Here's the Lowdown:
I have a wildly improbable, and spectacularly public, secret ambition to buy SM Entertainment.
Truly SM is a wonder of modern music business models: founded in 1995, it literally reshaped the way Korean Music is made. It's been a financial powerhouse for well over a decade, pulling in revenue that boggles the mind (including more than $100 M in music sales alone for 2012).
But, there's much more going on and most of it is not the sort of savvy that the music world needs, or should ever really want...
Here's a look at a summation of SM's recent releases. It a list of mostly singles, and mostly mediocre ones at that. Personal taste varies, but the fact of the matter is that some songs are well done and others just aren't, regardless of how likeable they are. I Got a Boy was a decent album, but not the punchy gem that SNSD is capable of; most of the songs were produced with an almost haphazard hurriedness. SHINee's album was good, very good. Dynamite, Hitchhiking are solid tracks and Girls, Girls, Girls is actually quite beautiful. Their next album did not live up to Chapter 1 . . . Evil is great, as is Like a Fire, but considering that only 5 songs from a book of 18 are really well done . . . at least it's better than Sherlock, which is saying nothing whatsoever. I would have hoped that Boys Meet U would have been Chapter 3, since it's the 3rd album they've released this year it should be related somehow to the other two, but that's not really a big issue. The next album belongs to TVXQ, and it was so unspectacular that if not for this handy chart, I would have forgotten about it entirely. Not one of the tracks made much of an impact on me, not even enough to just remember the release. EXO's album is easily the best thing SM has released this year and that's actually quite tragic because EXO's album has a slew of problems and cut corners (read more about them HERE). Henry's mini-album was pretty good, more than just respectable, but it had the safe and simple flavors of a debut as crafted by a veteran, so it's hard to judge it accurately. Now, Hero hasn't been released yet, but with albums like Mr. Simple and Sexy Free and Single being SuJu's current par, I'm not hopeful (especially as Hero contains at least 4 Japanese versions of songs from those less than impressive Korean albums). Also, the teaser makes it look like they just took the style-type from Bonamona and the sound-type of No Other and squished them awkwardly together.
SHINee's Boys Meet U is interesting, because it shows why SM is really so seemingly strong: marketing. SHINee is essentially a ballad group in Japan at this point and that is no accident. SM is pushing them into an unexploited genre while simultaneously expanding their globally recognized skill set. It's very clever marketing and it's been working very well for SM.
Marketing is definitely SM's strongest point right now. What they've done with every band they've ever touched proves they've always been good at it. However, SM's creations have been so safe lately: EXO is essentially a TVXQ/SHINee cover band and their multilingual concept was first prove popular by CrossGene, SHINee is safely pushing a ballad genre we all know they've been good at forever, Henry's debut is the absolute lowest-risk rookie around because he's already had 7 years of SM training...
SM is dying, in more ways than one. SM is financially strong because it is well diversified. They have their musicians, their actors, a magician or two, and some comedians, but they also have a travel agency, a fashion company, an industry crossing independent app (Genie), dozens of noraebang lounges on prime real estate, and fingers dipping into the profits of a half dozen other rather unrelated subsidiary companies, it seems like SM is impervious to any economic shuffling but it's not. And that's a problem. This is where the AIG mentality comes in: SM is effectively too big to fail. It's not quite as serious as the AIG situation, but SM is not unfamiliar with the concept of a bailout. Over the course of the past three months or so, SM has spent 5 Billion Won buying up a hundred thousand shares of it's own stock at a price higher than it's natural market value to enhance the shareholder value. SM's stock has been trending towards the red for a long while now, even though the company continues to draw in Kpop's biggest revenues. Bloomberg Business describes SM's manner of revenue collection as inefficient and declares that SM's Accounts Receivable are "among the industry's worst with 25.97 days worth of sales outstanding".
SM's stock values don't compare well to those of the other Big Four companies. YG trails SM by a wide margin for second place in the Kpop market shares, but even on the heels of a bad day (perhaps not coincidentally following the rather less than impressive release by 2NE1), YG's stock is valued at nearly 20,000 KRW (about 20 USD) more than SM's. CJ E&M has a much more comparable value, which speaks volumes to the idea that SM is not like the others in the Big Four. Unlike JYP, YG, and CUBE, SM is a mega-corporation. Like CJ E&M, SM's focus is not on the Music, but unlike CJ E&M, SM doesn't quite have a steady foundation that covers a broad spectrum of industries. SM's diversity props up it's music company whereas any aspect of CJ could fail entirely and the company would be little worse for wear overall.
I'm an English major, not an economist, so don't go selling your shares in SM on my account. But it doesn't seem to be all that mysterious to me that SM is on a down turn.
That is a DANGEROUS idea.
By adopting the opinion that SM can't fall, the implicit undertone is that SM doesn't NEED to fall. SM has stopped evolving, it's settled down and is beginning to rot like strawberries left in the fridge too long. The festering fuzz of mold is setting in as their line up stagnates, their ideas dry up, and their recycled material is becoming unstable as the polymers lose their ability to be molded into new shapes.
If SM dies, it will be the end of an Era. But if a new, more innovative company replaces them, it will be the start of a new one. It will prove that innovation matters in kpop, that the magic of music requires the cutting edge of ideas, that kpop sets the stage for new worlds of how business can work and generates new ideas within music as a whole. SM built an industry from the ground up. But it's been content in its castle for far too long and renovations are entirely over due. We, the fans, deserve better than to have SM insult us by throwing half-assed scraps in our general direction. If SM dies and is replaced, it will GUARANTEE the future of the Hallyu Wave, giving Kpop 100% safe growth by proving that unnecessary baggage will be discarded when it becomes more of a hindrance than a help.
They're losing good trainees to other companies that make them into good rookies, they're blowing it with releases that have potential but no spark, their fashions are split between raids on their own old closets and raids on furniture stores with no edge or cool factor at all, and most of their artists have all grown up and should be in major producing roles rather than being kept tamped down into helping-positions under SM's controlling thumb . . .
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I don't know what's going to happen. But I do know that unless something incredible comes out of SM in the next year or so, that unless SM can establish a new corner on the market in the next five years or so, SM might not make it into the next decade. And I also know that unless something big happens, but SM manages to scrape by into the next decade anyway, it will not be a good sign for the Kpop industry. I want the Hallyu Wave to continue on indefinitely, to gain power as it goes. The way it's heading now, with SM at the helm, we'll be sure to run aground soon.
It's got me worried. And it should worry every other kpop fan out there. So do me a favor: if a release from SM isn't what you hoped it would be, don't pretend it is. If you don't love it, say so. We need to stop letting SM get away with treating us like fools.
Alexandra Swords - 2013©
SM stock value: 34k-35k KRW ~ $30
YG stock value: ~52k KRW ~almost $50
CJ E&M Stock : ~37k KRW ~$32
Forbes SM Profile: