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SM allots right to distribute albums and tracks exclusively to Kakao Entertainment

Feb. 23, 2023 - 18:22 By Hong Yoo

SM Entertainment is allotting the right to distribute its albums and music exclusively to Kakao Entertainment, the subsidiary of the IT giant Kakao, with whom it has recently formed a strategic partnership to foster its new business project SM 3.0.

The K-pop powerhouse revealed the details of the business partnership formed early this month on Wednesday via its official YouTube channel.

Under the deal, Kakao is to acquire a 9.05 percent stake in SM through a paid-in capital increase of 217.2 billion won, buying newly issued shares and convertible bonds.

The deal includes SM’s new business strategy to strengthen competitiveness in album and track distribution by utilizing Kakao’s album and track distribution platform and customer channels to maximize profits across SM’s music business areas.

The SM 3.0 project involves establishing five different production centers and independent music labels to diversify production.

Currently, Dreamus Company which possesses part of SM shares, is responsible for SM’s albums and tracks distribution.

Kakao Entertainment is currently responsible for the album and tracks distribution of K-pop stars including IVE, Monsta X, IU and StayC.

SM also agreed to distribute its artists’ local concerts and fan meeting tickets through Kakao Entertainment.

Previously, SM had announced that it would break away from the maximum number of concerts and live performances cap imposed by the exclusive contract with Dream Maker and increase the number of global concerts per artist to 20 per year, including concerts and fan meetings, and conduct more than 400 concerts per year.

As Kakao owns Seoul Arena, under construction to become the country’s first and largest arena dedicated to hosting K-pop performances, it is likely that future SM artists’ concerts would mostly take place here when Kakao finalizes its acquisition of SM shares.

The two companies are also discussing jointly establishing a global K-pop group through a global audition held by a jointly established venture.

As part of SM’s global strategy, the K-pop powerhouse plans to expand its global coverage by operating an integrated entity and establishing a joint venture with Kakao Entertainment to increase the business feasibility and influence of SM in major global markets.

According to industry sources, SM and Kakao Entertainment are known to be targeting the American continent as it is the biggest music market in the world and K-pop’s potential has already been proven by its rival Hybe’s megastar BTS.

SM's ambitious road map follows a management right feud between two parties, SM and Kakao on one side and SM founder Lee Soo-man, now the largest SM shareholder Hybe, on the other.

Earlier this month, Hybe signed a deal with Lee to buy his 14.8 percent stake in SM for 422.8 billion won, making Hybe the largest shareholder.

Hybe is also attempting to buy off minority shareholders’ shares via a tender offer to acquire 40 percent of SM’s total shares for which it will be injecting more than 1 trillion won.

SM has since sought to lobby shareholders to make their decision after looking into the overall strategy of SM 3.0, which the company will continue to share before Hybe’s tender offer application deadline on March 1.