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Friday, June 2, 2023

K-Pop Giant HYBE’s SM Entertainment Battle Is Similar to ‘Succession’ – Billboard

SEOUL — The fierce battle for control of legendary K-pop agency SM Entertainment is as public as an HBO episode succession. HYBE, the largest K-Pop agency – the home of boy bands BTS – In stark contrast to the management of SM, which has been the dominant K-pop company in Korea for many years.But as SM’s Li Xiuman Side with HYBE against the company he founded, and a corporate reorganization turns into a battle royale.

SM is trying to maintain its independence by partnering with Kakao, a South Korean internet giant that has acquired several entertainment agencies. In February, Kakao said it would buy a 9.05% stake in SM, against the wishes of SM’s charismatic founder, rocker-turned-tycoon Lee, whose stake in SM enabled him to challenge the acquisition in court.

About a week later, Lee — a controversial figure who has helped build the K-pop business for the past 30 years but has past convictions for embezzlement — approached the HYBE founder and chairman privately Bang Shi HyukHe offered to sell about 80 percent of his SM stake to HYBE, with an option to sell the remainder at a later date, according to a person with direct knowledge of the matter. As a result, HYBE now holds a 15.8% stake in SM, becoming the company’s largest shareholder.

Since then, the companies have traded almost every day.

After a temporary injunction on March 3 upheld Lee’s court challenge to the Kakao acquisition, Kakao announced it has been canceled its investment in SM and Initiated a tender offer Seeking to buy a 35% stake in SM from minority shareholders. HYBE is now calling on SM shareholders to support its board nominees and company vision. SM sees the move as a hostile takeover, asking shareholders Appointment of independent directors. The Annual General Meeting of Shareholders on March 31 will be held soon.

Both HYBE and SM have ambitions to expand K-pop and compete with major labels globally.From 2020 to 2022, HYBE’s revenue increased by 125% to KRW 1.78 billion (USD 1.41 billion), mainly due to Acquisition of Ithaca Holdings Offered to its founders for $1.05 billion in 2021, scooter brown, controls its US business HYBE America. February, HYBE USA achieved the first In a major move, it acquired Atlanta-based hip-hop label Quality Control Music for $300 million.

SM hopes to more than double its 2022 revenue from 850 billion won ($644 million) to 1.8 trillion won ($1.36 billion) by 2025 through a combination of partnerships and acquisitions, including the acquisition of a U.S. management company , and by the second half of 2024, launch its first American artist. “Our program is not limited to local events by Korean artists,” says Co-CEO Nuo handsome Said in the February 23 video.

It plans to spend 350 billion won ($266 million) on a music publishing company and 300 billion won ($228 million) on record labels, with two-thirds ($152 million) aiming to “have a solid local Network” American companies can support the global expansion of Korean artists and have global production capabilities in genres that are complementary to SM,” Lee Sung SooSM Chief Creative Officer and Co-CEO said in the same video.

But minus its powerful founder, SM has no plans to take to the world stage with the help of HYBE. It had envisioned Kakao as its preferred partner for a mission dubbed “SM 3.0,” and said it would still press ahead to expand beyond South Korea and establish outposts in Japan, Southeast Asia and the Americas.

HYBE’s acquisition of a controlling stake in SM could face regulatory scrutiny from the Korea Fair Trade Commission as it exceeds the 15% stake in SM. In 2022, HYBE is 26.8 percent behind South Korea’s album sales, while SM is 19.1 percent behind, according to Korean chart company Circle Chart.

With Lee’s reign, SM’s luster is fading

While few expected such a dramatic disintegration, SM’s transformation was long overdue. Once a leading K-pop innovator, SM has just released a brand new act, Esper, in the past five years. It continues to operate through a single channel, with Lee at the helm of artist management and production, while rivals such as HYBE and JYP Entertainment have diversified their portfolios, relying on multiple teams to produce more titles in a more independent fashion.

Industry watchers say SM’s stock has long been undervalued because the company pays a production fee to a separate entity owned by Lee. SM paid Lee Jae-yong 24 billion won ($18.1 million) in 2021, equivalent to more than a quarter of SM’s operating profit for the year. Even in the years when SM was losing money, Lee earned a decent salary.

The board, packed with Lee allies, allowed the practice to continue for years until last year when private equity firm Align Partners Capital Management sparked a shareholder revolt. Lee, who now owns about 3 percent of SM, appears to be leaving. HYBE and SM stated that his role will be reduced, if not completely eliminated.

“It’s hard to resist Korean culture,” Lee Chang Hwan, CEO of Align Partners, spoke about the difficulty of staying above the founders and the company’s largest shareholder. “Governance structures must undergo fundamental changes.”

South Korean stocks tend to be undervalued, analysts say, as some companies appear to be managed for the benefit of founders and families at the expense of ordinary shareholders. Still, in the HYBE-SM power struggle, SM shareholders appear to be winning either way: at a share price of 149,700 won ($113.84) on March 7, the stock price has been up since SM announced it would end its relationship with Lee on October 14. Up more than 116% since the contract.

K-Pop pioneer with a criminal record

Lee, 70, who founded SM in 1995, is credited with making K-pop what it is today.Inspired by early MTV music videos and new kid on the blockwhich he saw while studying for his master’s degree in California in the 1980s, paved the way for K-pop to win fans overseas with his visually stunning performances and signature dance-pop formula.

Lee crafted pythonDiscovered by SM scouts in 1998, the female singer became the first K-pop artist to break through in the Japanese market; she went on to sell millions of singles and albums.groups from TVXQ and Girls’ Generation arrive EXO and NCT Followed by international stars. In 2000, SM became the first publicly listed K-pop agency.

even before schizophrenia While BTS became a global household name, Lee was speaking publicly about K-pop conquering the world — and the future of non-Korean singers entering the fray and being trained and managed by K-pop production teams.

However, Lee’s artistic vision and drive did not make up for the company’s corporate governance issues. Shareholders have blasted SM for losses in non-music businesses such as wineries and restaurants in recent years, while Lee is still collecting fees from producers. Some SM acts have seen members leave violently over what they call harsh training and “slave contracts,” leading to government intervention, including shortening the contracts of K-pop trainees and stars.

Lee made headlines in 2002 when he fled the country to avoid prosecution for facing corruption charges. After a brief stint on Interpol’s most wanted list, he surrendered to South Korean authorities and was convicted of misappropriating 1.15 billion won ($892,000 at the time) of company funds during a round of recapitalization, which he used to buy SM’s stock. (He served three years of probation, received a presidential pardon in 2007 — and returned to the company.) SM has also paid fines for tax evasion, most recently in 2021.

In recent weeks, Lee Sung SooThe co-CEO, who is also the nephew of founder Lee’s late wife, has filed a series of charges against his uncle, ranging from previously undisclosed tax evasion through a Hong Kong-based shell company, to allegations against SM band. Musicals make “arbitrary” changes to advance the direction of their own commercial interests.

While Li did not directly respond to the allegations, HYBE responded that it was not aware of such an arrangement during the signing of the deal.in the statement billboardHYBE said its acquisition of SM was “followed by a study of the company’s fundamentals, including publicly disclosed information about SM.”

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