HYBE versus Kakao: What each takeover could mean for SM Entertainment

Boy band BTS during The Fact Music Awards (TMA) in 2021 [TMA]

 
Will it be a collaboration between boy bands NCT and BTS? Or a webtoon series based on girl group aespa? Fans of SM Entertainment artists may have to brace themselves for a change regardless of which company wins the battle to take over one of Korea’s largest K-pop agencies.
 
On the one corner is HYBE, the largest K-pop company in the world that is fast-devouring companies in and outside of the K-pop market. On the other is Kakao, a tech company that seeks to make its global mark with culture and content, especially K-pop.
 
After seeing exponential growth with BTS’s success on the Billboard chart in 2017, HYBE — then known as Big Hit Entertainment — has merged with some of the biggest names in the music industry in Korea and the United States.
 
The company bought Source Music, home to now-disbanded girl group GFriend and Le Sserafim, in 2019; Pledis Entertainment, home to boy bands Seventeen and NU’EST and girl group fromis_9, in 2020; Ithaca Holdings, the management company of pop singers Justin Bieber and Ariana Grande, in 2021; and most recently, QC Media Holdings, an Atlanta-based hip-hop label and management agency to Lil Baby, Lil Yachty, Migo and City Girls, earlier this month.
 
In addition to the agencies, HYBE also bought game developer Superb in 2019, Naver’s education subsidiary Cake in 2022, artificial intelligence audio tech start-up Supertone last month and many more.
 

An image of BTS members turned into 3-D characters for mobile game BTS Dream by Netmarble [NETMARBLE]

Images from mobile game BTS World released in June 2019 by Netmarble [NETMARBLE]

 
The army of versatile companies has led to interesting projects under the HYBE umbrella using the artists and their music, a possible foreshadowing of the fate of SM Entertainment’s artists after a possible takeover.
 
In 2021, Superb released Rhythm Hive, a mobile rhythm game where users can play games with music by boy bands BTS, Tomorrow X Together, Enhypen and Seventeen. The game has been downloaded over a million times with a 4.2 overall rating out of 5.
 
A series of BTS-themed games have also been published by Netmarble, which is an 18.2-percent owner of HYBE. HYBE Edu, the new name of Naver’s Cake, has been releasing Korean learning education kits for foreigners using BTS members’ voices as guides.
 
Webtoons themed on the bands may also be in the cards, similar to Enhypen’s “Dark Moon: The Blood Altar” series and Le Sserafim’s “Crimson Heart” series on Naver Webtoon. BTS also had a series in 2019.
 
Aside from the secondary content using artists’ intellectual property (IP), HYBE artists have not displayed much coherence music-wise, except for the annual year-end concerts they perform together.
 

Boy band Tomorrow X Together during a showcase on Jan. 26, 2023 [BIGHIT MUSIC]

 
Though there have been special collaborations between artists like “Super Tuna” (2021) by BTS’s Jin and producer Bumzu, no major collaborations have taken place between HYBE artists — a contrast to the SuperM project boy band that SM Entertainment released with members from different groups under the agency, and the GOT the BEAT girl group with the same concept.
 
But the merger won’t have an immediate or major change to SM’s music style either way, according to music critic Park Hee-a.
 
“HYBE won’t take over the production process for SM Entertainment, but there may be special events that fans wouldn’t have seen coming every now and then,” she said.
 
One common factor is that HYBE bands have not been appearing on channel MBC’s shows.
 
HYBE artists have not been seen on MBC’s weekly music show “Music Core” or on the channel’s biggest end-of-the-year music program “Gayo Daejejeon” since 2020, along with other entertainment shows hosted by MBC.
 
Industry insiders say that there may have been bad blood between MBC and HYBE going back to 2018, when MBC invited BTS to perform but gave the grand finale to Exo, who was considered its rival back then.
 
Should HYBE take over SM Entertainment, the question will remain whether SM artists will get to perform on MBC or not.
 
While HYBE CEO Park Ji-won emphasized that he will “respect SM’s legacy” and “ensure SM’s independence” in a meeting with employees on Feb. 14, SM Entertainment CFO says it’s “a promise difficult to keep.”
 

Girl group GFriend [SOURCE MUSIC]

 
In fact, all six members of GFriend went their separate ways after ending their contracts with Source Music in May 2021, two years after the company was acquired in 2019, putting a practical end to the band. The abrupt contract termination took the whole market by surprise as the band had not reached its standard 7-year renewal milestone.
 
Another point of interest involves HYBE’s Weverse fan community app. All HYBE artists communicate with fans using Weverse, which also offers other services such as online concerts, merchandise sales and other exclusive rights to stars.
 
SM Entertainment also released a similar communication app named Dear U bubble in 2020, which has been considered a rival to Weverse. If Dear U bubble is absorbed by Weverse, then smaller companies will have no other option but to join the Weverse-bubble coalition.
 
“If SM Entertainment and HYBE, two large companies in the domestic entertainment field, merge, then that would give the new company an oligopoly with a 60 percent share of the whole market revenue,” according to SM CFO Jang Cheol-hyuk. The two companies’ combined album sales is 70 percent of the market, and concert sales are 89 percent.
 

Boy band Monsta X [STARSHIP ENTERTAINMENT]

 
Analysts are betting all their chips on HYBE, but Kakao Entertainment recently received 900 billion won ($690 million) from overseas funds that they may use for the takeover battle.
 
Kakao’s partnerships with K-pop companies have been a bit more subtle. It has been expanding into the content field in order to accelerate its global expansion as its staple tech businesses have already been dominated by global giants such as Google, Apple and Meta.
 
Kakao Entertainment, the tech company’s content subsidiary, owns EDAM Entertainment, home to singer-and-actor IU; Starship Entertainment, agency of girl group IVE and boy band Monsta X; IST Entertainment, which manages boy bands The Boyz, ATBO and Victon and girl groups Apink and Weeekly; Highup Entertainment, which is signed with girl group STAYC; and Antenna, home to major actors and ballad singers which recently signed with singer Lee Hyo-ri.
 
Kakao Entertainment’s involvement in its labels’ music seems even more discrete than HYBE. Some K-pop fans are even unaware that the aforementioned companies have been acquired by Kakao Entertainment because the company has kept such a low profile.
 
The company instead focuses on distribution and marketing strategies.
 

Girl group IVE [STARSHIP ENTERTAINMENT]

 
Kakao Entertainment operates the Melon music streaming app, which used to be the largest in Korea until it gave way to YouTube music. The company was criticized for not providing its artists’ music to overseas streaming sites like Spotify, Apple Music or YouTube Music for some time, but no such conflicts have taken place.
 
Artists whose music Kakao Entertainment distributes take part in filming videos for 1theK YouTube channel, which has over 24 million subscribers and is popular among K-pop listeners.
 
Kakao Entertainment is likely to keep the Dear U bubble service and have its own artists join the platform, giving the app more leverage against Weverse.
 
Whoever takes over, SM Entertainment will likely get a boost in its businesses and will lead the growth of K-pop in general, critics say.
 
“Kakao has the weaker motif when it comes to the takeover,” said pop culture critic Jung Deok-hyun. “Still, if SM Entertainment is taken over by Kakao, then we could expect synergy with web novels and webtoons, which is the company’s strength. With HYBE, the advantages it already has in K-pop could give the company an edge in innovative experiments in music.”

BY YOON SO-YEON, HALEY YANG [yoon.soyeon@joongang.co.kr]