SM Entertainment, HYBE, and Kakao Entertainment: A Summary

March 3, 2023 | 1663 Visits


One of the biggest K-Pop stories recently surrounds what’s going on between HYBE Entertainment, Kakao Entertainment, and SM Entertainment and Lee Soo-man, SM’s former CEO. With news on the subject breaking every day, it’s hard to keep up with the information and whether HYBE’s considered a hostile takeover of SM Entertainment and/or if there’s family and company drama brewing.  With so much going on, here’s a breakdown of the SM Entertainment, Kakao, and HYBE Entertainment story, which actually begins in 1997 until present.

1997-2023: Like Planning Company, Changes at SM Entertainment. HYBE Purchases shares

Daum and Dispatch provided a timeline of Lee Soo-man’s Like Planning Company. This company is relevant to the current events, as well as the other changes that took place at SM Entertainment over the years.

Lee Soo-man rejected all three of the requests by stating none of the options were viable since Like Planning was not a corporation.

  1. 1. SM Entertainment founder, Lee Soo-man.



SM 3.0, Cutting Ties with Lee Soo-man

Prior to Kakao and HYBE purchasing shares, SM Entertainment’s CEO Lee Sung-su (Lee Soo-man’s nephew) and COO Tak Young-jun announced SM Entertainment 3.0. Within the vision, the company intended to cut ties with Lee Soo-man and develop a multi-label system.

“We have realized the limits to producing and managing the intellectual property [IP] that meets the demands of the market and fans,” Lee Sung-su said. “The biggest changes that will come with the new system is the establishment of multi-production centers, multi labels and a subsidiary specializing in publishing music.”

Lee Sung-su continued, “Under the new system, SM artists will be placed under five production centers that will be given their own independent status. An additional production center will be established to oversee the creation and management of virtual human avatars such as Naevis.”

“Our focus with SM 3.0 is on marking ourselves down as a global entertainment company centering on the fans and shareholders,” said Tak Young-jun.  “We promise to communicate more actively with the fans and shareholders with SM 3.0, starting with our multi-production and label system.”

With their 3.0 plan and cutting ties with Lee Soo-man, Lee Sung-su predicts SM Entertainment’s “production process will increase revenue by 134 percent by 2025.”

“By 2025, our annual sales goal will be 1.8 trillion KRW (~ $1.4 billion USD), and our annual operating profit goal will be 500 billion KRW (~ $384.7 million USD). Due to issues of a power-based internal management structure, SM Entertainment’s competitive value in the market has thus far been underrated. However, if we can fulfill the ‘SM 3.0’ initiative by 2025, we have no doubt that such figures will be very much within reach,” the SM 3.0: Global Expansion & Investment Strategy revealed.

Lee Sung-su and Tak Young-jun shared more information about SM’s expansion in a video posted on YouTube February 22.


Kakao, HYBE Purchase Shares Following 3.0 Announcement

After the announcement of SM Entertainment 3.0, February 9, several media outlets reported HYBE intended to purchase SM Entertainment shares.

“We are continuing to review matters related to the acquisition of shares, including a tender offer regarding SM’s shares. At the time of this statement, nothing has currently been confirmed,” HYBE said in a statement released at the time. “In the future, we will re-disclose when specific details regarding this are confirmed, or within a month.”

On February 10, it was confirmed that HYBE did purchase SM Entertainment shares based on a deal with Lee Soo-man. Prior to HYBE’s purchase, Lee Soo-man had the largest SM Entertainment shares at 18.46 percent, making them the largest shareholder.

The move came after Kakao became the second-largest shareholder. Lee Soo-man objected to the Kakao deal, calling it “illegal,” and has since taken legal action.

On February 22, SM Entertainment outlined their reasoning for their partnership with Kakao.

As Soompi outlines, the following reasoning was shared:

In turn, HYBE also posted an open letter to fans on Twitter discussing their acquisition of Lee Soo-man’s shares.






SM Calls HYBE’s Move Hostile Takeover

While the share purchasing by HYBE may sound positive in a marketing sense, SM Entertainment CEOs view the move as a “hostile takeover.” HYBE disputed this claim at the time, stating they were willing to work with SM Entertainment and Kakao. Since, HYBE and SM Entertainment have released a string of statements responding to one another as well as some allegations against Lee Soo-man.

In a 15-minute video published February 20, SM Entertainment CFO Jang Cheol-hyuk sounded alarmed, claiming HYBE “plans to acquire a 40% stake through a ‘tender offer’ that is currently underway.” With SM Entertainment and HYBE are two of the leading music companies in South Korea, Jang fears a monopoly could take place.

“If the two companies are integrated, the combined entity would create a monopoly by taking 66% of the total market revenue,” Jang said. “Furthermore, as of Q3 2022, the two companies’ combined profits from albums/digital music account for 70% of the market. Regarding concert/performance profit, the two companies took up as much as 89%. As a result of an integration, over 60% (64%) of the top-ranking artists by album sales would be under a single company, undermining the diversity of the K-pop market.”

Jang continued, “Ultimately, K-pop fans will be the ones that will be most affected by the monopoly. SM puts reasonable prices to concert tickets to allow broader scope of fans to enjoy cultural performances. Meanwhile, HYBE has taken advantage of its position in the K-pop market to almost double the concert ticket prices.”


HYBE’s Warning for Legal Action

While HYBE initially said they were willing to work with Kakao, on February 24, the company plans to “take all necessary legal measures against a recent contract that SM struck with its alliance partner Kakao Entertainment” in defiance the company’s [HYBE] takeover bid.

The change came as Kakao’s contract with SM Entertainment came to light. The contract between SM Entertainment and Kakao states Kakao has the rights to publish SM Entertainment’s albums and music as well as the right to purchase more shares.

“After learning of what is in the business contract, we were both surprised and concerned,” HYBE said in a statement. “A review is under way on legal problems contained in this contract. According to its result, we will take all necessary legal measures, both civil and criminal.”

HYBE further claims Kakao’s ability to purchase more shares will hurt ordinary shareholders. SM Entertainment, however, states HYBE is “maliciously misinterpreting” the contract.

“We don’t plan to raise investment by issuing new shares through a third-party allotment,” SM said in a statement. “As [the company] nears its limit of issuing new shares, it is legally impossible to issue new shares without changing the articles of association.”

HYBE continues by stating the SM-Kakao deal could hurt SM Entertainment’s “chance of attracting ‘new strategic investors’ and make it easier for Kakao ‘to seize control of SM’s management rights.’”

In relation to SM Entertainment’s expansion into other markets, HYBE also raised concerns about Kakao controlling SM’s artists activities in the Americas, ticket sales, and fan meets as well as potentially taking away artists’ abilities to negotiate.


SM Employees on Edge

With all the changes afoot, SM Entertainment employees are understandably on edge. On the anonymous forum Blind, employees have expressed their concerns.

“I’d been filled with pride while working here, but now that’s crumbled down in the blink of an eye,” one employee said.

“I’m scared that people might stop seeing us as an independent entertainment company,” said another.

208 SM employees also released a joint statement opposing HYBE’s share acquisition. The statement reads:

Once former chief producer Lee Soo Man was in danger of having his illegal tax evading actions unveiled, he sold his shares to a competitor company that he used to speak ill of and ran away.

Us members of SM have been completely used in former chief producer Lee Soo Man’s illegal acts including fraudulent actions for his personal interests and tax evasion. We cannot be used by HYBE’s illegality and expediency again even before we begin the SM 3.0 project.

Thus, us 208 regular employees of SM Entertainment are releasing the following statement as we cannot hold our anger about former chief producer Lee Soo Man and HYBE’s unlawful collusion.

  1. We will protect K-pop’s cultural diversity and SM’s distinct identity. We declare that SM’s culture should not be subordinated to HYBE’s capital.
  2. We actively support and stand by CEO Lee Sung Su and COO Tak Young Joon’s self-reflection and their plans for SM 3.0 multi-producing. We also demand stronger protection for our artists and fans so they are not harmed.
  3. We oppose HYBE’s hostile M&A and their expedient attempt to enter our board of directors. We will resist HYBE’s attempt to take over SM in an abnormal manner.

“Lee Soo Man deserted SM and Pink Blood and ran away, but we will remain at Seoul Forest and protect SM and Pink Blood.”

Collective of 208 SM Entertainment regular employees

However, HYBE CEO Park Ji-won said, “We respect SM’s legacy. We will ensure SM’s independence. HYBE has already proved [the efficacy] of the multi-label system.”

The SM-HYBE-Kakao share drama is still ongoing and developing daily. As the story develops, stay tuned for updates!


—-Olivia Murray


#HYBE #HYBELabels #SM #SMEntertainment #Kakao #LeeSungSuCEO #TakYoungJoonCOO #CFOJangCheolhyuk #monopoly #kpop #Korean #SouthKorea #kpopindustry #LeeSooMan #purchasestockshares #SM30 #takeoverofSMEntertainment #kcrush #kcrushnews #SMHybeKakao #multilabelsystem #NamSoyoung #KimYoungmin #kcrushamerica #Weverse #SMBubble #updates #globalkpopscene

User Review
0 (0 votes)

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Articles

Our Advertisers