SM Entertainment to establish its first multi-label system

SM Entertainment will start a multi-label system for the first time in its 28-year history, vowing to remove its dependence on founder Lee Soo-man as chief music producer and roll out two new groups each year.

"We have realized the limits to producing and managing the intellectual property [IP] that meets the demands of the market and fans," said co-CEO Lee Sung-su in a video uploaded on the K-pop agency's YouTube channel on Friday.

"The biggest changes that will come with the new system is the establishment of multi-production centers, multi labels and a subsidiary specializing in publishing music."

In the video presentation, CEO Lee introduced the changes as the third phase of SM Entertainment, or "SM 3.0." SM 1.0 was the years between 1995 and 2010 when the first batch of major artists debuted and SM 2.0 from 2010 to 2022 when K-pop started accelerating its influence outside of Korea.

SM Entertainment, a major K-pop company founded in 1995 by Lee, is home to some of the biggest acts in K-pop including girl groups Red Velvet and aespa and boy bands NCT, Exo, SHINee and TVXQ.

Contrary to other K-pop agencies that have been reducing their dependence on their founders — namely Bang Si-hyuk's HYBE, Park Jin-young's JYP Entertainment and Yang Hyun-suk's YG Entertainment — the company kept Lee as the official chief producer of all SM artists' music.

In fact, SM Entertainment had been paying up to 6 percent of its revenue to a music production company 100 percent owned by Lee, named Like Planning, for his "insight" in making music. Last year, the company promised to sever ties with Like Planning after an official shareholder's letter from Align Partners Capital Management, which owns 1.1 percent of SM Entertainment.

The contract between the two companies ended on Dec. 31 and SM Entertainment has been rolling out new plans to make amends with shareholders.

"Under the new system, SM artists will be placed under five production centers that will be given their own independent status," CEO Lee said. "An additional production center will be established to oversee the creation and management of virtual human avatars such as Naevis.”

SM Entertainment will debut three new K-pop groups and a virtual singer this year. The company will also release 30 percent more albums from its artists and aim to sell 18 million copies in total.

The agency will also invest more in expanding its portfolio, especially focusing on new technologies such as the metaverse and acquiring music companies of various genres to break free from its dance-centered discography.

Founder Lee's future position was not shared Friday. SM Entertainment said it will share details about the company's revenue goals and plans in future presentations.

"Our focus with SM 3.0 is on marking ourselves down as a global entertainment company centering on the fans and shareholders," said co-CEO Tak Young-jun, in the video. "We promise to communicate more actively with the fans and shareholders with SM 3.0, starting with our multi-production and label system."

The new system is expected to improve the company's earnings and heighten shareholders' trust in the company, in addition to the company's announcement made last month to increase the number of outside directors and make its dealings with subsidiaries more transparent, according to Park Seong-guk, an analyst at Kyobo Securities.

"In addition to the independence of the board and normalization of its relationship with its affiliate company, the multi-production system is expected to have a positive influence on the company's earnings in the mid-to-long-term," he said.

"The new multi-production system is expected to make the company's artists activities more transparent and make the debut of new groups much more efficient."

The company's shares have been rising steadily since Jan. 16, when the price closed at 74,500 won ($61), to close at 91,000 won on Friday, up 2.1 percent compared to the previous day.

BY YOON SO-YEON [[email protected]]