How will HYBE-SM collaboration transform K-pop industry?

HYBE Chairman Bang Si-hyuk / Courtesy of HYBE

HYBE to become SM's largest shareholder

By Dong Sun-hwa

The K-pop industry is undergoing a tectonic shift following HYBE's acquisition of a controlling stake in SM Entertainment, with speculation mounting over how the collaboration between the two biggest K-pop powerhouses will reshape the music industry.

HYBE, home to K-pop titan BTS, announced that it will purchase a 14.8 percent stake in SM for 422.8 billion won ($335.8 million) from the company's founder Lee Soo-man. The deal will make HYBE the largest shareholder of its rival.

In a regulatory filing on Friday, HYBE said the deal intends to combine the global competitiveness of the two companies, to make them become game changers in the international pop music scene.

SM Entertainment founder Lee Soo-man / Courtesy of SM Entertainment

The announcement came just one day after Lee, the mastermind behind K-pop bigwigs TVXQ, Girls' Generation, EXO, NCT and aespa, threatened legal action against executives of his own company for selling 9.05 percent of the company's stock to Kakao, making the tech behemoth the second-largest shareholder. Lee called this move illegal, claiming SM is triggering a management dispute. The label recently terminated its contract with the 70-year-old founder as its chief producer.

Although it remains to be seen how the tug-of-war between HYBE and Kakao will pan out, industry insiders are already divided over the HYBE-SM alliance, debating whether the latest development is a blessing or a curse for the future of K-pop. The supporters of the HYBE-SM collaboration say it will elevate K-pop to the next level, while critics argue it will result in an oligopoly, thereby undermining diversity.

"The deal is a win-win for both and will boost K-pop's global growth," Kim Jin-woo, head researcher at album sales tracker Circle Chart, told The Korea Times. "Thanks to the unprecedented success of the Grammy-nominated boy band BTS, HYBE has free access to the supply chain of the global music market. If it utilizes the intellectual property of high-profile SM artists like NCT, the two will be able to create synergy and increase their pie in the overseas market."

K-pop boy group NCT 127 / Courtesy of SM Entertainment

The members of BTS ― the most bankable group under HYBE, which accounted for 65 percent of the company's sales in 2022 ― either started or will soon begin their compulsory military service. Hence, having more successful artists under its roof is a wise tactic for HYBE so as to diversify its portfolio, Kim explains.

"Some budding stars represented by HYBE's sub-labels, such as ADOR's NewJeans and Source Music's Le Sserafim, have been hitting the ground running, but they are not yet the biggest acts in the global music scene," he said. "They rely heavily on the Japanese market in terms of album sales, too. Considering these facts, bringing in SM's already successful groups can be a solution for HYBE to stay strong while BTS members are away."

HYBE is not an unwelcome guest, but a promising partner for SM, Kim noted.

"A K-pop label is often spearheaded by an influential leader, as evidenced by the cases of HYBE's Bang Si-hyuk and JYP Entertainment's Park Jin-young," he said. "However, with the exit of Lee Soo-man, SM does not seem to have such a figure right now. Kakao and its subsidiary Kakao Entertainment do have many sub-labels and staffers, but they lack a powerful leader and a system to accelerate SM's growth. SM is currently in need of someone who can swiftly handle its ongoing dispute, which has been dealing a critical blow to its reputation and discouraging its singers, who must have been affected by the row surrounding their company. In this sense, HYBE and Bang appear to be a good option for SM."

Concerning the perspective that the HYBE-SM alliance could hamper the diversity of the K-pop industry, Kim says this is unlikely.

"HYBE currently runs several sub-labels and seems to guarantee their independence as much as possible, so that they can pursue diversity," he stressed. "NewJeans and Le Sserafim, for instance, are both under HYBE, but they are distinctive from one another in almost all aspects ranging from music styles to concepts. Maybe Lee Soo-man will take the helm of SM under HYBE for a while until his retirement, but HYBE is unlikely to exert much influence on it unless there is a major hiccup."

K-pop boy band BTS / Courtesy of HYBE

Lee Gyu-tag, a professor of cultural studies at George Mason University Korea, agrees that HYBE will grant SM autonomy rather than attempting to transform it and infuse HYBE's style into it. But he is not fully assured of the view that the team-up will become a stepping stone for K-pop's further growth.

"If SM becomes HYBE's new sub-label, the latter is likely to walk in the footsteps of multinational music companies like Sony Music Entertainment (SME) and Universal Music Group (UMG)," he pointed out. "Just like them, HYBE will focus on marketing and distribution of music made by its subsidiaries, letting them handle the major tasks of most other K-pop agencies, such as picking and cultivating idol trainees. They are less likely to center on developing the K-pop system."

People might have to wait and see what consequences this approach will bring, Lee added.

"K-pop, indeed, is different from other music genres and that difference has been the key factor behind its stellar success," he stressed. "What HYBE is trying to do defies the original K-pop business model, so how well it strikes a balance and seeks harmony may drop hints about the future."

Lee, however, stressed that the current situation is subject to change, depending on the K-pop fans' reactions and behaviors.

"K-pop is a fan-driven business and fans are very vocal about what they want," he said. "As of now, some of them support the possible collaboration, while others do not. Since they have always expressed their views and sometimes, even taken collective action to protest against some decisions made by K-pop management companies, we will have to see how they might affect the business decisions of different companies this time."

On Friday, after the news of HYBE's stock purchase, HYBE's share price rose during morning trading, but slipped 1.51 percent to close at 195,300 won. SM's share price closed at 114,700 won, up 16.45 percent from the previous session.