A war between South Korea’s two biggest music companies, played out over corporate documents, lawsuits and YouTube videos, could determine control of the huge global K-pop market.
The battle between HYBE, home to global superstars BTS, and South Korean agency SM Entertainment is a tough one, but allegations of secret offshore tax havens and hostile stock takeovers have been stunning K-pop fans for weeks. The turmoil has taken hold of some of K-pop’s biggest artists and could go far beyond the genre.
So who are these companies?
HYBE is an entertainment company that controls approximately 52% of South Korea’s pop market thanks to BTS and other popular K-pop artists such as Tomorrow X Together and Seventeen. In 2021, the company then known as Big Hit Entertainment was renamed HYBE and partnered with American music manager Scooter Braun who sold HYBE recently acquired Quality Control, the Atlanta-based hip-hop label and management firm behind Migos, Lil Yachty, Lil Baby and City Girls, with Brown as the company’s U.S. chief executive, Ithaca Holdings for $1.05 billion. . (Brown, remember, bought and then sold Taylor Swift’s master recordings against Swift’s wishes; she is now re-recording and re-releasing her first six albums.)
SM Entertainment is one of the largest and most influential talent agencies and record labels in South Korea, valued at approximately $4 billion. SM first rose to global prominence in the 2000s with groups such as Girls’ Generation, SHINee, EXO, and Super Junior, and currently manages the best-selling NCT, Super M, and Aespa.
How did the feud between HYBE and SM Entertainment start?
Earlier this month, HYBE bought a 14.8% stake in SM Entertainment and became its largest shareholder. HYBE plans to buy up to 40% of the company at an estimated price of just over a trillion South Korean won, roughly $900 million.
Why does this cause such horror in K-pop?
Jang Chul Hyuk, SM’s chief financial officer, posted a video over the weekend explaining how HYBE’s growing stake (and possible takeover) by SM will lead to monopoly power in K-pop.
According to Jang Chul Hyuk, if HYBE controlled SM completely, they would own two-thirds of the South Korean pop music market. (Fortune reported that BTS alone, who are currently on hiatus while the members complete their mandatory military service, accounts for about 0.2% of South Korea’s total GDP.) “This is clearly a hostile takeover attempt,” Jang Chul-hyuk said, adding : “The acquisition of HYBE by SM will undermine fair competition.” He also cryptically alluded to “SM’s wrong past for a certain shareholder” that we tried so hard to get rid of.”
Who and what is he talking about?
SM Entertainment founder Lee Soo-man left the company in October. After SM ended their deal with Lee’s production company, HYBE bought shares in SM Entertainment from him.
Why did Lee Soo Man break up with SM?
It depends who you ask. In September, Lee Soo-man announced that he was leaving the company, citing internal pressure from other shareholders and a long-standing desire to reduce his production duties.
However, current SM Entertainment CEO Lee Sung-soo (nephew of Lee Soo-man’s late wife) posted a video last week accusing Lee Soo-man of using his personal business interests in Hong Kong-based CT Planning. Limited. this may have allowed him to avoid paying South Korean taxes.
The financial charges are complex, but Lee Sung-soo said that he believed Lee Soo-man forced SM to sign a consulting service contract in which SM artists signed overseas contracts with Lee Soo-man’s own firm and he received 6%- new discount. from SM album sales for 70 years and 3% of management fees until 2026.
Feb. On January 17, a group of 208 employees from SM Entertainment signed a letter stating that they “were completely used in the illegal activities of former chief producer Lee Soo-man, including fraudulent activities for his personal interests and tax evasion. We cannot be used again by the illegality and expediency of HYBE.”
Did HYBE influence this drama?
HYBE said in a public statement that SM Entertainment created all these problems themselves and HYBE is going to solve them. Issues of tax evasion and underhand dealings “reveal problems with SM’s corporate governance, and unfortunately, all of these problems originated within SM.”
It sounds like K-pop Legacy season.
That’s for sure! There are some stranger allegations as well, including that Lee Soo-Man forced K-pop group Aespa to include environmental messages in their music, leading to lengthy delays with the group’s new project.
Are concerns about monopoly real or exaggerated?
SM’s Jang Chul Hyuk believes that HYBE is using its dominant position to drive up concert ticket prices, marginalize SM’s own artists, and generally subordinate K-pop to its corporate agenda. “The monopoly created by HYBE SM’s hostile takeover will cause more diverse and direct problems, including a reduction in the diversity of artists, music and concerts.”
Feb. On January 21, HYBE CEO Jiwon Park replied to public letter acknowledging the confusion.
“I would like to express my regret, in particular to the SM artists who may have been concerned about this turn of events… This is an era of change for both companies.”
Is the South Korean government looking at this?
Yes. Im Kyung-hwan of the Korea Fair Trade Commission told Reuters, “When an M&A happens, we look at… management, record sales, streaming, tours and merchandise. We are looking to see if they can dominate the market to radically change the price and quality of their services in the market.”
However, the South Korean government has never faced such a big and messy merger in the music industry. “A deal of this magnitude is a first for us,” admitted Im Kyung Hwan.