Okay-pop’s movers and shakers struggle to create dominant music company

Korean pop music’s irresistible worldwide progress has triggered a bitter company battle that’s reshaping the nation’s leisure business, as rivals battle for management of its most storied expertise manufacturing unit.

Market chief Hybe, the corporate behind megastar boy band BTS, final week purchased 15 per cent of its principal rival SM Leisure from the nation’s best-known Okay-pop impresario, SM founder Lee Soo-man.

Hybe needs to extend its stake through a young provide to different buyers and argues it will possibly create a nationwide leisure champion, able to taking up US giants Common Music, Warner Music and Sony Music.

Lee Soo-man, a septuagenarian “tremendous producer” who reportedly had been lengthy against promoting to his principal competitor, modified his thoughts after a spectacular falling out with SM’s board. It had disowned him final month over allegations of tax evasion and improper affect over firm administrators.

Led by Lee Soo-man’s nephew, the board has as an alternative pursued an alliance with the leisure subsidiary of native tech big Kakao, which introduced a deal earlier this month to purchase a 9 per cent stake within the firm.

Describing his ousting as a “army operation”, Lee Soo-man, who holds no formal place throughout the firm, has filed an injunction to dam Kakao’s share buy.

The Okay-pop business had lengthy been dominated by three music businesses — SM, JYP and YG Leisure — earlier than BTS rose to world stardom and made Hybe the sector’s dominant participant.

“That is like if Actual Madrid tried to purchase Manchester United, then on the final minute Manchester Metropolis determined to throw its hat into the ring,” stated Bernie Cho, president of DFSB Kollective, a digital media advertising and marketing and distribution company primarily based in Seoul and Los Angeles.

Whereas Hybe’s market capitalisation of Gained 7.9tn ($6bn) dwarfs SM’s Gained 2.9tn valuation, analysts argue that the bigger firm stays over reliant on BTS. The band’s seven members, most of whom are of their late 20s, not too long ago went on hiatus in an effort to full their obligatory army service.

SM, in contrast, is seen as having a way more diversified portfolio, with its artists producing robust gross sales in abroad markets together with Japan, China and south-east Asia. In 2022, the corporate reported a 38.5 per cent rise in working revenue as gross sales rose 20.9 per cent to Gained 848bn.

“For Hybe, the bottom line is to diversify its content material,” stated music critic Kim Younger-dae. “SM has been a job mannequin of Hybe for a very long time, so taking on the corporate was a possibility Hybe couldn’t miss out on.”

However SM can be hotly coveted by Kakao, which is engaged in a wrestle with arch-rival Naver to accumulate content material that may drive customers to a brand new era of distribution platforms.

Kakao Leisure’s proposed alliance with SM mirrors an analogous tie-up between Naver and SM rival YG Leisure, the corporate behind lady group sensation Blackpink. Naver can be working with Hybe to co-develop on-line live performance and fandom portals.

“Kakao Leisure wants to spice up its company worth earlier than a future public itemizing, and SM is the right M&A candidate to strengthen its artist portfolio,” stated Jeong Kwang-woo, an knowledgeable within the Korean music business.

SM’s board strongly objects to what it describes as Hybe’s “hostile takeover”. Hybe has submitted a young provide to buy an extra 25 per cent stake from minority shareholders, which might carry its stake to 40 per cent.

That will give Hybe efficient management of SM regardless of holding a stake of lower than 50 per cent, due to the variety of shareholders who don’t vote or interact within the operating of the corporate.

Daniel Jang, SM’s chief monetary officer, advised the FT that Hybe’s management of SM on this method would lead to a “blatant battle of curiosity”.

“When there may be stress between the pursuits of Hybe and the pursuits of SM, Hybe’s administration can both serve the pursuits of Hybe shareholders, or the pursuits of SM shareholders — however they will’t serve each,” stated Jang.

Hybe denies participating in a hostile takeover. In an open letter printed on Wednesday, the corporate’s chief government Jiwon Park stated that below its proposals, “Hybe will actively help SM artists’ endeavours in making a presence within the world music business”.

Opponents of the Hybe takeover have additionally raised competitors issues. Analysts estimate that Hybe and SM collectively would account for two-thirds of Okay-pop album and digital music gross sales.

One other key query for shareholders at SM’s annual assembly subsequent month will probably be whom they belief most to scrub up the governance points left behind by the corporate’s founder, who retains a 3.65 per cent stake.

Earlier this month, SM’s co-chief government Chris Lee launched a video assertion explaining why the board had damaged with the mogul.

Along with allegations of tax evasion and monetary mismanagement, he accused Lee Soo-man of utilizing a tree-planting marketing campaign in Saudi Arabia and Mongolia as a entrance for constructing an abroad Okay-pop-themed property empire replete with lodges and casinos.

Lee Soo-man’s authorized representatives have denied the allegations. The FT was not capable of attain him for remark.

In his assertion, Hybe chief government Park pledged that “SM will probably be transferring to turn into an organization with a clear governance construction that prioritises shareholder worth”.

However SM’s CFO Jang argued that Hybe couldn’t be trusted to implement governance measures, citing what he described as Hybe’s personal poor governance report.

“Hybe has introduced governance measures for SM that it doesn’t comply with inside its personal firm,” stated Jang. He stated SM’s board deserved credit score for breaking with Lee Soo-man, whom he described as having behaved like an “emperor” as he exerted his affect from behind the scenes.

“Hybe’s transparency and excellency of its governance construction is undoubtedly the mannequin to comply with within the business,” a Hybe spokesperson advised the FT. “Nonetheless, we proceed to search for room for additional enchancment.”