[Editorial] K-pop’s defining moment

The ferocious battle to purchase SM Entertainment between Kakao and HYBE has ended with Kakao’s victory. As the acquisition race was heated, SM’s stock price skyrocketed. Whoever won the war had to pay excessive costs. Fortunately, the shareholders reached a dramatic agreement at the last minute to avoid the winner’s curse.

But all parties involved in the mud fight must not brush off the criticism that they alienated K-pop bands and their fans, inadvertently or not. In the face of deepening public disappointment, the entertainment companies reflected on what they did. Kakao promised to honor the integrity of SM’s executives and staffers, members of its K-pop bands and their fans. Kakao also pledged to guarantee the autonomous operation of SM Entertainment, along with a vow to accelerate their global promotion. In reaction, SM made a commitment to elevate itself to global entertainment company respecting fans and shareholders.

The battle over the management rights of SM exposed the shades of K-pop success. Though the market cap of SM snowballed to billions of dollars, the problem was its opaque business operation by a top producer intervening in all decision-making processes of the company. For instance, SM annually gave 10 billion won ($7.6 million) as “producing cost” to CTP, a Hong Kong-based company 100 percent owned by SM founder Lee Soo-man. The issue was first raised by activist fund Align Partners. Investment funds in Korea already pointed out the problem, but SM didn’t move until the hedge fund raised issue with the shady practice.

Though K-pop seems to enjoy its heyday, insiders started expressing their concerns. Despite the popularity of K-pop, the combined sales of the top four entertainment companies in Korea account for only two percent of the global market dominated by Universal (31.9 percent), Sony (21.9 percent) and Warner Brothers (16.3 percent).

Album sales are dwindling fast. K-pop sold albums worth $231.4 million last year, the largest ever, but grew at less than five percent. There are no powerful boybands on par with BTS, either. Even Bang Si-hyuk, board chair of HYBE, recently worried about “many dangers ahead if K-pop is left unattended.”

The time has come for industry insiders to look back. They must wonder if they were intoxicated with the success of K-pop too much. All parties involved must review their K-pop strategy. No success lasts forever. To help extend the success, they must raise transparency befitting its bigger size while moving forward through the multi-label strategy. Otherwise, K-pop will follow in the sad path J-pop took before.