Record Labels
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SEOUL — The bitter battle for control of K-pop’s fabled agency SM Entertainment has spilled out publicly like an episode of HBO’s Succession. K-pop’s largest agency, HYBE — home to boy band BTS — is pitted against the management of SM, which for years was South Korea’s dominant K-pop company. But as SM’s Lee Soo-man sided with HYBE against the company he founded, a corporate shakeup has turned into a battle royale.
SM sought to maintain its independence through a partnership with Kakao, a South Korean internet giant that has acquired several entertainment agencies. In February, Kakao said it would buy a 9.05% stake in SM against the wishes of Lee, SM’s charismatic founder and rock singer-turned-mogul, whose equity in SM allowed him to challenge the purchase in court.
About a week later, Lee — a controversial figure who helped build the K-pop business over the last three decades but has been convicted of embezzlement in the past — privately approached HYBE founder and chairman Bang Si-hyuk, offering to sell about 80% of his SM shares to HYBE, with an option to sell the remaining chunk at a later date, according to a person with direct knowledge of the matter. As a result, HYBE now has a 15.8% stake in SM, making it the company’s largest shareholder.
Since then, the companies have traded almost daily salvos.
After a March 3 provisionary injunction upheld Lee’s court challenge to the Kakao acquisition, Kakao announced it had canceled its investment in SM and launched a tender offer seeking to buy 35% of SM from minority shareholders. HYBE is now appealing to SM shareholders to back its board nominees and vision for the company. SM sees the move as a hostile takeover and is asking shareholders to appoint independent directors. The clock is ticking before a March 31 annual shareholder meeting.
Both HYBE and SM have grand ambitions to expand K-pop and take on the major labels globally. HYBE increased its revenue 125% to 1.78 billion won ($1.41 billion) from 2020 to 2022, largely by acquiring Ithaca Holdings in 2021 for $1.05 billion and giving its founder, Scooter Braun, the reins to its U.S. operations, HYBE America. In February, HYBE America made its first major move, purchasing Atlanta-based hip-hop company Quality Control Music for $300 million.
SM hopes to more than double its 2022 revenue of 850 billion won ($644 million) to 1.8 trillion won ($1.36 billion) by 2025 through a mix of partnerships and acquisitions, which include acquiring a U.S. management company and, by the second half of 2024, launching its first U.S.-based artist. “Our plan is not limited to local activities of Korean artists,” co-CEO Tak Young-jun said in a Feb. 23 video.
The company plans to spend 350 billion won ($266 million) on a music publishing company and 300 billion won ($228 million) to acquire record labels, with two-thirds of that amount ($152 million) targeting U.S. companies “with a solid local network that can support Korean artists’ global expansion and have global production capabilities in genres complementary to SM,” Lee Sung-soo, SM’s chief creative officer and co-CEO, said in the same video.
But minus its powerful founder, SM doesn’t intend to take the world stage with HYBE’s help. It had envisioned Kakao as its preferred partner in a mission — dubbed “SM 3.0” — it has said it will still push forward with in order to expand outside of Korea and build outposts in Japan, Southeast Asia and the Americas.
A HYBE acquisition of a controlling interest in SM could potentially face regulatory scrutiny from South Korea’s Fair Trade Commission since it exceeds 15% of SM’s stock ownership. In 2022, HYBE was behind 26.8% of albums sold in Korea, while SM was behind 19.1%, according to Korea chart company Circle Chart.
As Lee Dominated, SM’s Luster Was Fading
Though few had predicted such a dramatic unraveling, SM was overdue for a transformation. Once the leading K-pop innovator, SM has debuted just one completely new act, Aespa, in the last five years. It continues to operate through a single pipeline with Lee at the helm of artist management and production, while rivals like HYBE and JYP Entertainment have diversified their portfolios, relying on multiple teams that produce more acts with more independence.
SM’s shares have been chronically undervalued, industry observers say, due to an arrangement where the company paid producing fees to a separate entity owned by Lee. SM paid Lee 24 billion won ($18.1 million) in 2021, equivalent to more than a quarter of SM’s operating profit that year. Even in years when SM produced a loss, Lee took home a sizable paycheck.
The board of directors, packed with Lee allies, allowed the practice to continue for years, until Align Partners Capital Management, a private equity firm, led a shareholder revolt last year. Lee, who now holds about 3% of SM shares, appears headed out the door. HYBE and SM say his role will be reduced if not completely phased out.
“It’s hard to put up a resistance in Korean culture,” Lee Changhwan, CEO of Align Partners, says about the difficulty in over-riding a founder and company’s biggest shareholder. “The governance structure has to go through fundamental changes.”
South Korean stocks are often undervalued, analysts say, since some companies can seem to be managed for the benefit of founders and families to the detriment of general shareholders. Still, in the HYBE-SM power struggle, SM shareholders appear to have won either way: The March 7 share price of 149,700 won ($113.84) is up over 116% since SM announced it would terminate Lee’s contract on Oct. 14.
A K-Pop Pioneer With A Criminal Past
The 70-year-old Lee, who founded SM in 1995, has been credited with making K-pop what it is today. Inspired by early MTV music videos and New Kids on the Block, which he watched during his master’s degree studies in California in the 1980s, he paved the way for K-pop to win overseas fans with a signature formula of visually striking performance and dance pop.
Lee crafted BoA, the female singer who SM scouted in 1998 when she was 11 years old, into the first K-pop artist to break through in the Japanese market; she went on to sell millions of singles and albums. Groups from TVXQ and Girls’ Generation to EXO and NCT have followed suit with international stardom. In 2000, SM became the first K-pop agency to list its shares publicly.
Even before PSY and BTS became global household names, Lee was lecturing publicly about K-pop conquering the world — and about a future when non-Korean singers would join the fray and be trained and managed by K-pop production teams.
Lee’s artistic vision and drive didn’t make up for the company’s corporate governance problems, however. Shareholders have in recent years slammed SM for losses from non-music businesses such as a winery and restaurants while Lee was still getting his producer’s fees. Several SM acts have seen members leave acrimoniously over what they called harsh training and “slave contracts,” resulting in government intervention, including shorter contracts for K-pop trainees and stars.
In 2002, Lee made headlines when he fled the country to escape prosecution while facing embezzlement allegations. After a brief stay on Interpol’s wanted list, he surrendered to Korean authorities and was convicted for siphoning off 1.15 billion won ($892,000 at the time) in company funds during a recapitalization round, which he used to buy shares in SM. (He served three years of probation, and in 2007 he received a presidential pardon — and then returned to the company.) SM has also paid fines for tax evasion, most recently in 2021.
In recent weeks, Lee Sung-soo, the co-CEO who is also nephew to founder Lee’s late wife, leveled a series of accusations at his uncle, which range from previously undisclosed tax evasion through a shell company based in Hong Kong to making “arbitrary” changes to SM bands’ musical direction to advance his own business interests.
While the elder Lee has not directly addressed the allegations, HYBE has responded that it was unaware of such an arrangement during the deal’s signing. In a statement to Billboard, HYBE says its SM acquisition was made “following research on the corporate fundamentals, including publicly disclosed information about SM.”
The Cadillac Three members Jaren Johnston and Neil Mason have teamed with Warner Records via a joint venture to launch the Nashville-based label War Buddha Records.
The first signing to the venture is Los Angeles-based singer-songwriter Rett Madison, who recently wrapped a run of shows with St. Paul & The Broken Bones and is slated to play during SXSW 2023.
“As artists ourselves, we created War Buddha first and foremost as a home for artists,” Johnston said via a statement. “In partnering with our longtime friend Aaron Bay-Schuck, alongside Tom Corson and the stellar Warner Records team, we saw the opportunity to mix our dirt with Warner’s power to create a venture fostering both creative expression and commercial success.”
“We want the label to offer a platform for artists with unique perspectives who fit out, not in, and feel unafraid to tell their stories unapologetically,” Mason added. “Rett is the perfect first signing for the label: an artist with the incredible ability to capture life experiences in songs that make the listener feel they are in those moments with her. We’re so grateful to Aaron and Tom for the chance to build this label together.”
Nashville natives Johnston and Mason, along with their The Cadillac Three cohort Kelby Ray, have released albums via Big Machine Records including 2016’s Bury Me in My Boots, and a pair of 2020 projects, Country Fuzz and Tabasco and Sweet Tea. As songwriters, Johnston has written songs recorded by artists including Tim McGraw (“Southern Girl”), Keith Urban and Eric Church (the duet “Raise ‘Em Up”). Mason has written songs recorded by artists including Miranda Lambert (“Old Sh*t”), and Jake Owen (“Days of Gold”).
“For as long as I have known Jaren and Neil, they have never taken a conventional path,” said Bay-Schuck, co-chairman & CEO of Warner Records, via a statement. “They’ve been fearless in their pursuit of great art, never compromising any integrity or authenticity in their approach to their own artistry or collaborations as songwriters and producers for other artists. As we continue to build the Warner Records brand as one that is always a safe and encouraging place for artists who dare to be different, take risks, and have a point of view, it made total sense to partner with War Buddha on their mission to do the same. We are very excited to welcome Rett Madison as the first artist from this partnership and we can’t wait to see what other unique and amazing talent Jaren and Neil discover.”
“I couldn’t be more thrilled to be joining the Warner Records family with War Buddha!” Madison said. “I’ve felt such genuine enthusiasm from Neil and Jaren in regards to my music and their total support of me sharing my most authentic, artistic voice feels refreshing. I can’t wait to see what we all build together.”
There are twin $10 billion milestones served up in the RIAA’s 2022 year-end report on U.S. recorded music revenues: paid subscription streaming revenue reached $10.2 billion over the course of the year; and industry revenues at wholesale reached $10.3 billion, the first time either of those markers have been crossed, the trade body reports.
Those are two headline numbers of the annual report, wherein U.S. recorded music revenues grew 6.1% at retail, from $15.0 billion in 2021 to $15.9 billion in 2022. That marks the seventh straight year of growth for the business, though the percentage of that bump is the lowest since 2015 (+0.9%), the first year that retail revenues began to rise from the industry’s 2014 nadir. (The growth that year was so small, around $65 million, that it was essentially flat for all intents and purposes.) In fact, 2022 is the only year during that time period when growth has not exceeded double digits other than 2020, when a first COVID-impacted year of uncertainty still saw a 9.2% rise in revenue.
Streaming, unsurprisingly, made up the bulk of the industry’s revenues — 84%, up a tick from 83% in 2021, adding up to $13.3 billion in 2022, up 7% from $12.4 billion the year before. Within that, the aforementioned paid streaming chunk was the largest, accounting for 77% of that total for 8% year-over-year growth, and in and of itself making up just shy of 2/3s of the industry’s overall revenues; of the overall paid streaming number, so-called “limited-tier” subscription streaming — including the likes of Amazon Prime, Pandora Plus, Peloton and other fitness or restricted streaming options — grew 18% to surpass $1 billion, coming in at $1.1 billion overall. And ad-supported streaming — like YouTube, Spotify’s free tier or revenues from TikTok — moved up 6% to $1.8 billion, making up 11% of all revenues for the year.
The average number of paid subscriptions in the U.S., meanwhile, reached 92 million, up 9.6% from the 84 million that existed in 2021. (The RIAA notes that this does not include limited-tier subscriptions, and counts “multi-user plans” as one subscription. The overall paid streaming figure of $10.2 billion includes limited-tier.) That growth, while significant given that it is higher than overall revenue growth, is down in both actual numbers and percentage growth for 2021, as was the revenue growth gleaned from paid subs, suggesting that while there’s still room to go higher and records continue to get broken, there may be a slowdown in subscriptions in the future.
Outside of those streaming figures, digital and customized radio revenue — paid out by services such as SiriusXM — inched up 2% YoY, even as SoundExchange payouts declined 3% to $959 million; those other ad-supported platforms such as SiriusXM and other internet radio services grew 28% in revenue during the year, contributing $261 million to the overall pie. That ends a few straight years of growth from SoundExchange distributions, though the overall figure of $1.2 billion from digital and customized radio in general has remained relatively flat for the past several years.
Also within the digital realm, downloads continued their stumble down the proverbial cliff, dropping 20% across the board — both for tracks and for digital albums — to total $495 million in revenue ($242 million for tracks, $214 million for albums). The RIAA notes that in 2012, digital downloads made up 43% of the overall industry’s revenue; in 2022, that number was just 3%. Factoring other formats, total digital revenue was $13.8 billion, up 6.0% from 2021, or 87% of the total business.
For the first time since 1987, vinyl LP units outsold the number of CDs, 41.3 million to 33.4 million (vinyl overtook CDs in revenue in 2020), as its year-over-year growth streak stretches to 16 years — old enough to drive. Total physical revenue was up 4% in 2022 to $1.7 billion, of which $1.2 billion came from vinyl — up 17% YoY, making up 71% of physical revenues. CD revenue, meanwhile, continued to decline despite the one-time pandemic boost of a few years ago, down 18% to $483 million in 2022. Synch revenue also grew, up 24.8% to $382.5 million.
“2022 was an impressive year of sustained ‘growth-over-growth’ more than a decade after streaming’s explosion onto the music scene,” RIAA chairman/CEO Mitch Glazier said in a statement accompanying the report. “Continuing that long run, subscription streaming revenues now make up two-thirds of the market with a robust record high $13.3 billion. This long and ongoing arc of success has only been possible thanks to the determined and creative work of record companies fighting to build a healthy streaming economy where artists and rightsholders get paid wherever and whenever their work is used.”
If the price of an individual streaming subscription plan were adjusted for inflation in 2023, it would cost $13.25 instead of roughly $10 a month, Warner Music Group CEO Robert Kyncl said on Wednesday (March 8) — a statistic that doubled as a plea for streaming companies that have yet to raise fees to get in line.
While several of the big music streaming companies — including Apple, Amazon and Deezer — have raised their baseline prices recently, the biggest one of all, Spotify, has so far held off on raising the $9.99 pricetag on its U.S. premium subscription plan. Though Kyncl didn’t specifically address Spotify on Wednesday, when he spoke at the Morgan Stanley Technology, Media & Telecom Conference, he said companies that haven’t raised their prices are playing a role in the undervaluing of music.
“We are the lowest (cost) form of entertainment,” he said. “We have the highest …engagement, highest form of affinity and lowest per hour price. That doesn’t seem right. It should change in an orderly fashion.”
While Kyncl is far from an unbiased commenter on price hikes — music labels stand to gain significant revenues from DSPs raising their subscription prices — Kyncl says the 12 years he spent at YouTube has shown him companies can raise prices if they have a product consumers cherish.
“YouTube TV has grown its subscription from $35 to $70 while growing … because they have a superior product,” Kyncl said.
During the wide-ranging presentation, Kyncl also expressed empathy for executives at TikTok who are at “a company that’s kind of embattled today with lots of different institutions around the world.”
“As someone who’s kind of gone through that, it is much better to have friends and not fight a war on every flank,” he added, recalling the contentious relationship YouTube once had with the music industry.
TikTok is engaged in ongoing negotiations over remuneration to rights holders, a group that includes Warner Music Group (WMG). On Wednesday, Kyncl noted WMG is open to a friendlier dynamic with the popular music discovery tool so long as it works for “both sides.”
“That’s all I look for, fair setup on both sides and to grow a business together,” Kyncl added.
Brazilian pop star Anitta is lashing out at Warner Music, saying she regrets signing with the label and would have “auctioned off her organs” to be let out of her contract.
The artist — who had a breakout 2022 with the success of her tri-lingual album Versions of Me, a No. 1 track on the Billboard Global Ex. U.S. chart with “Envolver” and performances at Coachella and the Latin Grammy Awards — went on a Twitter tirade last week when fans prodded her to explain her tortured history with Warner.
When one fan said he wished she could be free of her contract, she responded that “if there was a fine to pay, I would have already auctioned off my organs, no matter how expensive it was to get out. But unfortunately, there isn’t. When you’re young and still don’t know a lot, you need to pay close attention to the things you sign… if you don’t, you could spend a lifetime paying for the mistake.”
A spokesperson for Warner Music declined to comment. Leila Oliveira, Warner Music Brazil’s new president, did not respond to a message from Billboard. Brandon Silverstein, Anitta’s U.S.-based manager, also did not respond to a request for comment.
Meu amor se tivesse uma multa pra pagar eu já tinha leiloado meus órgãos por mais caro q fosse pra sair fora. Mas infelizmente não tem. Qndo a gente é novo e ainda ñ sabe muito tem q prestar muita atenção nas coisas q assina…se não pode passar uma vida inteira pagando pelo erro— Anitta (@Anitta) March 2, 2023
Anitta signed with Warner Music in the U.S. in January 2020 after previously signing with Warner Music Brazil in 2013. Under the U.S. contract, she produced Versions of Me, which was executive produced by Ryan Tedder. Anitta has said she’s required to deliver two more albums for the label to satisfy the contract. (In January 2022, she signed a publishing deal with Sony Music Publishing.)
This isn’t the first time Anitta has complained about Warner. She previously swiped at the label for having to pay for music videos out of her own pocket, including for “Gata,” which she said Warner refused to produce a video for when they saw that the song’s performance on streaming platforms was falling below expectations.
“They only invest after it pays off on the internet,” Anitta said in an Instagram livestream in May. “Unfortunately, there are things I can’t get, that’s why I don’t buy millionaire cars, because when I want to do something, I pay for it.” (She says she ultimately got a sponsor to help pay for the video.)
During the same livestream, Anitta also said that Warner only invests in her work after a song goes viral on TikTok. “The label is very tied to TikTok, to what goes viral, and if they don’t get a hit right away, they say ‘later,’” she said.
Anitta’s fans have also criticized Warner for the label’s perceived treatment of the Brazilian singer, with many complaining on Twitter that Warner didn’t give her 2021 single “Girl From Rio” the marketing push it deserved by including it in playlists on streaming services. (The song, which combined bossa nova and trap with English lyrics, dropped rapidly on the charts.)
Anitta has also said that Warner initially resisted the release of “Envolver,” the single that blew up after Anitta’s butt-grinding dance in the song’s video, which she directed, became a global TikTok sensation. “[Warner] said the song wasn’t going anywhere and that I wouldn’t have the sway to release it alone [without a feature on the track],” she said during an Instagram livestream in December.
Late last year, Anitta’s fans began urging her to release a funk remix of “Practice,” which she originally recorded with A$AP Ferg and HARV, but the singer said last week that Warner wouldn’t allow her to. “When I saw that you liked [the remix version] I asked to release it, and it has been a long time,” she wrote to her fans on Twitter. “But things can only be released with their authorization.”
Since Anitta’s tirade last week, fans have organized a #FreeAnitta movement on Twitter. One fan posted a photo depicting the singer sobbing in a jail cell with the Warner Music logo on the wall behind her. Another fan asked her if her harsh comments could damage her relationship with the label.
“Is there a way it could get worse? Hahaha,” she responded.
Six years ago, Drake delivered a message to Apple Music’s then-global creative director Larry Jackson that would change his life.
“Someone get Larry Jackson on the phone,” Drake rapped on the first verse of Lil Wayne’s “Family Feud,” a track that Jackson heard for the first time while he was vacationing in the Maldives. “I need some ownership if we pressin’ go.”
“I really sat down and started to reflect on my life,” Jackson recalled recently at one of his regular tables on the patio at The Beverly Hills Hotel’s Polo Lounge, where the 42-year-old often spends mornings hobnobbing with music business power brokers and fielding a steady stream of calls from A-list artists seeking his counsel on everything from creative projects to sponsorship deals. Drake’s verse shook him from a “slumber” he says had been induced by his corporate, “hamster wheel” routine, and made him think: “What if there was another level to the video game?”
Jackson says that wakeup call inspired him to revisit an idea for his own venture that he’s now launching as Gamma, a one-stop-shop media company that creates, distributes, and markets content, from music to podcasts to films, offering resources and guidance to artists who want to build their brands and expand beyond music. Backed by investors that include Apple and Todd Boehly’s Eldridge (which also owns a stake in Billboard’s parent company) Gamma debuts as the “best capitalized music company competing with the major labels and signing superstars,” says Raine Group partner Fred Davis, who advised Jackson through his fundraising process, though neither he nor Jackson would disclose the amount raised to date.
“There’s a lot of private equity acquiring catalogs,” Davis tells Billboard, “but this is unprecedented.”
Jackson acquired the distribution platform Vydia in December, subsuming its 76 mostly New Jersey-based employees, and has struck deals with about a dozen of the world’s most influential creators, from Usher to Naomi Campbell to Angelica Nwandu, founder of The Shade Room, one of Instagram’s most popular news channels.
In December, Gamma also quietly acquired a stake in the Death Row Records catalog from Snoop Dogg, who had purchased the catalog last year and pulled it from streaming services. Jackson wouldn’t disclose the terms of his deal with Snoop Dogg, whose real name is Calvin Broadus, but said that it’s a long-term partnership that includes two future albums and allows rights to revert back to Broadus after “we work together to enrich the value of the IP.” Jackson released the catalog exclusively on TikTok last month without disclosing his participation, allowing fans to create their own videos using clips from classic albums like Doggystyle, and to transform themselves into various breeds of dogs using TikTok’s “What Dogg Are You?” AR filter, an effort to drive buzz and engagement for the music before it returns to streaming platforms.
Jackson is betting that with his own distribution pipeline, a bevy of big-name acts, an array of culture-driving shows and an alliance with indie film studio A24 (in which Boehly is also an investor), Gamma could give TikTok a run for its money and “become the new radio, where you could actually break records,” plus sell an array of other goods from concert tickets to beauty products.
“Having the whole thing A to Z creates kind of a farm-to-table situation,” Jackson says. “Everything can’t be about one place where you break music – I’m not going to say what that one place is, but you know what I’m talking about. For us, as a company, I’m looking to decrease our dependence on outside sources. I don’t see that being done anywhere.”
He’s also hoping that as a Black founder and CEO, his leadership will drive more diversity, inclusion and equity at the top of the music business. He wants to run Gamma with a closer focus on — and more sensitivity to — Black culture than the major labels, while structuring deals that help artists retain ownership of their work and build generational wealth.
To build intrigue, Jackson has been mysteriously teasing his new company as he might a new album, drawing on his many years working in the record business. After the Grammys in February, for instance, he hosted a party at Mr. Brainwash Art Museum in Los Angeles, inviting a mix of bankers and stars such as Lil Wayne, Leonardo DiCaprio and Madonna, making guests say “Gamma” as the password for entry. This month, he put up billboards on Los Angeles’s Sunset Boulevard and in New York’s Times Square, featuring cymbal-banging monkeys and the new company logo.
Jackson’s core team includes his co-founder and COO Ike Youssef, with whom he worked at Universal Music’s Interscope Records, where Youssef was CFO. It also includes Ben Cook, who left his post as president of Atlantic Records UK in 2019 amid controversy over an old photo in which he was dressed up as a member of Run-DMC; Cook apologized in a statement at the time, saying he realized his appearance was “offensive” and that he’d only been trying to honor his musical hero.
“I believe in redemption,” says Jackson, noting that he was grateful to get a second chance himself after being fired for cause from Sony’s RCA Records in 2010. (He had offered to personally pay Alicia Keys a sum that exceeded the amount the label had approved for the rights to have Jennifer Hudson record one of Keys’ songs, in an effort to expedite the release of Hudson’s second album.) “In retrospect, I can see how that could be perceived as disrespectful and insubordinate – but I was doing it more with a magnanimous spirit of making sure that the album came out, which would have ensured that the company made its numbers and that all 170 employees got their bonuses. I was trying to honor the artist and honor my colleagues.”
Jimmy Iovine gave Jackson another shot, hiring him almost immediately at Interscope, and it was there during a white-board brainstorming session that same year that Youssef says they came up with the initial notion for a company like Gamma.
Jackson then worked closely with Iovine and Dr. Dre to launch Beats, their headphones and streaming service company, becoming Apple Music’s global creative director when Apple acquired Beats in 2014. Youssef, meanwhile, went on to work at Yeezy, the Kanye West-Adidas venture, as CFO from 2017 to 2018, and in 2019, Jackson and Youssef started raising capital for Gamma and shopping for assets.
Jackson is “really resourceful about creating events that distinguish artists in the marketplace. There are, what, 100,000 songs uploaded to Spotify every day? You need to have someone like Larry to get people to pay attention. He is second to none in that,” Youssef says. He “knows how to cut through the clutter.”
Jackson says he learned his tricks from Iovine, who “used Best Buy to market Beats” and “partnered with artists to market the headphones.” He just plans to expand on Iovine’s ideas, using fashion and film as vehicles for exposure, keeping Iovine close as his “chief consiglieri,” and heeding his advice like “don’t get caught speeding,” “don’t spend foolishly” and “always stay at the table.”
Among Gamma’s first musical releases will be a new album by Usher, through a new joint venture between Usher and veteran music executive L.A. Reid that Gamma will distribute. (Jackson says he’s known both Usher and Reid since he was 17, so he’s been “much more involved” than a typical distributor.) He’s also developing new podcasts with Naomi Campbell, and says he’s been in close touch with Frank Ocean throughout the launch of Gamma, seeking the artist’s feedback on details like the name of the company, but wouldn’t comment on any projects they might have in the works together.
Gamma has been shopping for catalogs besides Death Row, too, bidding for instance on some of Dr. Dre’s music assets – passive income streams including his artist and producer royalties from his solo albums — that were recently on the market, though Dr. Dre ultimately sold them to Universal and Shamrock. Jackson says catalogs “were never was a part of the business plan,” and that he’s only interested in acquiring them “on terms favorable to the original creator.”
“I only make offers,” Jackson says, “on things I feel that we can enhance.”
SM Entertainment shareholders have until the end of the month to weigh two competing visions for the South Korean music company’s future before its annual general meeting on March 31 — one from SM and Korean tech company Kakao and another from K-pop rival HYBE.
Despite SM Entertainment’s announcement Monday that it had canceled plans due to a court injunction to issue new shares and give Kakao a 9.05% stake in the company, making it the leading shareholder, SM and Kakao are pushing forward with their strategy to maintain control. On Tuesday (March 7), Kakao launched a tender offer to buy a 35% stake from SM’s minority shareholders by March 26 and, if successful, could soon own nearly 40% of SM and hold significant voting power.
SM — home to such K-pop acts as NCT 127 and Aespa — has nominated a slate of independent directors and laid out a plan for adding 260 billion won ($200 million) of revenue by 2025 by setting up operations in the U.S., Japan and Southeast Asia, and making acquisitions — including a publishing company — in the coming years, according to a company presentation to shareholders. If the roadmap is successful, SM believes it can double its annual sales from an estimated 770 billion won ($690 billion) in 2023 to 1.5 trillion won ($1.14 billion) in 2025.
Much of SM’s road map stems from its battle with founder Lee Soo-man. In late 2022, an activist investor, Align Partners Capital, convinced SM’s board to appoint a new auditor and terminate a contract with Lee’s production company, Like Planning. Now, SM is attempting to remake itself under revamped corporate governance and a more decentralized organization than Lee’s hierarchical control of artist development.
The current inside directors — including Lee’s nephew, Lee Sung-soo — will resign their positions “in order to take responsibility for the problems of the [Lee Soo-man] system,” the company stated. In their place, SM is recommending its own slate of three executives: CFO Jang Chul-Hyuk; Kim Ji-Won, head of marketing center; and Choi Jung-Min, head of global business center.
To ensure an independent board of directors, SM has proposed the chairperson be one of its outside directors, not one of its own executives. Among the company’s picks for outside directors are Kim Kyu-Shik, president of the Korean Governance Forum; Moon Jungbien, a professor at Korea University that specializes in environmental, social and corporate governance matters; and Sung M. Cho, CEO of music analytics company Chartmetric. For part-time directors, SM recommends Lee Changhwan, the CEO of Align Partners, and Jang Yoon-Joong, Kakao’s global strategy officer.
Lee Chang-hwan
Courtesy of Align Partners
HYBE, home to the wildly popular boy band BTS, has different ambitions for SM’s future. HYBE acquired a 14.8% stake in SM from Lee, the SM founder, on Feb. 22, and an additional 1% through a tender offer, according to a March 6 regulatory filing. It has blasted “the bias and irrationality” of the SM management that approved the Kakao partnership.
“HYBE has been considering the acquisition of SM for a long time and gave much thought into how the two companies could work together,” Jung Jinsoo, HYBE’s chief legal officer, wrote in a letter to SM shareholders on Thursday.
In the letter, Jung argues HYBE solved two problems when it acquired Lee’s equity. First, HYBE acquired Lee’s shares in two SM subsidiaries: SM Brand Marketing and Dream Maker Entertainment Limited. That solves what Jung called “leakage in SM’s profits” to Lee. Second, HYBE alleges SM still owes Lee fees for three years even though it terminated the Like Planning contract as of Dec. 31.
Jung says HYBE structured the stock purchase agreement so payments to Lee stop “upon the execution of the agreement.” HYBE also added a clause to terminate any transactions from SM to Lee that HYBE did not know about.
While SM sees Kakao as the partner for its transformation into a larger, more global entity, HYBE calls it an “unfair partnership” that would give Kakao permanent and exclusive rights to distribute SM’s music, protect SM’s equity at the expense of other shareholders and create conflict of interests that favor Kakao’s interests. “We believe that these details demonstrate the bias and irrationality of the current SM management who approved such arrangements,” Jung writes.
Beyond SM’s relationship with Kakao, HYBE is concerned with SM’s roadmap to increase the number of artists on its roster by expanding production in Korea and building overseas outposts. Jung is questioning SM leadership’s understanding of the time and resources required to develop and break successful artists.
“It goes without saying but you cannot generate profit in K-pop just by having a longer artist roster,” Jung writes. “What’s important is to nurture artists who are loved by fans and provide a creative environment.”
HYBE has submitted a competing slate of inside director recommendations featuring a handful of HYBE executives: Jung; Lee Jaesang, president of HYBE America; and Lee Jin Hwa, HYBE’s chief of management and planning.
For outside directors, HYBE has recommended Kang Namkyu, managing partner at GAON Law Group; Hong Sounman, professor of public administration at Yonsei University; and Lim Dae Woong, a representative of the United Nations Environment Program Finance Initiative. HYBE’s recommendation for part-time director is Park Byungmoo, managing partner at buyout firm VIG Partners; and Choi Kyu Dam, a former NCSOFT finance executive, for part-time auditor.
SM portrays the battle with HYBE as a fight for its independence from a large company. A HYBE takeover would put its interests over SM’s artists, SM says, and could force SM to downsize or divest assets to meet regulatory approval. What’s more, HYBE might not receive a warm welcome: 85% of SM employees who voted on the workplace app Blind oppose HYBE’s “hostile takeover” and want to “protect the culture diversity of K-pop and the unique identity of SM,” according to SM’s investor presentation.
Ultimately, the two sides have competing visions for a board of directors that will best serve SM shareholders and lead the company. To SM, HYBE’s recommended directors are either tied to Lee, employed by HYBE or hurt shareholder value in their previous corporate tenures. To HYBE, SM’s proposals could result in a board controlled by Align Partners that lacks the experience to expand SM and reach the company’s lofty targets.
“[I]t is questionable whether the current management has a sufficient understanding on these circumstances,” writes HYBE’s Jung.
Korean tech company Kakao will launch a tender offer to acquire up to 35% of SM Entertainment’s outstanding shares. The move came a day after a court injunction forced Kakao to cancel its plan to acquire a 9.05% stake directly from SM, whose roster includes NCT 127 and Red Velvet; a court injunction scuttled SM’s plan to issue new shares and give Kakao the stake, according to reports by Bloomberg and Reuters.
Kakao and its subsidiary Kakao Entertainment are seeking to become SM’s largest shareholder and partner, to help rebuild the company after SM’s board of directors terminated a production contract with the company’s legendary founder, Lee Soo-man, on Dec. 31. Lee sold most of his SM shares to HYBE, the home of BTS, on Feb. 22 and won a court injunction Friday that prevented SM from issuing new shares to Kakao. As a result, Kakao has been forced to seek shares from existing SM shareholders instead.
HYBE had sought an additional 25% stake in SM through a tender offer but was able to purchase slightly less than 1% of outstanding shares, the company revealed in a regulatory filing Monday (March 6). That increased HYBE’s ownership stake in SM to 15.8%. With Lee’s 3.65% stake, HYBE has voting power of 19.4% of outstanding shares. The next-largest shareholder, Korea’s National Pension Service, owns 6.2% of SM’s shares.
Kakao and HYBE are locked in a battle for control of SM’s board of directors ahead of the company’s annual general meeting on March 31. “Kakao has strong trust in the excellent competitiveness of SM Entertainment’s current management, employees, and artists, and the current management’s efforts to resolve the factors that hinder SM Entertainment’s growth,” the company said in a statement.
HYBE sees itself as the more skilled, experienced company to guide SM’s global ambitions and has criticized its competitor’s “utterly irresponsible contract” with Kakao.
Kakao and its subsidiary Kakao Entertainment, which raised $966 million from the sovereign wealth funds of Saudi Arabia and Singapore in January, will offer 150,000 won ($115.46) per share — a 25% premium over the 120,000 won ($92.36) per share HYBE offered.
SM’s share price rose 13.8% to 148,100 won ($114.09) on Tuesday morning in Seoul following news of Kakao’s tender offer.
Additional reporting by Jeyup S. Kwaak.
HYBE’s plan to control competing K-pop company SM Entertainment and thwart a partnership with tech company Kakao took another step forward on Monday when Kakao, responding to a court injunction, announced it had canceled its stock purchase agreement to acquire a 9.05% stake in SM Entertainment.
Last week, the Seoul Eastern District Court granted a provisionary injunction against SM’s plan to issue new shares and convertible bonds. The judge ruled that SM had made its decision without shareholders’ consent. It was a remarkable win for SM’s controversial founder, Lee Soo-man, and for HYBE, the reigning K-pop company and home to boyband BTS.
For weeks, SM’s management has been trying to wrest control of the company from Lee, who has been found guilty of embezzlement and exercised iron-fisted control over the company he founded in 1995. After SM made a deal with Kakao, Lee turned to HYBE, which became SM’s largest shareholder on Feb. 22 after it acquired a 14.8% stake from Lee, whose production contract with SM was canceled as of Dec. 31.
On Monday, HYBE sent a letter to SM demanding that “the current [SM] Board of Directors should fulfill its duty of care and duty of loyalty towards SM and actively exercise the right to terminate the business cooperation agreement, which contains clauses that are disadvantageous to SM and advantageous to Kakao,” according to a statement that described the letter.
With the injunction in place, HYBE also called for SM to exercise its right to withdraw the recommendation of the director candidate nominated by Kakao. SM had put forward Jang Yoon-Joong, Kakao’s global strategy officer, as a part-time director.
SM and HYBE are pushing competing visions for SM’s future before shareholders vote on a new board of directors at SM’s annual general meeting on March 31. SM wants to partner with Kakao – owner of the Melon music streaming service and KakaoTalk messaging service – to better monetize its intellectual property and launch a joint venture in the U.S.
Called “SM 3.0,” the road map calls for SM to break from the single-producer system maintained by Lee until his removal. Instead, SM wants to develop artists through multiple labels and production centers in Korea, Japan, Southeast and the U.S.
HYBE calls an SM-Kakao tie-up an “unfair partnership” that would give Kakao permanent and exclusive rights to distribute SM’s music, protect SM’s equity at the expense of other shareholders and create conflict of interests that favor Kakao. “We believe that these details demonstrate the bias and irrationality of the current SM management who approved such arrangements,” Jung Jinsoo, HYBE’s chief legal officer, wrote in a letter to SM shareholders on Thursday (March 2).
Republic Records: Kids & Family announced on Monday the signing of ARIA Hall of Fame inductee, singer, songwriter, actor and performer Sam Moran. His first single is to be released later this month.
“There is no other team that I would rather be working with than Republic Kids. The energy and creativity they are bringing to my debut project is exactly what I was looking for when venturing out on my own,” says Moran. “We have so many surprises in store that I know my fans are going to love so, get ready!”
Moran is an Australian-born performer best known for his work on the Wiggles television show, both as recurring characters and as Yellow Wiggle from 2006 to 2012.
“When launching Republic Kids I knew I had to sign Sam as an artist,” says Bree Bowles, vp of marketing and strategy. “He is the perfect complement to our mission of producing world-class music that can be enjoyed by both kids and their parents. Sam’s musical talents are beloved by so many and these new efforts will help to redefine the future of ‘kids’ music.”
Jonathan Shank from Terrapin Station Entertainment will manage Moran, telling Billboard: “We are so excited to be working alongside Sam and Republic for this release and know it’s the start of magical things to come.”
Moran said some of his material is meant to inspire kids who had a hard time emerging from the pandemic and that “there’s no better way to help them rediscover themselves than through music. I want to give them a voice that reflects how they see the world — with, of course, a bunch of fun along the way!”