hankyoreh

Lee Soo-man, the founder, executive producer, and namesake of SM Entertainment. (courtesy of SM Entertainment)

Recently, a management dispute over SM Entertainment, the nation’s largest K-pop agency, has become a hot topic. At the center of it all is the founder and largest shareholder of the company: Lee Soo-man. With competitors such as Hybe and Kakao also joining in the dispute, major changes are expected in the K-pop industry.

Lee, SM’s executive producer, created and perfected the agency-led K-pop system in the 1990s. Given Lee’s position helming the nation’s biggest entertainment agency for over 30 years and the indelible mark he has left on the history of the K-pop industry, the current SM management dispute holds several meanings.

The group that marked the beginning of K-pop in the 1990s was Seo Taiji and Boys. The group made their debut with “I Know” in 1992 and dominated the music scene as “presidents of culture” until January 1996, when they announced their retirement. Their retirement upended the music industry in Korea.

Particularly, Korean popular music was transformed into mainstream music through the introduction of dance, rap, hip-hop, and heavy metal. Before this, Korean music had mainly been centered around ballads and trot. Another notable change was how teenagers emerged as the most important consumer group of music.

HOT takes over the teenage market

The sudden retirement of Seo Taiji and Boys in 1996 left a vacuum in the teenage idol space. It was Lee Soo-man who seized the key opportunity this presented.

Lee founded SM Studio in 1989 and introduced singers like Hyun Jin-young and Wawa, Han Dong-joon, Kim Kwang-jin, and J&J. The name of the company was then changed to SM Entertainment in 1995.

Lee Soo-man presented an entirely new concept born out of a different system than those in the past. Namely, idol groups. These groups became the idols of teenagers. Lee’s first group to successfully prove the concept was HOT.

In many ways, HOT can be called the original idol group that gave rise to the current agency-led K-pop idol system. Members were assigned different roles according to specific plans and were selected based on a particular role such as main vocalist, dancer, hip-hop-style rapper, and main spokesperson for the group.

Above all, the target audience was teenagers, a product of Seo Tae-ji’s ability to prove the importance of this market. The groups were formed in a way that would appeal to teenagers and members were even mostly in their late teens or early 20s.

As live shows changed to become more focused on performances, the importance of agencies also began to grow. In the past, people with good voices who could dance were selected to become singers. It was common for good dancers at clubs to be recruited by the head of an entertainment company and then make their debut.

However, things had now changed, and the performances no longer depended solely on the individual skills of members. In order to present performance-oriented shows, all the members of the group had to be in perfect harmony with each other. For this, a long process of practice and training was necessary. It was SM Entertainment that organized all these necessary steps into one coherent system.

Training became an important component of the idol system to overcome the limitations of the previous generation of singers. For instance, many groups in the 1990s focused mainly on dance and performance and often lacked good singing skills. As a result, people strongly criticized such groups, wondering if all it took to become a singer was knowing how to dance.

In order to present more competitive “products,” agencies set up a detailed system involving far more practice and training.

Throughout this process, the dancing and singing skills of idols improved significantly and this is what became the foundation for the current competitiveness of K-pop. In other words, the secret of “compressed development,” which was the driving force behind South Korea’s rapid economic growth, was also adopted in the idol system.

SM Entertainment’s new group SuperM, comprising Taemin from Shinee; Baekhyun and Kai from EXO; and Taeyong, Mark, Lucas, and Ten from NCT. (provided by SM Entertainment)

By the 2000s, there were three main entertainment agencies at the center of Korea’s popular music. In addition to Lee Soo-man’s SM Entertainment, which was the first to introduce the so-called “idol system,” there was also singer Park Jin-young’s company JYP Entertainment (founded in 1996) and YG Entertainment, which was founded in 1998 by former Seo Taiji and Boys member Yang Hyun-suk.

What set these three companies apart from other agencies was the way the production organization had integrated many of the content creation roles in areas such as composing, lyrics, and choreography. Each had a leading composer as a CEO or director, including Yoo Young-jin at SM, Park Jin-young at JYP, and Teddy Park at YG.

With in-house systems that included various other composers, arrangers, recording engineers, managers, choreographers, coordinators, designers, and more, they were each able to develop music and recording acts reflecting the company’s distinct flavor.

The in-house system’s economy of scale approach allowed content to be produced efficiently. It also helped the companies in their competition, as each of them brought its own style to the marketplace.

But sustaining this kind of system requires constant market growth. For the company to operate smoothly, other acts have to be ready to take the place of a headlining act when it is out of action, and the next acts have to be groomed for their debuts. When this goes wrong, the staffing additions start to become a burden for the company.

During the ’00s, the Korean popular music world was in crisis. With digital technology and the internet spreading globally, the digitalization wave hit the music industry too.

As MP3 files took the place of cassette and CD players, the music sales market suffered major contractions. Illegal reproductions became a major issue.

For music producers, this meant a big dip in profitability. In the case of Korean popular music, the boom of the 1990s made the shift all the more painful.

During the 1990s, acts like Kim Gun-mo, Jo Sung-mo, HOT, and Shin Seung-hun routinely sold upward of a million albums. As digital files became more common, the size of the Korean album market slid by over 25% a year from around 410.4 billion won in 2000 to 133.8 billion won as of 2004.

After 2004, not a single album moved more than 500,000 units offline. So severe was the blow to the album market that it took until BTS’ emergence in 2006 for that statistic to change.

Meanwhile, the digital music market was growing. The arrival of the MP3 in 1997 was followed by the burgeoning of stream services that allowed people to download music or enjoy it in real time.

Even with the music market growing, the large “hidden market” remained a problem. The increased sharing or copying and circulation of MP3 files created issues of illegal music reproduction.

For the entertainment agencies, declining record sales profits were a serious crisis. Alongside performances, those sales are central to their earnings.

But Korea was not an environment that lent itself to any historic increases in performance earnings. With the limits that faced the domestic market, overseas markets were the only answer.

Lee Soo-man saw a solution: expansion into other East Asian markets. He devoted his energies to networking throughout the region, working in countries such as China and Japan.

The combined markets of Korea, China, and Japan amount to 1.5 billion people. First place in Asia, Lee concluded, meant being in first place globally.

The first attempt was made in China with HOT A favorable climate had been formed there for a “Korean wave” with the airing of the TV series “What Is Love” in 1997.

The dance music of acts like Clon sparked a sensation in places like Taiwan and Hong Kong. The prospects for success were also seen with the release of a Chinese-language album in 1998 and an exclusive Beijing concert by HOT in 2000.

But the profits made in China were minimal. The reasons had to do with the massive scale of the pirating market. One album by HOT sold nearly 100,000 copies — but the amount wired to SM was just 2.5 million won, or around US$2000.

SM turned its attention to Japan. As the second biggest market in the world, its strong base for music sales and performances was a big draw.

As of 1998, the Japanese music market was roughly 30 times larger than Korea’s. Exchange rate differences meant a similar performance to one in Korea would rake in many times more profits. But the entry barriers to the Japanese market were also formidable.

As part of its Japan push, SM put together the girl group S.E.S in 1997. The group’s design was oriented toward a global market, with the inclusion of a Zainichi Korean member.

But due to a poor choice of Japanese partners, the results fell flat. Having failed to analyze the market thoroughly enough, SM ended up having to pull out of Japan.

SM’s dreams of tackling the Japanese market were rekindled in 2000 with the arrival of BoA. Analyses showed that Japanese listeners preferred younger singers than Korean audiences and demanded a perfect command of the language.

BoA, who was in her fifth year of elementary school at the time, was assigned to a homestay with a family in central Tokyo. This was meant to teach her perfect Japanese pronunciation and knowledge of Japan’s culture.

While in Japan, BoA was given grueling singing, dancing, stage etiquette, and language training. When she finally made her debut, it was with a record sung in Japanese; the fact that she was Korean was not played up.

The results were a roaring success. Releasing her first record in Japan in March 2000, BoA conquered the market as she topped the Oricon charts within a year.

The strategy adopted for BoA in Japan differed from previous ones in several ways. While SM supervised aspects from casting to training in Korea, the marketing was handled by local Japanese staff. Another big difference was that all the songs were sung in the local language.

The result was a global commodity with a unique position: not a Korean singer performing K-pop or a Japanese singer performing J-pop, but a Korean singer performing J-pop. After the initial Japanese success, BoA’s Korean identity was emphasized as she cemented herself as an Asian star.

This was the product of a strategic shift in overseas marketing of the Korean Wave. Its success would pave the way for other K-pop acts to go global in the years that followed.

By Kim Yoon-ji, senior researcher at Korea Eximbank’s Korea Economic Research Institute

Please direct questions or comments to [english@hani.co.kr]