In a new video, SM Entertainment announced its blueprint to become the No. 1 company in the Kpop industry by 2025 through the “SM 3.0” strategy.
On February 23rd, a video titled “SM 3.0: Global Expansion & Investment Strategy” was released through SM Entertainment‘s official YouTube channel.
In the video, SM Entertainment said, “SM has been consistently undervalued compared to its competitors in the market due to governance issues. I hope that this ‘leap to SM 3.0’ presentation has cleared up your doubts about governance-related issues and long-term strategies. At this juncture, SM has declared the first step of management to enhance shareholder value. If we complete our SM 3.0 strategy by 2025, we are confident that our stock price target will not be an impossible figure to achieve. SM is committed to strong responsible management by linking at least 50% of executive compensation to share price and shareholder return, thereby aligning the company’s interests with the shareholders.”
Meanwhile, director Park Joon Young explained the importance of Kpop global business and went into details about SM’s global business expansion model in three stages. “SM 3.0 Global Business Expansion Model consists of 3 steps. Step 1 is the initial globalization model in which the domestic multi production centers and business units conduct entire functions and contract local players providing limited support for sales/marketing functions.Currently, SM mainly leverages Step 1 model for global entry. In Step 2, IP production and production support are conducted domestically, but management and commercialization functions are transferred to the local market to lay a foundation for full market entry. Local management staff and business units take full responsibility on the entire activities including concert and monetization businesses. In Step 3, the local organization leads the entire production functions including A&R. This is the step when we establish a real “global production center” that independently conducts entire functions from IP production to monetization in each country”, he said.
Expansion strategy by region
Regarding SM’s expansion strategy by region, Co-CEO Tak Young Joon shared, “Establishing a local production center in each region is our ultimate goal, but we will pursue the business by considering characteristics of each of Japan, US and SEA markets and existing experience and knowhow of SM.”
“Japan is a key market that SM has been focusing on for long”, the CEO said, adding that the company “wrote a history of Kpop success” in the nation with their artists BoA and TVXQ. He also expressed song confidence in the power of SM in Japan, citing that the SMTOWN concert, which took place in Tokyo Dome, was sold out in 3 rounds, as well as SM’s experience of releasing over 60 Japanese albums and conducting over 160 tours in Japan, with over 1 million fans attracted in a single tour.
Therefore, it is judged that rapid transition to the second and third phases, rapid sales and profit realization would be possible through a local entity in Japan. Along with this, SM will establish a global production center that covers casting, training and A&R in Japan and make it a “second SM” by aggregating their accumulated production and operation knowhow and capabilities.
“In the 2nd half of this year, we will launch NCT Tokyo as the Step 2 global expansion strategy. In the 2nd half of 2024, we are planning to move on to the Step 3 with local IP production by the global production center in Japan. You can look forward to the first outcome of SM 3.0 in Japan”, the CEO said.
Then, the US market, which is “a massive market with sound source revenue worth KRW 22 trillion” and “tremendous global impact”, is revealed as “the key market that SM must secure to become a global No.1 entertainment company.”
Regarding their plans for this market, SM said, “Considering such strategic importance of U.S. market, SM is planning a massive investment based on a strategic partnership to enter the market more efficiently and rapidly. We plan to establish a JV with our partner to set up an U.S. global production center, and also plan to acquire a local management company for quick stabilization of the business.”
Alongside local activities of Kpop artists, SM also showed ambitions to debut artists that are casted and trained in the US, who cater to the “growth story” and “artistry” that U.S fans prefer.
Next, the SEA (South East Asia) market has a relatively small revenue from the major businesses such as album, sound source and concert, and fans here tend to prefer a member with the local background in a foreign group, rather than a fully localized group, said SM. Therefore, the agency will wait for future market growth and enter the market in full at the right timing.
SM representative Tak Young Joon said, “We plan to expand local concerts and activities mainly with existing SM artists who are popular in the local market. Then, we will support further entry of new groups with members from/with connections in SEA, and operate a local media/promotion center accordingly.”
He also added that in the mid/long-term SM plans to establish a local casting center to secure talented trainees, nurture artists, and finally debut a new team that consists of SEA members in the 2nd half of 2025.
“We will leverage our local media and casting base to rapidly expand to establishment and operation of a production center when we enter the SEA market in full scale in the future”, the representative said.
Establishment of 7 domestic multi-production centers + 3 global production centers by 2025
Co-CEO Lee Sung Soo also presented a plan to operate SM’s entire production center, which is expected to be in 2025 according to the global strategy introduced earlier. Regarding the establishment of local production centers in Japan, the Americas, and Southeast Asia, CEO Lee Sung Soo said, “Local production centers that are scheduled to be established by 2025 in Japan, America and SEA will be independent overseas entities that perform same functions as domestic production centers including A&R, management, marketing, etc. We will encourage organic cooperation with multi production centers and ‘Global Production Center’ in Korea to maximize our strengths such as culture of each country and diversity of talent pool. Particularly, the global production centers in Korea will play a critical role in SM’s global expansion by focusing on establishing/supporting overseas local production centers.”
As a result, SM has set a goal of achieving a total revenue of 260 billion won by 2025 through local production centers overseas, including the performance of new IPs debuting at production centers in each country, with Japan being expected to earn 200 billion won (fastest production center base and launched 2 new IPs), and Americas 60 billion won (established a new production center and released new IPs in the second half of 2024).
“In the previous presentation on IP Monetization, we shared our target to achieve 1.2 trillion won in sales by 2025, based on sales of the separate entity of SM. Through the global expansion strategy explained today, we will achieve an additional 260 billion in sales to achieve a total of 1.5 trillion won”, said SM.
Director Jang Cheol Hyuk then explained the importance of full-fledged investment in accordance with the changing environment of the entertainment market, and emphasized that investing in core competencies is an essential foundation for achieving the SM 3.0 goal. He also mentioned future operating cash flow, attracting investment from strategic business partners, selling non-core assets, and partially borrowing to finance the investment. As SM shareholders cited holding non-core assets as a major issue, it was announced that it would be used as a financial resource for the implementation of SM 3.0, focusing on high-growth/high-return portfolio investments after cleaning up non-core assets that are not related to the main business.
CEO Lee Sung Soo, meanwhile, revealed a two-track approach when investing with the financial resources secured by SM, and set a total of five themes as core investment areas, three for the first tract and two for the second track.
In the case of the first track, 350 billion won will be used to acquire music publishing companies, 300 billion won to acquire labels, and 200 billion won to invest and expand fan platforms, which will accelerate the establishment of a multi-production center/label system and the achievement of IP monetization strategies.
In the case of the second track, 50 billion won will be allocated for global expansion and 100 billion won for strengthening metaverse and virtual content capability to secure long-term growth engines.
In addition, SM’s new virtual artist also appeared in the video and delivered its first greeting message, saying, “Hi! I’m naevis who lives in FLAT. You know that we will be meeting soon, right? I have so many things to tell you through music, so please look forward to me. I’ll prepare hard for it! Bye~”
Regarding the goal of investing 1 trillion won in the five themes and two-track described above, Director Jang Cheol Hyuk said, “There are two goals for investing 1 trillion won in the five areas described earlier. The first is to secure the necessary foundation to achieve the sales target of 1.2 trillion won and an operating profit of 430 billion won on a separate basis announced on February 21st. The second is to generate additional results by making investments in publishing, labels, and overseas production centers. We aim for consolidated sales of 480 billion won and an operating profit of 80 billion won by 2025.”
Source: Daum, YouTube
