Markus Castro
The K-pop world is no stranger to drama, but the recent feud between industry giants HYBE and SM Entertainment, nicknamed “The Battle for Kwangya”, has the twists, turns, and jaw-dropping revelations of a K-Drama.
With fans and industry insiders both trying to make sense of the happenings in real-time, among all the chaos and confusion, there are two questions that stand out: “how will this feud affect the artists and fans?” and “Will this bitter battle ultimately lead to major changes in K-Pop or will things, in the end, stay the same?”
First Things First, What Has Happened So Far?
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First things first, let’s discuss everything that has happened so far, and hold onto your hats because it’s a lot! Basically, the whole story starts in February, when HYBE, a corporation founded in 2021 by the CEO of BTS’ label Big Hit Music, Bang Si-hyuk, acquire a 14.8% share in SM Entertainment, becoming its largest single shareholder.
For new fans of K-Pop, this might not seem like a big deal, after all, that is what companies do right? However, for old fans, HYBE’s acquisition of SM Entertainment’s shares perfectly illustrates the slow crumple of the “Big 3 Companies” (SM, YG, and JYPE) that reigned over the 2nd, 3rd, and early-4th generations of K-Pop.
Shortly after purchasing the 14.8% shares, HYBE shocked the world when they announced their plan to buy up to 40% of the company at an estimated cost of over $900 million!
This sudden announcement caused instant hysteria among K-pop insiders, with SM Entertainment’s chief financial officer, Jang Cheol-hyuk, publicly arguing that HYBE’s growing stake could lead to a massive monopoly in the market. According to Jang Cheol-hyuk, if HYBE fully controls SM, they then own two-thirds of the South Korean pop music market; Jang calls their plans to buy the shares a “hostile takeover attempt” that undermines fair competition.
In a video posted to the official SMTOWN YouTube channel, a channel that is usually exclusively filled with glitzy high-budget K-Pop music videos, Jang Cheol-hyuk expresses his belief that HYBE is using its dominant position to hike up concert ticket prices, sideline SM’s artists, and make K-pop bend to their corporate goals.
Cryptically, Jang Cheol-hyuk also alludes to a “wrongful past of ‘SM for a certain shareholder'” that the company is breaking away from. So, who is this mysterious “certain shareholder” and what is the “wrongful past of SM”? Well, you see it all starts with SM Entertainment’s founder and head, Lee Soo-man, who left the company in October of last year.
After SM ended its deal with Lee Soo-man’s production company, HYBE bought his SM Entertainment shares. But things get murkier from here, as SM Entertainment’s current CEO, Lee Sung-soo, posts a video accusing Lee Soo-man of moving his personal business interests into a Hong Kong company that allows him to avoid paying South Korean taxes. Lee Sung-soo further alleges that Lee Soo-man forced SM’s artists to sign overseas deals with his own firm, which will allow him to take a cut of album sales and management fees for decades to come – which is obviously terrible!
With these allegations, 208 SM Entertainment employees signed a letter stating that 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” which adds to the growing tensions within the K-Pop powerhouse company, especially as Lee Soo-man is seen as one of the great visionaries of K-Pop.
HYBE, seeing all the internal drama at SM Entertainment, comes out and claims that SM Entertainment created all of these problems themselves and that the questions of tax evasion and backroom deal-making, according to HYBE, “are all revealing problems with SM’s corporate governance, and unfortunately, all of these problems occurred internally at SM”, but, don’t worry HYBE says, they can fix SM’s issues!
Think things can’t get more confusing? Well just wait, the third actor in this play is about to enter! By the start of March, Kakao, the massive Korean tech giant, holds an emergency board meeting to strategize their response to the recent developments as Lee Soo-man files a legal action to block Kakao’s attempt to secure a 9.05% stake in the entertainment company.
HYBE, also responds to Kakao’s offer by calling on SM to sever ties with Kakao, who are now trying to buy up to 35% of stocks, and to respond to their demands by Thursday! Sound like a K-Drama yet?
With the stakes high and fans and market watchers eagerly anticipating Kakao’s next move, everyone is waiting to see whether the trillion-won company will concede defeat or launch a counteroffensive to acquire the majority stake in SM Entertainment against BTS’ HYBE Corporations.
So why is Kakao so interested in SM? Well, Kakao’s entertainment subsidiary, Kakao Entertainment is the owner/majority shareholder of several top-level K-Pop labels and companies including IST Entertainment, EDAM Entertainment, Starship Entertainment, and High Up Entertainment, among others, and if Kakao adds SM Entertainment to its list would be a huge boost to their business.
(Plus with lots of investments (including foreign investments worth a total of 1.2 trillion won from the sovereign wealth funds of Saudi Arabia and Singapore), Kakao definitely has the financial resources to make a play for the company).
Meanwhile, the stock price of SM Entertainment is soaring to an all-time high and the Financial Supervisory Service has launched an investigation into potential market manipulation during HYBE’s tender offer period – so it is safe to say at this point the whole K-pop world is on edge of their seats waiting to see what new twists and turns this high-stakes battle will take next!
Then, most recently, on the 11th of March, in a surprising turn of events, HYBE announce, out of the blue, that they are pulling out of the takeover bid for SM Entertainment, bringing an end to weeks of ruthless corporate mudslinging.
In a statement released to CNN, HYBE explains that the current state of the market as well as signs of market overheating, have led HYBE to reassess its strategy and pull out of the competition (notably the news comes after Kakao and its entertainment company doubles down on their offer, offering shareholders 150,000 won ($115) per share, compared to HYBE’s previous offer of 120,000 won ($92) per share).
So to explain simply: basically HYBE’s acquisition of a 14.8% share in SM Entertainment sparked a feud between the two companies that included allegations of monopoly, tax evasion, and backroom deal-making. However, on the 11th of March, HYBE announced that they are backing out of the takeover bid for SM, while, Kakao is now offering to buy up to 35% of SM Entertainment stocks.
So Where Are We Now and What Does This All Mean For SM Artists and Fans?
With the artists of SM being forced to watch the heads of their company engage in such a messy corporate fight with one of their other biggest rival companies, and, with the future of the company currently up in the air, it is not surprising that the question of whether SM’s artists will renew their contracts is equally uncertain.
Will SM Entertainment be able to maintain its reputation as a stable home for artists? Or will the allure of a new company with a more clearly defined vision and drama-free management pull in some of the artists that are facing the end of their exclusive SM contracts this year? These are questions that fans and industry experts are curious to see answered as the year unfolds.
As for the fans, the recent reshuffling of SM Entertainment has been nothing short of tumultuous as the daily drama has left fans reeling. However, for those who have been skeptical of Lee Soo-man’s creative direction for the company, this upheaval may actually be a blessing in disguise.
Since 2020, many fans and artists alike have expressed their confusion about Lee Soo-man’s vision for SM, which included a variety of out-of-the-box ideas, like a metaverse Kwangya universe that connects all of SM’s artists, AI artists, a massive tree-planting initiative that artists promote through their lyrics, and even a potential Saudi Arabian NCT unit.
With the company’s reshuffling, those against the direction SM is heading are eagerly hoping that new management will bring a clearer creative direction that better reflects the legacy and success of this iconic K-pop company. After all, SM Entertainment has a long history of breaking barriers, setting trends in the industry, and releasing music that is unlike anything else in the world!
In The End…
While change is always unsettling, I think it’s important to remember that it can be necessary in order to keep the genre fresh. For years, K-pop has been dominated by a handful of major players, however, the recent shakeup in the industry could open the door for new voices and perspectives to emerge.
Furthermore, as the top companies jockey for positions and artists seek out new opportunities, the potential for a new era of creativity and innovation in the K-pop world might be just around the corner as we approach the 5th generation of the genre!
So what do you think? What direction do you want to see SM move in going forward? If you were an SM artist would you stay with the company or would the drama be too much for you?
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