Will SM Entertainment survive 2024?

Thanks for reading this edition of Notes on K-pop. Your free subscription helps inspire my work and fuels me to pursue original essays and interviews. If you’re already subscribed and able to, I hope you’ll consider upgrading to a paid subscription so I can keep this newsletter going, plus you’ll get access to unique for-pay-only content. Thank you for reading, and all your support!

Any PTSD-riddled journalist will tell you that once new management gets involved, culture-based entities often lose their original identity and mismanagement often occurs. Pitchfork being absorbed into Conde Nast is the most obvious recent example, but SoundCloud doing mass layoffs several times after being acquired is also up there. Media in general is in a tailspin nowadays, and investors, and the management that sells off brands to them, won't save it.

Investors don't seem to have saved SM Entertainment either: This week, the very investors and executives who led the push to oust Lee Soo-man and get acquired by Kakao Entertainment, allegedly to make the company more profitable (for investors, not for talent, mind you) have now been pushed out by Kakao in that company's efforts to clean up the mess spurred by the SM-Kakao deal.

If you're unfamiliar, because I assume not every reader is keeping track of this situation as closely as I am... A quick rundown, in which I do my best but considering the expansiveness of this story I'm probably missing a few key facts:

For several years now, investors of SM Entertainment have complained that mismanagement and overexpansion hasn't resulted in the company profiting as expected. In 2022, it started going around that SM would seek acquisition, spurred along partly by an activist fund pushing for greater gains for investors. Last year, some of those investors and some executives teamed up in ousting Lee and setting Kakao up to acquire the company, and Lee turned around and sold his shares to Hybe Corp., best known as the home to BTS. Kakao, a tech giant with sizable aims to enter the entertainment world, and Hybe, which has grown quickly in part by acquiring some of the most successful K-pop companies around, went into a bidding war.

Kakao and Hybe ended up making a deal, where Kakao acquired SM and Hybe got, among other things, SM artists on their Weverse app. But before that, Hybe had raised flags that they thought there was something shady going on with the way SM stocks shifted while the two parties were still duking it out. Things settled down... but then Kakao execs started getting arrested as financial investigators determined that yes, something shady had indeed happened. Kakao ended up in crisis mode as not only executives got investigated but the company overall took a major hit when deals started to fall through, and concerns over the company's ability to ethically manage its own bank started being an issue. Kakao now has crisis management in control, and this week began with that new management determining that SM is being mismanaged by the very people that enabled Kakao to take control of it.

On January 26, it was reported that Kakao was inspecting SM management. On January 29, it was reported that they're getting rid of pretty much all the acting executives.This was after SM was allegedly promised its own independence, but... well, I guess that's the way the Kakao cookie crumbles for the old SM as we knew it.

As per the Korea Economic Daily:

Kakao has reportedly decided to fire SM’s current executives including Chief Executive Officer Jang Cheol-hyuk, Chief A&R Officer (CAO) Lee Sung-soo, Chief Creative Officer Park Jun-young and Executive Director/Chief Operating Officer Tak Young-jun, establishing new leadership of the label behind the girl band aespa, according to industry sources on Sunday.

The decision, about 10 months after Kakao secured a 39.87% stake in SM for about $1 billion defeating the BTS label HYBE Co., comes as The Korea Economic Daily reported that SM executives made opaque investments in companies close to them without consulting their top shareholder.

Those top SM managers are the ones who expelled the SM founder, saying they would seek better corporate governance in partnership with local activist fund Align Partners Capital Management.

Kakao is concerned that potential issues caused by those SM executives’ dubious acquisitions and investments may hurt its consolidated earnings, industry sources said. That would result in criminal punishments on Kakao management for breach of trust and other charges if they do nothing after discovering the executives' misconduct. 

The article also notes that there were several deals and payments made internally that were of concern to Kakao, including CAO Lee selling off his shares and former CSO Jang Jae-Ho leaving the company after a 4 billion KRW acquisition of metaverse content producer Studio Clon. Kakao also alleges that there were a variety of other deals that seemed questionable, and coverups of salaries for no work.

What this means for SM is still to be seen (should be my catchphrase honestly...) I presume that Kakao will instill new executives, and that will impact the company moving forward. Bloomberg reports that Kakao has not given any hint to what will happen. There are a few options that seem to be ahead of Kakao re SM, such as essentially giving up on it and washing its hands of the mess by simply letting SM asphyxiate under poor management, or else try to revitalize it like a phoenix with great management. A third option is dissolving the company entirely and trying to start from scratch, but SM's brand name still means something, even if just to audiences, so I doubt that'll happen anytime soon. A fourth is selling SM, which I've seen some

Kakao's priority right now is overcoming this crisis, and considering that all of this began because Kakao wanted to expand into entertainment but that crashed and burned, it may very well be that the current Kakao management washes its hands of things in the K-pop realm and turns its focus back to tech and finance.

It's still TBD to see who Kakao replaces SM execs with, and it's unclear who, if anyone, from SM's upper management that made the company succesful for so long is still around to keep the identity of the company intact. Many people left alongside Lee Soo-man last year, and some former folks launched Titan late last year.

I think it's pretty safe to say that it's now a question of whether SM will still exist by 2025 this year, or at the very least with any sense of its old self.

Members of Super Junior and EXO also left SM last year for their own personal management (the groups remain under SM,) and when I was in Seoul I heard rumors of several other artists unlikely to remain with a company that is so-changed. A company isn't a person, but the people do make a company, and if all the people who made SM what it is, it's going to be fascinating to see what SM looks like at the end of next month, let alone the end of 2024.

So there we have it... At this point, I gotta assume that all their watercooler talk at the office has turned into the Marie Kondo "I love mess" meme in regard to upper management, because the past year has been a doozy but artists are still releasing music and content is still coming out so staff are clearly still moving forward despite all the upper management movement.

Some related reading regarding my attempt at trying to keep track of this saga:

K-Pop Brand SM Entertainment Reorganizes Leadership After Shareholder Concerns (July 31, 2019 for Forbes) - I think this was the first time I started to get an inkling that we'd eventually see some battle for dominance of SM but who knew it'd get this Kdrama bad?

What is going on with the battle for K-pop juggernaut SM Entertainment? (February 27, 2023, Notes on K-pop)

SM Entertainment is in the endgame now (April 3, 2023, Notes on K-pop)

Amid EXO CBX contract battle, fans turn to memes & humor (June 12, 2023, Notes on K-pop)

A tale of three K-pop contract disputes (June 20, 2023, Notes on K-pop)

Is this the way the Kakao-SM Deal Crumbles? (October 22, 2023, Notes on K-pop)

The burdened, blank slate of K-pop in 2024 (January 24, 2024, Notes on K-pop)

What I've been working on

NewJeans in 2023: a look back at their year of dominance for NME - It's undeniable that 2023 belonged to NewJeans, and it'll be interesting to see how they follow that immense year up in this one. They're already kicking things off being honored at Billboard's Women in Music event, and I'm betting we'll be hearing a lot of other news soon. I feel bad because this article was supposed to come out at the end of the year, but, unfortunately due to publishing delays it didn't come out until the start of this year. Given the state of journalism, I'm just happy that it came out at all.

11 Rookie K-Pop Acts To Know In 2024: NCT Wish, RIIZE, Kiss Of Life & More for Grammy - Yes, I know ZB1 is missing and it was an internal convo with my editor re them not really counting as rookies anymore for readership since Grammy covered them already so much last year. That plus the fact that they already achieved so much last year and due to their sped up career timeline so aren't really rookies anymore, they got nixed from this particular list which was an editorial decision rather than a personal one. Personally, I'm really excited to see what 2024 is going to bring their way.

What I've been listening to

POW's "Valentine" is the latest offering from a rather under the radar rookie boy band whose music is some of the most invigorating I've heard in a while. I update my Apple Music library regularly and listen to it straight so often don't know songs offhand when they come up the first time. So when I kept finding myself pausing to check who it was when their songs come on, it felt look something to definitely take note of. I'm not sure if this is my favorite POW song, but I like the overall sweet boy funky pop-rock feel of it.

TWS's "plot twist" is another vibrant boy band rookie act I'm keeping my eyes on. I didn't really necessarily expect to love their first song from the outset, but the twisting, turning debut track with its effusive synths and boisterous shoutouts really won me over. The rising tons of the pre-chorus? Absolutely love those little vocal hops. Wish it was longer, though.

What I've been watching

I finally watched The Bear. It was as good as everyone says.

I also finally watched Moving, which was equally as good as everyone says.

I'm not watching anything at the moment, so send me your recs in the comments.

What I've been reading

It's been out for ages, but I'm finally reading Major Labels: A History of Popular Music in Seven Genres by Kelefa Sanneh. I'm on page 10 and in love already. Will update if that opinion changes, but I don't expect it to.

Social Media has made harassment acceptable by Nikita Gill and Being a Full-Time Writer is the Worst Job by Kate McKean hit close to home this week.

If It Isn’t Perfect, Is It Still K-Pop? by Jin Yu Young. I actually disagree with a good portion of this story for a variety of reasons (I probably shouldn't say this since it's still a goal of mine to write for NYT someday...) But I'm excited that the NYT is discussing Balming Tiger in any capacity and thought some people might want to read so sharing a free gift link here. Would love to hear thoughts in the comments.