How Kakao won takeover battle against HYBE for K-pop pioneer SM

• Published date: 12 March 2023
• Publication title: The Korea Times

Korean K-pop pioneer SM Entertainment is poised to fall under the grip of social media giant Kakao after HYBE, the agency representing boy band BTS, on Sunday dropped a bid to take control.

Why is SM attractive?

SM, founded in 1995 by Korean folk song singer Lee Soo-man with just 50 million won ($37,600) of capital, was the K-pop industry's trailblazer, preceding two rival agencies ? JYP Entertainment and YG Entertainment ? that sprang up in later years.

For more than two decades, the K-pop industry was dominated by the trio until BTS rose to global fame in recent years, making its agency HYBE the largest music label in the country.

SM, branded with Lee's initials, is credited with setting the groundwork for K-pop's global success, including the first breakthrough in 2002 when SM artist BoA topped Japan's music charts.

After BoA's achievement in Japan, other Korean pop groups began overseas activities in earnest, starting in Asia and later expanding to the U.S. and Western Europe.

SM is home to popular K-pop groups such as Girls' Generation, H.O.T., EXO, Red Velvet, Super Junior, SHINee, NCT Dream and Aespa.

It is the second-largest entertainment group in South Korea by market value at $2.8 billion, trailing HYBE, which is worth $5.5 billion.

Family feud with 'emperor Lee'

Larger-than-life Lee, 70, considered the "godfather" of K-pop, has not assumed any official title at SM for years.

He instead exerted his influence through a private company that he set up to help the industry's global expansion and offer management and training services.

Activist fund Align Partners, which owns about 1 percent of SM, last year began demanding its management team, led by Lee's nephew and protege Lee Sung-soo, cut business ties with the founder, citing governance issues and high fees paid to Lee's private company.

Frictions between SM and Lee came to the fore last month when his nephew called the founder "Emperor of SM Empire" in a YouTube video and criticized him for demanding unfavorable revenue sharing deals and...