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K-Pop and Korean Talent Industry Poised for Shakeup via SM Entertainment Stake Sale

Rebecca Souw
·4-min read

A few months back Lee Soo-man appeared on stage at the 2021 World Cultural Industry Forum and boasted of his formative role in the Korean pop industry. “K-pop started with SM Entertainment,” he declared. But already the K-pop firmament is getting ready for a new king.

SM Entertainment has formally put a 20% stake up for sale, including Lee’s own 18% holding. Major conglomerates are getting ready to take up the mantle, with the aim of propelling themselves and K-pop further onto the world stage.

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Lee and his SM Entertainment were indeed early pioneers with first-generation K-pop acts including H.O.T., TVXQ, BoA and Girls’ Generation. With rival agencies YG Entertainment and JYP Entertainment, K-pop emerged in the late 1990s and enjoyed export success in Japan.

After enduring crisis conditions in the early 2000s, the industry embraced YouTube, enjoyed wider international success, and settled into a familiar pattern of three-way dominance by the agencies that arduously groomed, tightly controlled and were closely identified with their creations. YG enjoyed success with Big Bang and 2NE1. JYP triumphed with Wonder Girls and 2PM.

With the emergence of BTS in 2016, the three fiefdoms became four. The band’s global success transformed the fortunes of former JYP executive Bang Si-hyuk and his Big Hit Entertainment (recently renamed Hybe Corp.) that had toiled in relative obscurity since 2008.

Hybe has already utilized its BTS-powered momentum to acquire smaller music labels, build its own Weverse digital platform for fans (and monetization), and conduct an insanely popular IPO in late 2020.

The company then went a step further than any Korean artist management firm and took a huge leap overseas, buying Scooter Braun’s Ithaca Holdings for $1 billion. That brings English-language stars Ariana Grande, Justin Bieber and Demi Lovato into its universe, while also further expanding opportunities for its Korean acts such as Seventeen and Nu’est.

Hybe also bolstered its digital capabilities by attracting a $363 million investment from Korean internet giant Naver into its beNX digital development unit. It cemented a partnership with Universal Music. And, in a further sign of the changing times, Hybe also struck a cooperation deal with YG Plus (formerly Phoenix Holdings), a music distributor and talent agency under YG Entertainment.

Like Hybe, SM Entertainment has also tried to evolve. And in doing so may have pulled ahead of YG and JYP.

SM Entertainment has leaned into TV originals, collaborated with MGM and Mark Burnett for “K-Pop Goes Hollywood,” established SM Studios and revealed plans to create more AR and VR-integrated content. Its Dear u Bubble, a direct fan-to-artist messaging app, available on subscription and boasting more than 150 artists, including some from JYP, is a direct competitor to Hybe’s Weverse.

These make SM Entertainment an attractive conquest for a wealthy new entrant into the inner circle of the K-pop realm.

Korean media, supposedly citing finance industry sources, have identified Korea’s other internet giant Kakao Corp and diversified media group CJ CNM as the front-runners. Hybe may be a further step behind.

The choices are sharply contrasted.

CJ, producer of Oscar-winner “Parasite” and majority owner of TV production powerhouse Studio Dragon, has deep roots in film and TV, but only a modest footprint in pop (it controls broadcaster Mnet and tvN and an annual music awards show) and management. In recent months, CJ has set out ambitious plans to outspend Netflix in Korean drama production, for its Tving to displace Netflix as Korea’s No. 1 video streamer, and to become a global content hub that is on equal terms with the streaming era’s new royalty Netflix, Disney, Amazon and WarnerMedia. A piece of SM Entertainment could help these — or be a diversification too far.

Kakao Corp. arrived at media and entertainment having grown to dominate Korea’s messaging scene with its Kakao Talk app. Its Kakao Entertainment division was formed this year from a merger of multiple components that have been acquired or grown organically. These include a large web cartoon business, eight talent management subsidiaries, four music labels and a string of drama, film and performance production companies. Owning a piece of SM Entertainment may deliver the killer content that some commentators suggest that Kakao Entertainment still lacks.

Prominent Korean media report that CJ and its guru, vice chairwoman Miky Lee as the front runners. But Kakao, valued at KRW55 trillion ($47 billion) likely has the deeper pockets.

Lee Soo-man may no longer be the king, but he may yet be the king-maker.

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