[비즈한국] Tencent of China has acquired the stake in SM Entertainment (2,212,237 shares, 9.38%) previously held by HYBE352820. While this move has generally been met with positive commentary, there have also been negative criticisms labeling it an "invasion of China Money." In this column, I intend to examine both the positive and negative perspectives and highlight what has been overlooked.
First, there are three main positive expectations. One is that K-pop music will be distributed more actively in China. Another is that as the "Hallyu ban" (limit on Korean culture) is lifted, large-scale concerts will become possible. Finally, even if large concerts are not feasible, smaller events such as fan meetings, merchandise releases, and pop-up stores are expected to be viable. Even if regulations are not fully lifted, Tencent, as an SM shareholder, will likely exert maximum effort for its own benefit. Furthermore, some suggest that since China lacks a large-scale idol group system, this is an area ripe for market penetration.
SM's foundation is in Asia, but its growth had been hindered by the Hallyu ban. Recent expectations of the ban being lifted have brightened the outlook for SM's future, a sentiment reflected in its stock price. Given this situation, HYBE's sale of SM shares to Tencent raised suspicions that they might be giving up on the Chinese market. Seemingly to dispel these doubts, HYBE issued a press release announcing the establishment of HYBE China in Beijing, following its branches in Japan, America, and Latin America.
If this announcement was prepared systematically, it could be seen not as HYBE abandoning the Chinese market, but as a sign of its full-scale entry into the continent. This serves as evidence that the SM stock sale is not a complete exit from China. Because HYBE’s profit from transferring the shares to Tencent was only around 5 billion won, some have raised suspicions that there might be a side deal.
However, it is clear that China is not HYBE’s primary market. HYBE has built a successful "post-China" K-pop model, led by BTS. This is the reason HYBE kept SM at a distance. While HYBE China could be a stepping stone for the future, considering that the Hallyu market in China is concentrated mostly south of the Shandong Peninsula, the role of the newly established HYBE China remains to be seen.
Next, let’s look at the negative perspective regarding the "invasion of China Money." This is the concern that if Tencent, effectively SM's second-largest shareholder, interferes in decision-making, it will affect K-pop content and damage its musical identity. This is a common refrain whenever Chinese capital enters the domestic market. However, one could think about it the other way around: Would Tencent really try to bring K-pop into mainland China in earnest to turn a profit?
Moreover, China is heavily influenced by the stance of the Communist Party, so Tencent cannot make such decisions unilaterally. The Chinese Communist Party intends to foster the culture industry internally, but it encourages content based on traditional Chinese values. They have blocked YouTube, disallowed Netflix, and even banned "mukbang" (eating shows). The way they nurture idol groups is bound to follow a similar path. Furthermore, K-content is even more sensitive to their political system. Perhaps one or two events might be possible, but that may be all.
Rather, it is highly likely that Tencent will use K-pop, which enjoys global popularity, as a bridgehead to expand its influence or maximize profits in international markets. In other words, the area where Tencent will actively intervene might not be the Greater China region. This is likely the same for other Chinese content companies when they acquire stakes in Korean firms.
What matters is not whether the capital is Chinese or Korean. The real issue is that the largest shareholders of K-pop companies are increasingly drifting away from the essence and identity of music.
SM's largest shareholder, Kakao035720, is a digital platform company like Tencent. In 2016, Kakao spent 1.87 trillion won to acquire "Melon." However, this is often cited as a failed M&A case. They claimed they would open a new market by combining mobile platforms with music content and create a creator-based ecosystem, but the result was negative growth. There were no meaningful linkage effects or synergies with KakaoTalk. As of April this year, Melon users stood at 6.01 million, a decline of about 16% compared to April 2023 (7.14 million). In 2006, Google acquired YouTube for about 2.3 trillion won—only 500 billion won more than Melon—and the impact has been immeasurable. For Tencent, staying still might actually be the way to make money.
Platform companies have focused more on distribution than on the independent planning and production of content. Even HYBE’s conflict with former ADOR CEO Min Hee-jin stemmed from management decisions far removed from K-pop identity. The fact that K-pop has reached its current level is thanks to those who came from the industry or understood its identity and characteristics well, holding ownership and management. Those who have a passion for K-pop and contemplate its identity and future must become the largest shareholders of K-pop companies to put management on the right track. This is the point we must not overlook in Tencent's acquisition of SM shares.
※ The views expressed by external contributors may differ from the editorial direction of this publication.
The contributor, Kim Heon-sik, has been walking through and navigating the forest of pop culture phenomena since his 20s, with the expectation that there is a way to make the world a better place through culture. He continues on this path with the same belief even in the 21st century, where AI and quantum computers are active.