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HYBE, SM Entertainment & K-Pop’s $435 Million Question

Last Updated: July 1, 2023
The BTS-linked music and media giant announced intentions to sell its entire stake in K-Pop rival SM Entertainment after a contentious battle — here’s where we go from here.

Since February, the embattled South Korean music industry has witnessed record label and entertainment agency HYBE and internet company Kakao wrestle over their stature in K-Pop culture through a teeming takeover of SM Entertainment’s stakes. While the power wrangle has seemingly come to a close as HYBE aims to relinquish $435 million in shares, the decision is contextualized by an evolving music climate and predicted decline in K-Pop’s prominence.

Let’s take a closer look at the current lay of the land, the state of the key players, and where things go from here.

The Battle for Market Share

In 2022, SM Entertainment’s founder and the revered “godfather” of the K-Pop industry, Lee Soo-man, was accused of offshore tax evasion alongside other improprieties that caught the attention of authorities; the now-estranged founder’s shares in SM quickly became an opportunity for HYBE to acquire leverage. The latter company, which boasts K-Pop boy band BTS among its ranks, began the process of acquiring Lee’s shares in the form of a 14.8% stake worth $335 million in March 2023.

(L-R) J-hope and RM of BTS (Photo by The Chosunilbo JNS/Imazins via Getty Images)

As noted by Reuters, the company then set forth its intentions on an ambitious pursuit of an additional 25.2% of SM Entertainment shares, a move that would have upped its total stake to 40%. The plan to achieve a stake that would currently be worth $565 million, however, was thwarted — HYBE only managed to acquire an additional 0.98% of SM shares.

Kakao revealed its own offer to SM investors to buy up 35% of shares at a higher per-share price than HYBE’s existing bid. Facing a rival at the negotiating table and resistance from existing SM’s shareholders, HYBE dropped its bid. According to a company statement, “HYBE made this decision after observing that the market has been showing signs of overheating due to competition with both Kakao and Kakao Entertainment.” 

Weeks later, HYBE further announced that it would go one huge step further and sell its entire existing stake in SM Entertainment.

The decision, viewed as bewildering by several observers, possibly points to HYBE’s future fruit-bearing US investments and fan-centric initiatives amidst the seismic shifts across the K-Pop landscape — but the state of things is far from settled.

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K-Pop at a Crossroads

In spite of what looked like a defeat, HYBE has nonetheless remained vocal about K-Pop’s projected decline as a cultural phenomenon, at least in terms of its current rate of growth — a regression that can’t be parsed without mentioning BTS, who haven’t released a single this year and have not released a studio album since late 2020 while on hiatus for what is expected to be multiple years.

“Without BTS, the market drastically shrinks in size,” HYBE Chairman “Hitman” Bang Si-hyuk said, though he emphasized that this expected decline isn’t exclusively due to the group pressing pause.

According to the International Federation of the Phonographic Industry’s (IFPI) Global Music Report 2023, it is incumbent on the biggest market-drivers in places like South Korea to tailor their strategic approach to the paid music ecosystem.

Bang Si-Hyuk, a.k.a. “Hitman Bang” (Christopher Polk/Billboard via Getty Images)

“Countries such as China and South Korea have significant growth of fans paying for streaming. The paid ecosystem is established, and now the challenge is to look at the value of music on streaming and social media platforms,” said Shridhar Subramaniam, President of Corporate Strategy and Market Development in Asia & Middle East for Sony Music Entertainment.

Right on cue, HYBE now plans to venture into a new partnership with Kakao on fan platform businesses to steer a community-forward approach to the music market. While the details of the novel deal are scant as of this writing, Bang Si-hyuk said at a press conference that these platforms “can mobilize and expand fandoms and where we can offer services to them as well as video gaming are integral parts of our plan for the future.”

The future of the company’s integral hand in K-Pop culture ultimately isn’t entirely grim. In conversation with Billboard, HYBE’s Executive Creator, Son Sung-deuk, spoke on the launch of a new girl group to revitalize the cultural export. With innovative content in mind, Son says that he and his team “really are working and studying hard to create the sound and the content that people around the globe can love. We’ll see what it’ll look like, but we’re working hard to create content that fans around the world will really enjoy.”

Bang also cemented the company’s pursuit of a “substantial number of acquisitions and investments” that will increase its US presence and establish itself via “top-tier labels” in the Latin music market. According to the IFPI report, Latin America witnessed its 13th consecutive year of growth in 2022, with annual revenues reaching $1.3 billion in the United States alone.

“On the other hand, Latin music and Afrobeat are very rapidly growing,” Bang said in an interview with CNN’S Richard Quest. “So, being where we are, it is more urgent to increase the exposure. Looking at our export indicators and streaming growth, the slowdown in growth is very clear.” 


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