The struggle between Ok-pop corporations HYBE and SM, defined

A battle between two of South Korea’s largest music corporations, taking part in out over company filings, lawsuits and YouTube movies, may decide management of the large world Ok-pop market.

The battle between HYBE, dwelling to world superstars BTS, and the South Korean company SM Entertainment is sophisticated, however the allegations of clandestine offshore tax havens and hostile inventory takeovers have transfixed Ok-pop followers for weeks. The tumult has roped in a number of the largest acts in Ok-pop, and will spill over nicely past that style.

So, who’re these corporations?
HYBE is an leisure agency that controls roughly 52% of the South Korean pop market, because of BTS and different common Ok-pop acts like Tomorrow X Together and Seventeen. In 2021, the corporate, then often called Big Hit Entertainment, rebranded as HYBE and partnered with the American music supervisor Scooter Braun, who offered his Ithaca Holdings firm to the South Korean company for $1.05 billion. With Braun as the corporate’s U.S. chief government, HYBE lately acquired Quality Control, the Atlanta hip-hop label and administration agency behind Migos, Lil Yachty, Lil Baby and City Girls. (Braun, as you might recall, bought, then flipped, the grasp recordings of Taylor Swift towards Swift’s needs; she is now within the midst of rerecording and rereleasing her first six albums.)

SM Entertainment is without doubt one of the largest and most influential expertise businesses and report labels in South Korea, valued at round $4 billion. SM first got here to world prominence with 2000s-era teams like Girls Generation, SHINee, EXO and Super Junior, and at present manages bestselling acts NCT, Super M and Aespa.

How did the feud between HYBE and SM Entertainment begin?
Earlier this month, HYBE purchased a 14.8% share in SM Entertainment and have become its largest single shareholder. HYBE plans to purchase as much as 40% of the corporate — at an estimated worth of simply over a trillion South Korean received, roughly $900 million.

Why is that this inflicting a lot consternation in Ok-pop?
Jang Cheol Hyuk, the chief monetary officer of SM, revealed a video final weekend explaining how HYBE’s rising stake (and potential takeover) of SM would result in monopoly energy in Ok-pop.

According to Jang Cheol Hyuk, if HYBE totally managed SM, they might personal two-thirds of the South Korean pop music market. (Fortune reported that BTS, which is at present on hiatus whereas members carry out their necessary navy service, alone accounts for round 0.2% of South Korea’s total GDP.) “This is clearly a hostile takeover attempt,” Jang Cheol Hyuk mentioned, including that “HYBE’s acquisition of SM will undermine fair competition.” He additionally cryptically alluded to a “wrong past of ‘SM for a certain shareholder’ which we have been trying so hard to break free from.”

Who and what’s he speaking about?
SM Entertainment’s founder, Lee Soo-Man, who left the corporate in October. After SM ended its take care of Lee’s manufacturing firm, HYBE purchased its SM Entertainment shares from him.

Why did Lee Soo-Man break up with SM within the first place?
Depends on who you ask. In September, Lee Soo-Man introduced that he would step again from the corporate, citing inside pressures from different shareholders and a long-standing need to dial down his manufacturing duties.

Yet SM Entertainment’s present CEO, Lee Sung-Soo (the nephew of Lee Soo-Man’s late spouse), posted a video final week accusing Lee Soo-Man of maneuvering his private enterprise pursuits right into a Hong Kong-based firm, CT Planning Limited, that would permit him to keep away from paying South Korean taxes.

The monetary allegations are sophisticated, however Lee Sung-Soo mentioned he believed that Lee Soo-Man muscled SM into signing sweetheart consulting offers, whereby SM’s artists would signal abroad offers with Lee Soo-Man’s personal agency, and he would take a 6% minimize of SM’s album gross sales for 70 years and three% of administration charges till 2026.

On Feb. 17, a bunch of 208 SM Entertainment workers signed a letter saying they “have been completely used in former chief producer Lee Soo Man’s illegal acts including fraudulent actions for his personal interests and tax evasion. We cannot be used by HYBE’s illegality and expediency again.”

Did HYBE weigh in on this drama?
In a public assertion, HYBE mentioned SM Entertainment created all these issues themselves, and HYBE is coming in to unravel them. Questions of tax evasion and backroom dealmaking “are all revealing problems with SM’s corporate governance, and unfortunately, all of these problems occurred internally at SM.”

This seems like a Ok-pop season of “Succession.”
It certain does! There are some stranger allegations too — together with that Lee Soo-Man pressured the Ok-Pop group Aespa to include pro-environmental messages into their music, resulting in lengthy delays in a brand new venture from the group.

Are the issues a couple of monopoly actual or overblown?
SM’s Jang Cheol Hyuk believes that HYBE is utilizing its dominant place to jack up live performance ticket costs, sideline SM’s personal artists and usually bend Ok-pop to its personal company targets. “The monopoly created as a result of HYBE’s hostile acquisition of SM will cause more diverse and direct problems, including decreased diversity of artists, music and concerts.”

On Feb. 21, HYBE’s CEO Jiwon Park responded in a public letter acknowledging the tumult.

“I would like to express my regret to SM artists in particular, who may have been troubled by the turn of events…This is an era of change for both companies.”

Is the South Korean authorities this?
Yes. Im Kyeong-hwan of the Korea Fair Trade Commission informed Reuters, “When a merger and acquisition takes place, we look at… management, record sales, streaming, tours and merchandise. We look at whether they could gain market dominance to make sweeping changes in the prices and quality of their services in the market.”

However, South Korea’s authorities has by no means handled a merger this huge and this messy within the music business. “A deal on this scale is a first for us,” Im Kyeong-hwan acknowledged.