BTS’ label boss says takeover needed for K-Pop to grow

A takeover of SM Entertainment Co. is crucial to solidify K-pop’s influence and make it mainstream globally, Hybe Co.’s chief executive officer said, underscoring the BTS label’s determination to control its K-pop rival. 

The move is necessary, Park Ji-won said in his first interview as head of Hybe. K-pop’s rapid growth during the pandemic is now slowing, triggering fears that momentum in the genre might be peaking, he said. 

“The most glorious days are the most dangerous period,” Park said. International players are starting to learn from K-pop’s success, and its formulas and methods are in danger of being exposed, he added. “We are constantly afraid that people might just stop listening to K-pop one day.”  

Hybe, owner of record labels managing artists like Justin Bieber and Ariana Grande, is at the center of a messy corporate battle for control of SM —the storied talent agency behind K-pop’s first forays overseas. SM’s ousted founder Lee Soo-man sold Hybe a 14.8 percent stake in the industry pioneer, clearing the way for Hybe to launch a bid to gain a controlling 40 percent stake in its rival. 

SM’s strong presence in Japan and China would help expand Hybe’s US-oriented music portfolio, Park said. That in turn would give the two firms more global clout to advocate for K-pop around the world, he said.  

Hybe’s bid has met fierce opposition from SM management and employees. Seoul-based SM, which had agreed to partner with internet giant Kakao Corp., said on Monday the takeover by Hybe would produce a monopoly. SM’s stock price has risen above Hybe’s 120,000 won offer price, fueled by speculation that Kakao might stage a bidding war. 

SM on Tuesday forecast its parent-only operating profit would almost double in 2023, with growth accelerating through 2025 when it projects a fivefold growth in the number of concerts and a doubling of album sales. Group-wide operating profit had jumped 70 percent in the quarter just ended. 

Hybe has no intention to retreat, according to Park. But the company has no plans to change its tender offer price for now, he said. Park said the company is not considering alternatives to a tender offer, and he ruled out the possibility of re-selling SM founder Lee’s stake, indicating his confidence in a successful bid.  

Shares of SM rose around 2 percent during afternoon trade in Seoul Tuesday, paring earlier gains. 

Even with a controlling stake, Hybe would face hurdles. Kakao may end up a major shareholder with a 9 percent stake if courts reject SM founder Lee’s suit that the share sale to Kakao is illegal. Activist fund Align Partners Capital Management Inc., which holds about 1 percent of SM, has also said it’d keep demanding that Hybe acquire 100 percent of SM at a higher price.  

“We can’t elaborate on a matter that is still before the court, but I can say we have no reason to oppose a partnership with Kakao if it’s a way to boost SM’s share value,” Park said, declining to comment on potential scenarios following a court decision. The first court hearing is scheduled for Wednesday, but the ruling date hasn’t been announced yet. 

Park further took issue with Align’s assertion that SM’s stock price could exceed 300,000 won per share. 

“This is not a manufacturing company,” Park said. “If Align’s logic is valid, any entertainment or gaming company could just infinitely expand its content offerings to boost share prices. But it doesn’t work that way.” 

Hybe said last week that Lee would not participate in management after the takeover and that it would work to improve corporate governance.  

After gaining global success with the chart-topping BTS, Hybe has been aggressively acquiring music labels at home and overseas. In 2021, Hybe bought Ithaca Holdings, which manages Grande and Bieber. It has also partnered with a crypto exchange operator and bought startups and labels such as Quality Control, an Atlanta-based rap label behind Lil Baby and Migos.  

Hybe will do its utmost to support SM artists and win their respect and trust, Park said. Maximizing SM’s value leads directly to raising Hybe’s value, he said. SM pop stars include boy band NCT DREAM and girl group aespa. 

“We still have a long fight ahead globally,” Park said. The US$5 billion K-pop market is a tiny drop in the entire pop market, he said. “Diversity is fundamental for our survival, and we will make sure each artist’s individuality is protected through independent labels.” 

(Bloomberg)