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What is actually going on with SM Entertainment, HYBE, and Kakao?

Since last week, news surrounding SM Entertainment, HYBE Labels, and Kakao have been endlessly circulating the internet and online K-Pop communities. With all of these articles being too long, detailed, and filled with legal jargon, reports about the issue could be too confusing to read, or even incomprehensible at times.

As such, we’re here to help by giving a simplified timeline and explanation on what is happening, the implications, and whatever it is that needs understanding about the conflicts within SM Entertainment, and the involvement of HYBE and Kakao.

(Tbh, nagba-bardagulan lang ‘tong mag-uncle at nephew na si Lee Sung-su at si Lee Soo-man)

February 6/7, 2023

South Korean Internet company Kakao was reported to have purchased a 9.05% stake of SM Entertainment for an amount of 217.2 billion won ($172.8 million). This acquisition then made Kakao the second-largest shareholder of SM Entertainment, after Lee Soo-man who had 18.5% of the shares.

SM Entertainment co-CEOs Lee Sung-su and Tak Young-jun also announced their vision of a “newly restructured” SM Entertainment which they called “SM 3.0”. This concept of “SM 3.0” sees the company parting ways with its founder and chief producer, Lee Soo-man.

On the same day, SM Entertainment’s founder and Lee Sung-su’s uncle Lee Soo-man had laid out his plans of suing his own brainchild (SM Ent.) for their “illegal” deal with Kakao.

February 9/10, 2023

After much speculation, it had been announced that HYBE had acquired 14.8% of SM Entertainment shares from Lee Soo-man for an amount of 422.8 billion won (approx. $334.3 million). This deal made HYBE the largest stakeholder of SM Entertainment, much to the surprise of many K-Pop fans.

February 16, 2023

SM Entertainment CEO Lee Sung-su uploaded a video on his personal YouTube channel, speaking out against Lee Soo-man. Details of this have been lifted from Soompi’s official article

In the video, Lee Sung-su detailed out that LSM had set up the international production company CTP (CT Planning Limited) using a capital $1 million and changed the contract structures for the music distribution of groups WayV, SuperM, and Aespa to go through Chinese and U.S. labels and CTP first. This change of structure means that LSM receives the profits (6%) first before SM and the other labels, when it had originally been the other way around.

Lee Sung-su alleges that CTP was made for this, as well as global expansion and in an attempt to obtain royalties in their projects abroad. Lee Sung-su also claimed that LSM had done this to avoid the Korean National Tax Service.

Among other things that Lee Sung-su mentioned in the video, he had also mentioned that LSM had openly expressed his want to achieve his personal goals, which he had done through the following:

  • Make a press release stating that SM artists need Lee Soo-man
  • Use the employees to encourage the notion that Lee Soo-man is needed in SM to continue,
  • LSM and SM temporarily set a consulting contract domestically to justify LSM’s activities,
  • All albums and artists that are promoting abroad should sign a contract with LSM’s CTP, or SM sign a second producing contract with LSM in Korea
  • Make a response team for LSM even though it costs 10 billion won (approx. $7.8 million),
  • Make it look like the company [SM] does not profit without LSM; find a plan to lower Q1 profits
  • After releasing music that has been completed in production in December, consider delaying mid-to-late February and March releases until April

The last point was emphasized by Lee Sung-su, who shared that this was the reason why Aespa’s comeback had been delayed and that this had caused the members to become upset.

In the video, Lee Sung-su also mentioned that LSM had wanted to push for personal projects, like the construction of a “smart entertainment city” and hold K-Pop festivals that promote sustainability and tree-planting. At the same time, LSM had ordered SM Entertainment’s A&R team and SM’s in-house producer Yoo Young-jin to insert lyrics relating to tree planting and sustainability in all of the company’s important music releases.

Aespa’s lyrics to their title track, according to Lee Sung-su, was supposed to include phrases completely unrelated to their group concept such as “just sustainability,” “at least one degree lower,” “coexistence,” “greenism,” and “tree planting”.

February 17, 2023

A collective of 208 SM Entertainment employees had released a statement on their sentiments about SM Entertainment’s situation with Lee Soo-man and HYBE.

The statement reads as follows (translated from Soompi):

“Once former chief producer Lee Soo-man was in danger of having his illegal tax evading actions unveiled, he sold his shares to a competitor company that he used to speak ill of and ran away.

Us members of SM have been completely used in former chief producer Lee Soo-man’s illegal acts including fraudulent actions for his personal interests and tax evasion. We cannot be used by HYBE’s illegality and expediency again even before we begin the SM 3.0 project.

Thus, 208 regular employees of SM Entertainment are releasing the following statement as we cannot hold our anger about former chief producer Lee Soo-man and HYBE’s unlawful collusion.

  • We will protect K-Pop’s cultural diversity and SM’s distinct identity. We declare that SM’s culture should not be subordinated to HYBE’s capital.
  • We actively support and stand by CEO Lee Sung-su and COO Tak Young-jun’s self-reflection and their plans for SM 3.0 multi-producing. We also demand stronger protection for our artists and fans so they are not harmed.
  • We oppose HYBE’s hostile M&A and their expedient attempt to enter our board of directors. We will resist HYBE’s attempt to take over SM in an abnormal manner.

“Lee Soo-man deserted SM and Pink Blood and ran away, but we will remain at Seoul Forest and protect SM and Pink Blood.”

Collective of 208 SM Entertainment regular employees.”

On the same day, HYBE and SM Entertainment had a “press release battle” in response to Lee Sung-su’s video, as well as the current situation revolving the two companies.

We won’t post their statements, but we’ll just sum it up in just a few sentences.

HYBE Statement 1:

Basically, they said that they [HYBE] have not heard anything about CT Planning Limited and didn’t get any info about the ESG activities that LSM wants to promote. They also said that they will not get involved if LSM’s personal activities aren’t related to SM Entertainment.

SM Entertainment reply to HYBE’s Statement 1:

SM said that HYBE is distorting the problem of CTP, which is technically tax evasion. They also said that if they [HYBE] were aware of CTP while signing the stock sales contract, it would mean that they are participating in LSM’s alleged tax evasion, and if they weren’t aware, that means that they are being deceived by LSM.

SM also mentioned a part of HYBE’s official statement when they were announcing their contract with LSM, which states, “Chairman Bang Si-hyuk expressed deep agreement with the Humanity and Sustainability campaign Lee Soo-man announced earlier this year and told Lee Soo-man of his desire to take part in using the influence of sustainable K-Pop together,” and “Chairman Bang Si-hyuk states that HYBE fully agreed with the strategic direction such as the implementation of the metaverse, establishment of a multi-label system, and a campaign to save the Earth,”

Which, definitely sounds fishy if HYBE says that they didn’t get any information about LSM’s ESG activities.

HYBE Statement 2:

HYBE says that they are already trying to help SM resolve their internal conflicts one by one and are asking for SM’s stance on what they will do aside from exposing their [HYBE] contract with LSM.

HYBE also said that SM’s directors should be responsible of what they are putting out in the public and to reassure their fans, employees, artists, and stockholders.

Again, what we’ll just say about this whole issue is: nagba-bardagulan lang ‘tong mag-pamilyang ‘to. But yes, the future of SM Entertainment seems to be a little confusing at the moment.

Also, please show Aespa some love. They don’t deserve this.

Other POP! stories that you might like:

Lee Soo-man moves to sue SM Entertainment for deal with Kakao

EXO’s Kai and SHINee’s Onew set to make their solo comebacks this March

K-Pop stans react to Lee Soo-man suing SM Entertainment

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