SM Entertainment Discloses Three Major Concerns For Their Company And Artists Amid HYBE’s Takeover

The company outlines its ongoing concern with HYBE’s “hostile takeover.”

SM Entertainment continues its public denouncement of HYBE Labels‘ “hostile” takeover of the renowned entertainment company, this time in a formal video uploaded to their official YouTube channel.

Unlike their past public addresses, the video has been uploaded with content and subtitles in English to directly address and reach more global fans.

SM Entertainment’s CFO Cheol Hyuk Jang in the company’s public address | SMTOWN/YouTube

SM Entertainment’s Co-CEO Lee Sung Soo recently released a scathing public address in which he called out his uncle-in-law, SM Entertainment’s founder Lee Soo Man, and asked that he beg for forgiveness after he sold the majority of his stocks to HYBE Labels and announced he was suing SM.

Teacher. Please stop now. Please now, kneel in front of everyone and ask for their forgiveness, along with me. I hope you know that this is the only way that I, as your student, can save you from the Valley of Hell. Now, come out of that place, escape from the crowd of eunuchs, go through your KWANGYA, and go back to your family once more. And what you’ve always preached, “Be Humble, Be Kind, Be the Love,” I will pray together that you can put this into action for the rest of your life.

— Lee Sung Soo

Now, SM Entertainment’s CFO Cheol Hyuk Jang joins the dialogue, releasing his own video explaining the feared detrimental effects of HYBE’s takeover.

The video outlines the reasons SM Entertainment is against HYBE’s acquisition, and Cheol Hyuk Jang highlights three major impacts it could have on SM Entertainment and its artists.

SM Entertainment artists at “SMTOWN LIVE 2022 in Tokyo” | @smtown/Instagram

1. Neglect of SM Entertainment artists

Considering the range of artists currently under HYBE Labels and the determined “optimal [album] release times” being around 100 times per year, SM Entertainment fears that their artists’ releases will become a lower priority.

SM Entertainment currently manages 17 musical groups, including its subsidiary labels’ artists and almost 20 individual artists.

In contrast, HYBE Labels manages seven musical groups and ten solo artists, not including artists under HYBE America or HYBE Japan.

2. Abandoning SM Entertainment’s artist-to-fan communication platform

SM Entertainment formed Dear U under their subsidiary SM Studios in 2017. Dear U (formerly known as Everysing) was SM Entertainment’s go-to platform for their artists’ content and fan-to-idol communication through the popular app Dear U. Bubble, which requires a monthly paid subscription to access messages from its associated artists.

JYP Entertainment became the owner of a 23.3% share in Dear U in 2021, integrating its artists onto the platform so that it now housed artists from two of the top entertainment companies in Korea.

JYP Entertainment and SM Entertainment also joined forces to create Beyond LIVE Corporation, which became the first company to specialize in online concerts.

HYBE Corporation created its popular fan-to-idol communication and content platform in 2019, Weverse. In 2022, it merged with V LIVE, which was a live-streaming platform formed by Naver Corporation in 2015.

Since its launch in 2019, Weverse has seen explosive growth and has confirmed the needs and the influence of fan community platforms in the global music market.

We have high expectations for the synergy that will be created between Weverse and V Live through our full-scale collaboration with Naver. Based on this, we will create an unrivaled fan community platform in the global market.

We will receive the manpower and technology from V Live, and a new platform will be reborn after about a year of service integration and preparation

— BIGHIT Music

Compared to Dear U. Bubble, Weverse users can sign up and view artist pages for free, with select content accessible via a paid subscription.

Cheol Hyuk Jang shared that SM Entertainment fears they’ll lose their unique channel of monitoring fan usage to set goals and continue planning for SM Entertainment’s growth and development if their artists also integrate into the Weverse platform.

Such a platform will simply increase some licensing revenue, but not be properly reflected in the corporate value. As a result, SM will lose a new growth engine by missing out on the data that can help deepen understanding on the fans.

— Cheol Hyuk Jang

3. Lower priority for new business opportunities

SM Entertainment company building | Korea JoongAng Daily

As SM Entertainment has grown to become a self-sustaining business over the years as a “record label, talent agency, music production company, event management and concert production company, and music publishing house,” the company fears it will lose the opportunity to continue to try new ventures and grow. Specifically, they feel that such opportunities will be allotted to HYBE Corporation first.

Lastly, new business opportunities that might help [SM 3.0’s strategy] will be highly likely to be allotted to HYBE’s wholly-owned subsidiary.

— Cheol Hyuk Jang

Before HYBE became the majority shareholder of SM Entertainment, SM was planning their latest venture, SM 3.0, which they teased earlier this month.

SM Entertainment Co-CEOs Lee Sung Su and Tak Young Jun | SMTOWN/YouTube

SM Entertainment’s Co-CEO previously shared during their SM 3.0 announcement that the IP (intellectual property) production was solely under the direction of Lee Soo Man while he was SM Entertainment’s executive producer.

During the SM 1.0 and SM 2.0, we had a sole executive producer system and produced SM artist IP under the direction of the executive producer, Soo Man Lee, while the production and core functions were concentrated in one place. In this period, we used an external publishing company for music sourcing.

— SM Entertainment Co-CEO Lee Sung Soo

Intellectual property includes patents, copyrights, trademarks, and trade secrets. With SM 3.0’s new direction, the current directors hoped to “accelerate the speed of IP production” by getting more than one person involved in the process. It also hoped to “expand the production capacity” of the company.

The Multi ‘Production Center/Label’ system of SM 3.0 will expand the production capacity and accelerate the speed of IP production by delegating the decision-making authority to each unit leader through independent artist management and advance the SM Standard while maintaining the know-how on IP production and management accumulated from the existing system.

— SM Entertainment Co-CEO Lee Sung Soo

SM Entertainment’s CFO continued to list concerns about HYBE’s takeover and what SM vows to do to protect the company.

Check out more on that in the article below:

SM Entertainment Releases Video Denouncing HYBE’s Takeover Of The Company, Vows To Protect SM As It Is

Source: YK Law (1) and (2)

SM Entertainment Share Acquisition