and other companies in the region, including JYP Entertainment, have proven to be more lucrative as K-pop is bigger than ever on the global stage.

Since 2021, following all the shareholder consternation and the company lagging to competitors, there had been many reports that SM was looking for a partner company to acquire it, so all of this is kinda what the company reportedly had been thinking about anyway, just happening in the most dramatic way.

Shareholders are the main motivators here for everything, and both SM and Hybe’s public statements have emphasized that their vision is not only best for artist and fans, but also best for investors.

Less dramatically, CJ ENM (home to Mnet) has also stepped out of the whole situation, publicly declaring it is not going to invest or acquire SM.

Throughout it all, SM and Hybe are doing pretty well stocks-wise, but Kakao is dipping. Here’s a quick little video behind Bloomberg explaining pretty much everything I just rambled on about throughout this newsletter.

What’s next?

Only heaven knows, really…

This has been a really chaotic month for anyone following, let alone reporting, on all these deals. I’ve heard from other business and entertainment reporters, both in Korea and outside of it, that nobody really is able to keep up with the pace of anything, and by the time one thing is getting coverage, another element breaks. To be honest, I’ve read a lot of coverage that misses the mark, which just emphasizes how big and overwhelming the nuances of this story is. I decided to try by, though I assume some podcast creators and/or documentrians are already brainstorming and you’ll all skim this while staying tune to watch/listen to those in a year or two.

As for what’s to come… In March, we’ll likely see whether both the Hybe and/or Kakao deals will go through, and we’ll see where that brings SM. The Kakao/Hybe deal is set to close on March 6, if it goes through depending on if the injunction is upheld or not, while Hybe’s offer is set to close at the end of February.

There are also concerns that both of the deals may lead to regulators cracking down on either Hybe or Kakao for monopolizing the industry, so lots of staying tuned!

SM’s executives are aligned with Kakao most thoroughly, so if Hybe does take over as majority shareholder, it will probably get a bit dramatic when the new board of SM is determined at a shareholder meeting on March 31.

TLDR: SM executives are trying to grow the company into a new direction, ostensibly with the support of Kakao. SM exec’s kicked out Lee Soo-man, and he turned to Hybe to sell his majority of shares, which many feel will lead to Hybe acquiring SM. Right now, both Hybe and Kakao are investing heavily only, but there’s a lot at stake and drama is ensuing, since they’re all media giants and when giants fight the whole world shakes. We’ll see where the industry settles when this earthquaking-brawling comes to a conclusion.

So stay tuned! Because that’s what I’ll be doing. Someone asked me on TikTok who I thought should win, and, honestly, I don’t really care.  I’m both a libra and a journalist, and I honestly, unless someone is being harmed, I find it easy to see all the sides of most situations. I am concerned about the state of the Korean entertainment industry, though, because I’ve seen what happens when investors gut a media front and I don’t think it benefits anyone except those making money directly off it.

At the moment, what I’m hoping for is simply some stabilizing behind-the-scenes. Not sure the route that will get us there, but right now it’s too all over the place to even hope for anything that will ever look like the K-pop industry as we knew it even last month. I just want to see artists and fans happy, and good music. While this has all been going on, SM (and Hybe also) have still been steadily releasing music, so at least on that front I’m a tiny bit satisfied.

Update: Since I wrote the first draft of this, about 12 hours ago, Kakao Ent released its first public statement, and now Kakao, the tech giant not just the entertainment subsidiary, is going to get formally involved.

Reports have also come out that Align was aiming to have its own hostile takeover of SM last year.

Other reports have also circulated that artists like SHINee, EXO, and Red Velvet, who all are nearing contract renewals, are talking to other companies if SM does get acquired, or fall under the management of, Hybe, when senior acts may do better under smaller, more personalized firms.

Really, I wish I had been taking notes daily, but I wasn’t and so I’m just summarizing here. Please let me know if you have any questions or want any clarification in the comments.

Happy Monday, everyone! Same time next week?

Check me out on TikTok! Now known as @tamartoks, I’m figuring out how to use the platform finally. Prior to writing this newsletter, I started out with a few explainers about what’s going on between SM Entertainment and Hybe lately. I hope they help provide some clarity for people confused about everything, though please note that I’m linking the oldest one here so it’s a bit out of date. But it was my first TikTok, and I’m proud of it! Although now that I’ve done a few more of these, I’m looking the editing could be better… Anyhow…Please check it out, along with the other videos.

@tamartoksHere’s what you need to know about the big #kpop business news this week. #sm #smentertainment #leesooman #HYBE #kakao #journalist #businessnews #firstvideo

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What I’ve been working on

Korean Celebrity Fashion Trends To Fall In Love With This Valentine’s Day for Harper’s Bazaar Singapore - This fun piece was commissioned by the amazing, and extremely fashionable, Gloria Tso, who I became friends with while living in Hong Kong. She has since moved to Singapore and now is an editor at HBS. She’s been doing a lot of cool stuff, including this Vday fashion inspired piece.

Meet NewJeans, the Girl Group Bringing Retro Vibes to K-Pop, and Sprinting Up the Charts for Variety - It feels like everyone everywhere is talking about NewJeans, so it felt important to make a quick explainer for Variety about why you have to be paying attention to them.  Now is the time to learn all about them, and how they’re taking over the industry.

Some reading

Eleanor Hall’s newsletter is a must-read generally, but the latest edition talks about how there’s so much exploitation in the music business. It’s something I’ve been thinking about a lot lately, so feels like a good thing to link to.

Monia Ali’s newsletter is another one I enjoy, and the latest edition discussed, and visualized, the spectrum of fans and how they interact with artist brands in the industry at large.

I’m also reading two books that may be of interest, Idol Burning by Rin Usami and Y/N by Esther Yi.

A little bit of housekeeping…

A few people recently asked if they could pledge money in support of the newsletter and my other recent work (along with TikTok I’ve been hosting a lot of Twitter spaces to discuss the issues!) While I always am extremely thankful for all support, financial support is not needed but if you’d like to pay for a cup of coffee via venmo, I’m tamar-herman.

I also recently launched a paid-for tier of this newsletter. I haven’t written any pay-only editions yet, but will be hopefully revisiting earlier stories and interviews of mine for the mid-tier option, sharing some insight into behind-the-scenes and the process. If you really want to support further,  you can pledge for the higher tier, and get to pick a topic (my discretion allowing) that I’ll discuss in this newsletter one week.

That’s it. Quite a lot, to be honest! I hope you took something away from this, and are feeling a bit less confused than I am at the moment. Have a good day, night, week, month, year everyone!