We now have already regarded on the 4 main Okay-pop companies within the earlier weblog posts. Three of them – the so-called “Large Three” – have been based within the mid-Nineteen Nineties. Large Hit Leisure adopted in 2005 and rose to grow to be the market chief due to BTS. Within the subsequent 4 weblog posts, we’ll now look behind the scenes at these companies to realize a greater understanding of the financial system behind Okay-pop. Partly 5 we begin with SM Leisure.
The Economics of Okay-pop – Half 5: SM Leisure
The financial rise of SM Leisure
SM Leisure and its founder Lee Soo-man are the true innovators behind the Okay-pop manufacturing system. SM Leisure solid youngsters modelled on the US boy and woman teams of the Nineteen Nineties, skilled them extensively by means of a rigorous, multi-year trainee programme, and positioned them in the marketplace as a particular model. This idea proved to be an enormous industrial success. As early as 2000, SM Leisure was in a position to go public in South Korea and has been listed on the KOSDAQ know-how index ever since.[1] With contemporary capital, SM was in a position to start its growth within the Southeast Asian area. As early as January 2001, a three way partnership was established with the Japanese indie label Avex Trax, which not solely noticed the primary Okay-pop solo artist, BoA, marketed on the Japanese market, but in addition led to the founding of SM Leisure Japan, the corporate’s first abroad department, through which the Japanese TV manufacturing firm Yoshimoto Kogyo Holdings Co. additionally held a stake.[2]
The beginning of the second technology of Okay-pop artists in 2003 was additionally formed by SM Leisure with acts such because the boy band SHINee and the woman teams Ladies’ Technology and f(x).[3] Essentially the most vital facet of the second technology of Okay-pop was its growth into neighbouring Asian international locations. SM Leisure was already energetic in Japan, and in 2008 China was to comply with swimsuit with the launch of the boy band Tremendous Junior-M, a Mandarin-speaking sub-group of the Korean group Tremendous Junior, who made their debut look on the Chinese language Music Awards in April 2008, performing the music “U” from their debut album “Me”.[4] This established Chinese language-language Okay-pop in China and paved the way in which for additional productions.
This idea of splitting a supergroup into Korean- and Chinese language-speaking sub-groups was additionally utilized in 2012 to the 12-member boy band EXO, which was positioned as EXO-Okay (Okay stands for Korean) and EXO-M (M stands for Mandarin) on the Korean and Chinese language markets, respectively, and have been promoted individually.[5] This progressive advertising idea, developed by SM founder Lee Soo-man, was additionally an enormous industrial success and was copied by different Okay-pop firms.[6]
In 2016, SM Leisure broke new floor with the creation of the boy band NCT, an acronym for Neo Tradition Know-how. The fundamental thought was to create a super-group with an infinite variety of members, which may very well be divided into sub-groups as required and tailored to the wants of various markets. Particularly, NCT U[7] was launched to the general public in April, NCT 127[8] in July, and NCT Dream[9] in August, every with their respective debut releases. The goal of this new technique was to tailor the completely different boy bands to market situations and thus higher attain followers. SM Leisure founder Lee Soo-man developed this new technique himself and offered it to the general public in January 2016 throughout a presentation in Seoul entitled “SMTOWN: New Tradition Know-how 2016”.[10]
New technique and energy struggles behind the scenes
This mirrored SM Leisure’s new strategic route. The corporate was to be energetic not solely in Okay-pop manufacturing, but in addition in all areas of worth creation surrounding the popular culture phenomenon. On 3 February 2023, a video entitled “SM 3.0: Producing Technique Multi ‘Manufacturing Centre/Label’ System” was revealed on YouTube, through which the 2 new CEOs, Lee Sung-soo and Tak Younger-jun, dressed correctly in fits and ties and seated at a desk in entrance of an uncovered brick wall, introduced with a bow that the earlier music manufacturing system, which had been totally tailor-made to SM founder Lee Soo-man, was to get replaced by a brand new system that includes numerous manufacturing groups, some working in-house and others introduced in from exterior.[11] Nonetheless, this multi-production centre, which the 2 CEOs offered, was only one cornerstone of the brand new technique. As well as, additional in-house labels have been to be established and collaboration with exterior labels strengthened internationally. Central to the plan, nevertheless, was the institution of the corporate’s personal music publishing arm, which was meant to bundle music rights extra successfully and monetise them extra efficiently.[12]
Nonetheless, SM Leisure’s strategic reorientation will also be interpreted as a direct assault on Lee Soo-man, who, regardless of stepping down from the board, sought to retain inventive management inside the group in his function as government producer. Though the 2 CEOs highlighted the SM founder’s achievements within the video, the brand new “SM 3.0” technique subtly sidelined him from the inventive manufacturing processes and in the end from the corporate itself.
Lee Soo-man‘s response got here rapidly. On 6 February 2023, simply 5 days after the YouTube video was launched, it was introduced that Hybe Company, SM Leisure’s foremost rival, had acquired a 14.8 per cent stake within the firm for the equal of US $334 million.[13] This primary step in the direction of a hostile takeover had solely been attainable as a result of Lee Soo-man had bought a big portion of his stake in SM to Hybe.[14] Nonetheless, two days earlier, in settlement with SM, South Korea’s largest leisure group, Kakao, had acquired a 9.04 per cent stake in SM for US $172.8 million, thereby turning into the corporate’s second-largest shareholder.[15] Simply someday later, Lee Soo-man filed an injunction in opposition to SM Leisure over the difficulty of latest shares and convertible bonds in favour of Kakao, stating that the deal had been concluded with out his consent as the most important shareholder and was due to this fact “unlawful”.[16]
Hybe’s acquisition triggered a bidding battle that might decide the destiny of SM Leisure. Initially, SM and Kakao have been at a drawback as a result of, on 3 March 2023, a court docket had issued an injunction in opposition to the deal between Kakao and SM.[17] Kakao then went on the offensive and made a proposal to shareholders to buy 35 per cent of the corporate’s shares for US $966 million, thereby rising its stake to 39.87 per cent.[18] Surprisingly, on 24 March 2023, Hybe withdrew from the bidding battle, arguing that it didn’t wish to harm shareholder worth, and introduced its intention to promote its stake in SM to Kakao.[19] On 28 March 2023, Kakao fulfilled its announcement and bought 35 per cent of SM’s shares. Hybe then bought half of its stake in SM to Kakao, retaining an 8.81 per cent stake within the firm,[20] which have been ultimately bought to the Chinese language leisure group Tencent on 30 Might 2025 for round US $180 million.[21] This made Tencent the second influential co-owner of the Okay-pop group, following the e-commerce large Alibaba, which had already acquired a 4 per cent minority stake in SM Leisure in February 2016.[22]
The reason for why Hybe withdrew from the bidding battle is straightforward: by means of this manoeuvre, SM founder Lee Soo-man had secured his reinstatement as head of the A&R division at SM Leisure, thereby regaining inventive management over the manufacturing course of.[23] The 2 younger CEOs who had staged the revolt, nevertheless, have been changed by the chief monetary officer, Jang Cheol-hyuk,[24] which was now tasked with implementing the “SM 3.0” technique. As a primary step, Kreation Music Rights was established in August 2023 as an in-house music publishing division.[25] The day earlier than, a brand new abroad department – SMKEA – was additionally established within the US in collaboration with Kakao.[26] The Okay-pop group thus continued the worldwide growth it had been pursuing for years, which, along with branches in Japan, China and Singapore, now additionally included a department in North America.
The enterprise efficiency of SM Leisure
An evaluation of SM Leisure’s organisational construction reveals that the group will not be a conventional main music label primarily based on the Western mannequin, however reasonably an built-in leisure conglomerate that developed from a Okay-pop artist company. The 2021 annual report signifies that SM Leisure had 37 affiliated firms, six of which have been listed on the inventory alternate. As well as, SM Leisure held shares in an extra 19 firms,[27] numerous content material manufacturing firms (TV, radio, theatre, software program, print, digital actuality, and many others.), in addition to branding and promoting companies, an architectural agency and a property developer, and a enterprise capital agency; it even operates a sequence of comfort shops to monetise the manufacturers of the Okay-pop stars beneath contract. SM Leisure thus recognised the worth of built-in advertising of all sorts of rights at an early stage and can also be represented internationally with branches in Japan, South-East Asia, the USA and Sweden.
Determine 1: Income, value and revenue traits at SM Leisure Group, 2014-2024
Supply: After SM Leisure Enterprise Stories 2019-2021 (translated with DeepL) and SM Leisure quarterly stories 2021-2024 (in English)
SM Leisure’s progress in recent times can also be mirrored within the group’s income efficiency. As proven in fig. 1, there was a pointy rise in income in 2018, primarily because of the acquisition of stakes in several firms, which subsequently led to the formation of the SM Life Design Group. The combination of SM Tradition & Content material Co. Ltd. into the group’s constructions, which was accomplished on the finish of 2017, has additionally boosted turnover.[28] The non permanent decline in gross sales in 2020 was because of the impression of the COVID-19 pandemic, which precipitated revenues from the live performance section specifically to plummet. This made the following rise in gross sales all of the extra dramatic. The live performance enterprise recovered in 2022, however contributed solely KRW 23 billion to whole income of KRW 851 billion. It was not till 2023 and 2024 that the live performance division regained momentum, with income of KRW 77 billion and KRW 123 billion respectively. A pointy improve of 155 per cent between 2021 and 2024 was recorded within the merchandising and licensing enterprise, which in 2024 contributed KRW 169 billion extra to whole income than the live performance section.
Nonetheless, speedy progress and diversification into different sectors have additionally led to a rise in expenditure (see fig. 5.4). Between 2017 and 2024, whole expenditure grew by 155 per cent from KRW 354 billion to KRW 902 billion, primarily as a result of rising value of gross sales, which in 2024 have been 174 per cent larger than in 2021. Advertising and marketing and overhead prices have additionally doubled throughout this era. The primary value drivers listed here are personnel bills. Between 2019 and 2024 alone, the variety of staff in full-time equivalents rose from 493 to 723.[29]
This additionally had an impression on revenue efficiency (see fig. 1). Though revenue from working actions rose to KRW 114 billion in 2023 following a decline within the coronavirus yr of 2020, however in 2024 there was a 23 per cent decline in earnings, which pushed internet revenue all the way down to virtually zero, primarily as a result of losses at related firms, notably at SM Tradition & Content material Co.[30]
This highlights the vulnerability of SM Leisure, which has grown quickly in recent times and is struggling to combine the acquired firms and investments into the group construction. The “SM 3.0” technique talked about earlier is meant to assist with this, with all enterprise divisions being oriented in the direction of the creation of cultural values. The goal is to create a unifying framework for the very various enterprise divisions. As advantageous as SM Leisure’s broad vary of choices is, integrating them is equally troublesome. The corporate’s future success will due to this fact rely closely on whether or not it succeeds in higher integrating the varied elements of the enterprise and focusing them on a standard aim.
Endnotes
[1] Yang, Hong-mo. 2000. Garosu.com and 4 different firms start buying and selling on KOSDAQ on the 27th. Naver Information, 25 April. https://n.information.naver.com/mnews/article/015/0000210471?sid=101. Translated with DeepL. Accessed 28 Jan 2026
[2] Gil, Deok. 2001. SM Leisure “Concentrating on the World Music Album and Music Video Market”. Naver Information, 7 March. https://n.information.naver.com/mnews/article/015/0000345241?sid=102. Translated with DeepL. Accessed 28 Jan 2026
[3] See for instance Atkin. Okay-Pop. p 28
[4] Garcia, Cathy Rose A. 2008. Tremendous Junior-M Debuts in China. The Korea Occasions, 8 April. https://www.koreatimes.co.kr/way of life/people-events/20080408/super-junior-m-debuts-in-china. Accessed 28 Jan 2026
[5] Seabrook, John. 2012. Manufacturing unit Ladies. The New Yorker, 1 October. https://www.newyorker.com/journal/2012/10/08/factory-girls-2. Accessed 28 Jan 2026
[6] Ibid.
[7] Bahk, Eun-ji. 2016. SM’s new Okay-pop band NCT U to debut this week. The Korea Occasions, 4 April. https://www.koreatimes.co.kr/leisure/shows-dramas/20160404/sms-new-k-pop-band-nct-u-to-debut-this-week. Accessed 28 Jan 2026
[8] Ang, Estee. 2016. (UPDATE) #NCT127: SM Leisure Unveils Members Of New NCT Sub-Unit. Hybe, 4 July. https://hype.my/nct127-sm-entertainment-unveils-members-of-new-nct-sub-unit/. Accessed 28 Jan 2026
[9] Moon Wan-sik. 2016. NCT DREAM to debut their first single “Chewing Gum” on “M Countdown” on the 25th. Star Information, 19 August. https://m.entertain.naver.com/now/article/108/0002548916. Translated with DeepL. Accessed 28 Jan 2026
[10] Jung, Min-kyung. 2016. SM Leisure’s subsequent boy band to have ‘limitless’ members. The Korea Herald, 27 January. https://www.kpopherald.com/article/834265. Accessed 28 Jan 2026
[11] SMTown. 2023. SM 3.0: Producing Technique – Multi ‘Manufacturing Middle/Label’ System. YouTube, 3 February. https://www.youtube.com/watch?v=n4WSs3ebprw&checklist=PL_ndMPzmGNt3v3RUs1K20LOyG8oec472d. Accessed 30 Jan 2026
[12] Ibid.
[13] Stassen, Murray. 2023. HYBE has now spent $600m+ in a single week, because it buys 14.8% stake in Okay-Pop rival SM Leisure for $334m. Music Enterprise Worldwide, 10 February. https://www.musicbusinessworldwide.com/hybe-acquires-14-8-stake-in-k-pop-rival-sm-entertainment-for-334m1/. Accessed 30 Jan 2026
[14] Ibid.
[15] Dalugdug, Mandy, 2023. South Korea’s Kakao buys 9.05% stake in Okay-Pop large SM Leisure value $172.8m. Music Enterprise Worldwide, 7 February. https://www.musicbusinessworldwide.com/south-koreas-kakao-buys-9-05-stake-in-k-pop-giant-sm-entertainment-worth-172-8m/. Accessed 30 Jan 2026
[16] Herold Muse. 2023. Lee Soo-man threatens authorized motion in opposition to SM Leisure: ‘Kakao’s acquisition of SM shares is illegal’ (official assertion). 7 February. https://www.heraldmuse.com/article/3056777. Translated with DeepL. Accessed 30 Jan 2026
[17] Dalugdug, Mandy, 2023. In victory for HYBE, SM Leisure ends Kakao deal as court docket blocks agency from issuing new shares. Music Enterprise Worldwide, 6 March. https://www.musicbusinessworldwide.com/in-victory-for-hybe-sm-entertainment-ends-kakao-deal-as-court-blocks-firm-from-issuing-new-shares/. Accessed 30 Jan 2026
[18] Dalugdug, Mandy. 2023. HYBE’s SM Leisure takeover plan falls quick, Kakao launches $960m provide for controlling stake. Music Enterprise Worldwide, 7 March. https://www.musicbusinessworldwide.com/hybes-sm-entertainment-takeover-plan-falls-short-now-kakao-launches-960m-offer-for-controlling-stake/. Accessed 30 Jan 2026
[19] Ingham, Tim. 2023. HYBE pulls out of bid to accumulate 40% stake in SM Leisure: ‘The market has been exhibiting indicators of overheating as a result of our competitors with Kakao.’ Music Enterprise Worldwide, 7 March. https://www.musicbusinessworldwide.com/hybes-sm-entertainment-takeover-plan-falls-short-now-kakao-launches-960m-offer-for-controlling-stake/. Accessed 30 Jan 2026
[20] Yim, Hyunsu. 2023. Kakao’s stake in Okay-pop company SM climbs to 40%, HYBE retains 8.8%. Reuters, 28 March. https://www.reuters.com/enterprise/media-telecom/kakao-reaches-40-stake-k-pop-agency-sm-hybe-keeps-88-2023-03-28/. Accessed 30 Jan 2026
[21] Stassen, Murray. 2025. HYBE is promoting its complete stake in Okay-Pop rival SM Leisure to Tencent Music for almost $180m. Music Enterprise Worldwide, 27 Might. https://www.musicbusinessworldwide.com/hybe-to-sell-entire-stake-in-k-pop-rival-sm-entertainment-to-tencent-music-for-nearly-180m/. Accessed 30 Jan 2026
[22] Kang, John. 2016. Why Alibaba Purchased $30M Stake In Okay-Pop Large SM Leisure, Residence To EXO And Ladies’ Technology. Forbes, 11 February. https://www.forbes.com/websites/johnkang/2016/02/11/why-alibaba-bought-30m-stake-in-k-pop-giant-sm-entertainment-home-to-exo-and-girls-generation/#7e130efda556. Accessed 30 Jan 2026
[23] Lee, Eun-young. 2023. Former SM CEO Lee Sung-soo, who pledged to step again, returns to C-level place. ChosunBiz, 14 April. https://n.information.naver.com/mnews/article/366/0000893605. Translated with DeepL. Accessed 30 Jan 2026
[24] Kwaak, Jeyrup S. 2023. SM Leisure Appoints New CEO & Board as Okay-Pop Large Seems to be to the Future. Billboard, 31 March. https://www.billboard.com/professional/k-pop-label-sm-entertainment-appoints-new-ceo-board/. Accessed 30 Jan 2026
[25] Dalugdug, Mandy. 2023. SM Leisure to launch music publishing subsidiary, Kreation Music Rights. Music Enterprise Worldwide, 10 August. https://www.musicbusinessworldwide.com/sm-entertainment-to-launch-music-publishing-subsidiary-kreation-music-rights/. Accessed 30 Jan 2026
[26] Schneider, Marc. 2023. SM Leisure and Kakao Launch Joint Division in North America. Billboard, 1 August. https://www.billboard.com/professional/sm-entertainment-kakao-north-america-launch-partnership/. Accessed 30 Jan 2026
[27] SM Leisure. 2022. SM Leisure Enterprise Report 2021. pp 328-332 (translated with DeepL)
[28] SM Leisure. 2022. SM Leisure Enterprise Report 2021., p 14 (translated with DeepL)
[29] SM Leisure. 2022. SM Leisure Sustainability Report 2021. p 52 and SM Leisure. 2025. SM Leisure Sustainability Report 2024. p 90
[30] See quarterly stories of SM Leisure for 2024