Betting the house or burning it down? How the scarcity of success led to the HYBE-ADOR power struggle.

Industry

Published: 24 May. 2024, 07:00 Updated: 26 May. 2024, 15:35

Betting the house or burning it down? How the scarcity of success led to the HYBE-ADOR power struggle.

HYBE's headquarters in Yongsan District, central Seoul [NEWS1]

[THIRD IN A THREE-PART SERIES]

HYBE CEO Bang Si-hyuk alerted the world with a shocking revelation in March 2023: “K-pop is in crisis.” The analysis, it turned out, came after witnessing firsthand the crises within his own company and the subsidiaries under its giant HYBE umbrella.

The ongoing bloodshed between the BTS agency and its subsidiary ADOR, home to girl group NewJeans, has brought up issues inherent to the K-pop industry that have previously been overlooked or treated as unfixable elephants in the room.

In this three-part series, the Korea JoongAng Daily will dive deeply into the ails of the K-pop industry that the ongoing feud between HYBE and the CEO of ADOR has uncovered and the changes that must follow.

A court ruling speculated to come out sometime next week will determine the fate of ADOR CEO Min Hee-jin. Will she emerge smiling, having temporarily averted a crisis while compelling HYBE to keep her, or will she face separation from her beloved girl group, NewJeans?

The ruling will be the outcome of an injunction filed by Min to prevent ADOR’s parent company, HYBE, from exercising its voting rights at the subsidiary label’s shareholders’ meeting on May 31.

The primary agenda of the meeting is the removal of Min from her executive position, as well as other ADOR executives on the label's board of directors.

A little over a month has passed since HYBE initially accused Min of attempting to “seize management control” over ADOR and launched an internal audit against the label.

HYBE even reportedly made a shortlist of candidates to run ADOR on Thursday in hopes of earning shareholder approval to appoint a new head at the May 31 meeting, with media outlets reporting that the list comprises C-suite executives including Chief Human Resources Officer Kim Ju-young, Chief Strategy Officer Lee Jae-sang and Chief Financial Officer Lee Kyung-jun.

Everything will unfold according to HYBE’s plan — so long as the injunction is dismissed.

During the process, more harm than good has been done as ugly truths have been uncovered by both sides, eager to demean and expose the other’s weaknesses.

It might take some time for the smoke to clear and reveal the rights and wrongs of each side, but what can unanimously be agreed on is that HYBE granted Min exceptional power, so much that it is now costing them dearly.

What made HYBE do this? Can the cause of this issue be traced back to uncover the problematic management structure of the K-pop industry, or is it specific to HYBE?

K-pop success is an expensive loot box system

Before taking a look at the HYBE-ADOR spat, one thing to understand about K-pop is that success is not guaranteed. It’s similar to an extremely expensive loot box system — if the group succeeds, the artists and the agency can gain everything: money, fame and power as millions of ardent fans around the world indulge in your every move.

It’s the other side of the coin that lurks in the shadows but undeniably exists: what happens if you fail?

For the agency, significant investments of time, effort, and billions of won disappear, while for the artists, their hopes and dreams crumble. Many receive little to no pay during their initial active years because they fail to reach the break-even point — a common practice in the industry where artists earn nothing until their debts are repaid. These debts are incurred from things like the agency’s expenses for training, song creation, choreography, music videos, albums and promotional costs.

That is why all the K-pop trainees want to land at the so-called “big-four” — HYBE, SM Entertainment, YG Entertainment and JYP Entertainment — because these agencies have the affluence and capacity to support artists to the fullest.

Trainees under the big four are often described as the top-tier “golden spoon,” Korean slang for those born into rich families, and the demand for big budgets to back the artists grows as K-pop groups target the global market.

(G)-IDLE's Soyeon speaks about the budget spent on the music video for "Super Lady" (2024) on an episode of the a JTBC variety show "Knowing Bros" that aired in February. [JTBC]

“We spent 250 million won [$183,000] on the music video for ‘Tomboy’ back in 2022,” Soyeon of (G)I-DLE admitted on an episode of the JTBC variety show “Knowing Bros” that aired in February. “For ‘Super Lady,’ we spent 1.1 billion won.”

The budget was necessary, Soyeon elaborates, because of the sheer scale of the music video and the payment for the 500 extras and 100 dancers who appear in the music video.

“About half of the budget went to pay the cast,” she adds.

Besides capturing public attention by debuting under a big label, the other avenue to reach the spotlight is to debut through a TV audition program, which doesn’t come cheap nor guarantees success. F&F Entertainment, a subsidiary of the mid-sized fashion company F&F, invested more than 10 billion won to coproduce the audition program “Universe Ticket” (2023-24) on SBS. Eight-member girl group UNIS debuted in March 27 with the EP “We Unis,” but the group did not have quite the impact as its predecessors from similar series such as “Produce 101” (2016-19).

Singer Lim Chang-jung spent 20 billion won to create the girl group mimiirose in 2022, but the partnership failed to make headway in the music scene. The original quintet and Lim mutually agreed to terminate their contract last year, and mimiirose switched representation to a rookie K-pop agency, Pocket7 Entertainment, in March and has added two new Japanese members to become a septet.

ADOR’s special case

But once a group succeeds, everything turns to sunshine and roses. BTS, one of the first K-pop phenomenon to break into the global music market, is estimated to have generated economic effects worth 41.86 trillion won over the past decade, according to 2023 data from Hyundai Research Institute.

Expanding to the global market means more money poured into the artists, but it also means an accelerated timeline of success if they do manage to capture the hearts of global fans.

NewJeans made headlines last month amid the ongoing HYBE-ADOR dispute for the quintet's payment of 26.1 billion won in total last year, according to ADOR’s electronic disclosure. That means each member was paid 5.2 billion won in salary for 2023, just a little over a year since the girl group debuted with a bang in July the year before.

But so did Min.

ADOR CEO Min Hee-jin speaks at the now-famous press conference in southern Seoul on April 25. [YONHAP]

A former creative director of SM Entertainment, Min oversaw the themes and concepts of countless EPs and albums of star-studded K-pop groups such as Girls’ Generation, SHINee, f(x), Red Velvet and NCT. In the heyday of her SM career during the mid-2010s, there were barely any music videos from the label's artists that she didn't direct. Some of her recognized works include Taemin’s “Danger” (2014), Red Velvet’s “Ice Cream Cake” (2015), “Automatic” (2015) and “Russian Roulette” (2016), and f(x)’s “Nu ABO” (2010), “Pink Tape” (2013) and “4 Walls” (2015).

In 2019, Min was recruited by HYBE initially as the chief business officer tasked with the mission of rebranding the label, then known as Big Hit Entertainment, and launching its first-ever girl group.

Launching new groups was particularly important for HYBE, which needed to ensure continued profitability post-BTS.

Creating a successful girl group was crucial, especially after witnessing YG’s Blackpink and JYP’s Twice take the world by storm.

Despite being the producer behind BTS, HYBE CEO Bang did not have a knack for girl groups. His first and only girl group GLAM, which debuted in 2012 with a hip-hop theme, disbanded in less than three years, disappearing without a trace.

HYBE founder Bang Si-hyuk, in the middle, posing with Le Sserafim members Kim Chae-won and Sakura for a photo. [INSTAGRAM]

“My presumption is that HYBE needed Min and that is why it granted her such power,” said an analyst who spoke on the condition of anonymity.

Experts within the entertainment scene unanimously agree that Bang’s management style is unusual, suffice to say even naive, to have bestowed Min with such authority — it might even be a precedent in the K-pop scene.

HYBE claimed last Friday that it had “generously” invested over 16 billion won to allow Min to create three separate music videos for NewJean’s triple title tracks, evidently implying that she owes her success with the girl group to HYBE’s capital.

Girl group NewJeans [ADOR]

Going a step further, the parent label even granted Min an 18-percent stake in ADOR in March 2023, with 75 percent of her holdings under a put option. This means that under the original contract, Min could reap 100 billion won if she chooses to exercise the option as of this November.

“The shareholder contract between HYBE and Min is formulated [in such a way that it offers] a lot of rewards to the latter,” the analyst said. “In Korea, no other creator, regardless of how popular they are, have the option to reap 100 billion won. And Min was granted a partial stake in her label and the right to exercise the put option because ADOR is not listed, which means that HYBE is paying out of its own pocket to compensate her.”

Allowing Min to also stack ADOR’s board of directors with close associates was just the cherry on top of HYBE’s leniency towards her.

HYBE's short-term goal for now, in fact, is not about proving that its multilabel system is intact: it's to remove Min from her position, and then prove that NewJeans won't feel her absence and will do as just as well as before.

"We are working to ensure that ADOR quickly gets back on track and resumes all operations normally," HYBE CEO Park Ji-won told employees at an internal town hall meeting on Wednesday. "We clearly state that we will continue to fully support NewJeans' activities together with the members of HYBE and ADOR."

Prof. Hwang Yong-sik from the department of business administration at Sejong University views the situation as a typical case of failing to separate ownership and management.

“In management, this is known as the principal-agent problem,” Hwang noted. “Perhaps HYBE’s multilabel system did foster the creativity to produce girl groups like NewJeans, but from the perspective of a typical manufacturing or service company, [the relationship between HYBE and ADOR] seems excessively loose in control. When you give someone such a significant amount of shares, at some point, human nature leads to greed. Bang might have approached this entire matter too lightly and given too much authority to Min.”

Leaving out the “K” in K-pop

In the infamous, tear-ridden press conference by Min on April 25, during which she claimed innocence, she also lambasted the current K-pop industry for the random photocards that the agency places inside the albums.

This strategy has become the norm within the industry — inevitably leaving die-hard core fans of a certain K-pop group no choice but to buy multiple copies of the same album to attain the photo card that they want.

Agencies use this tactic to reap more album sales — and not only is this about reaping more profit, but the sales and streaming playcount have become the barometer to demonstrate a K-pop act’s popularity and market influence.

K-pop album sales have been hitting record highs each year, according to market tracker Circle Chart. In 2023, the figure reached an another all-time high of 116 million copies.

In a survey involving 500 respondents regarding their purchase of 50 major K-pop albums released in the past two years, 52.7 percent stated that they had purchased albums to collect photo cards and other merchandise, according to the Korea Consumer Agency. About 39 percent, or 194 respondents admitted to buying albums to obtain random goods, with an average of 4.1 copies of the same album purchased. Twenty percent also answered that they bought multiple albums to win a ticket for fan signing events, with an average of 6.7 copies purchased per person.

Do fans actually listen to the CDs?

The answer to the question is implied to one video that went viral on X, formerly known as Twitter, last month.

The video showed boxes of new albums from Seventeen’s “17 is Right Here” scattered across the street in Tokyo, posted under the words, “Seventeen’s new albums are being discarded in boxes on the streets of Shibuya. This is really terrible...”

A post uploaded on X, formerly Twitter, on April 30 went viral as the poster reported that albums of boy band Seventeen were discarded on the streets of Tokyo. [SCREEN CAPTURE]

The post came only a day after the boy band released the album on April 29.

And there exists K-pop fans pushing for environmental awareness in the industry, filing petitions with major agencies to commit to environmental, social and governance (ESG) management principles.

“We are filing requests with K-pop labels to respond to our demands for their ESG activities,” said Lee Da-yeon, a campaigner at KPOP4PLANET, an alliance of K-pop fans that advocate for eco-awareness within the industry. “Our top priority is to prohibit duplicate album purchases. Specifically, we want the labels to end practices such as distributing random photocards, creating multiple album covers to stimulate consumption, and using the albums as an entry requirement for fan sign events.”

The reason why labels are fixated on album sales is simple: they make up a considerable chunk of annual revenue. Among the big four, JYP Entertainment’s album and streaming sales took up 46.3 percent of its total revenue in 2023, followed by YG Entertainment with 34.7 percent, SM Entertainment with 33 percent and HYBE with 30 percent.

The heavy dependence on these core fandoms to hoist up the K-pop industry is precarious to say the least, which HYBE’s Bang long foresaw when he warned the world that K-pop is in crisis.

During his appearance on the tvN variety show “You Quiz on the Block” last year, he pointed out the structural issues of K-pop fandom, stating, “K-pop has a very concentrated structure. There aren’t that many causal fans, but we need to move toward a structure that can attract them as well.”

Kim Jin-woo, a senior researcher at Circle Chart, says one of the central strategies within the industry to engage with lighter fandoms is to form localized K-pop groups.

The move is a step further than the multinational K-pop groups that the agencies have fronted.

HYBE, for instance, is set to debut its first-ever U.S. girl group targeting the market there under the name Katseye this summer, while JYP Entertainment has an all-Japanese girl group, NiziU, and an all-American girl group, VCHA. SM Entertainment also announced plans last November to debut a British boy band in collaboration with British producer Moon & Back Media.

HYBE's new American girl group Katseye [JOONGANG ILBO]

“It’s about combining our advanced production techniques with local idols in overseas markets to diversify revenue streams and achieve a stable income structure,” he said, using the Korean term “idol” to refer to celebrities in the K-pop industry. “It’s what the experts have dubbed K-pop 3.0.”

The reason for the shift is the inherent uncertainty in relying solely on the K-pop wave and concern about the sustainability of Hallyu for K-content.

Kim projects that K-pop acts venturing into the global market will benchmark models of past successful global girl groups such as Destiny’s Child or the Spice Girls.

“I believe the K-pop 3.0 artists entering the global market will drop the 'K' a bit and take on more of a real pop market approach,” Kim said. “They'll shed a lot of the traditional K-pop characteristics and focus on international activities as local K-pop girl groups.”

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]