The power struggle between the godfather of K-pop and his nephew to take control of the music label he founded is very real.

It involves HYBE, the agency of boy band phenomenon BTS, and tech giant Kakao in a high-profile battle that could also determine the future of the billion-dollar industry.

And it was sparked largely by one man, South Korean activist investor Lee Chang-hwan.

Mr. Lee's fund, Align Partners, early last year acquired a 1% stake in SM Entertainment, a major South Korean music label that has helped bring K-pop to the world. , managing early hit groups such as boy bands Super Junior and SHINee.

He used that stake to advocate for company reform, arguing that its founder, Lee Soo-Man, pocketed millions of dollars in fictitious consulting fees each year.

"It didn't make sense," Lee Chang-Hwan told AFP in a recent interview, claiming that the money - 6% of stock-listed SM Entertainment's sales each year - was paid to an entity private company called Like Planning, wholly owned and controlled by Lee Soo-Man.

The 36-year-old self-taught investor then started asking awkward questions.

– K-pop industry pioneer –

Lee Soo-man not only created K-pop groups in the 1990s, such as HOT and SES, whose success certainly laid the foundation for the stratospheric rise of groups such as BTS and BLACKPINK, he invented the whole mode of operation of the industry.

He pioneered a fine-tuned system of training and micromanaging K-pop "idols," and his idea of ​​combining strong visual performances with aggressive overseas marketing has helped turn SM Entertainment into a juggernaut.

Mr Lee founded the company in 1989 and took it public in 2000, so he was outraged last year when SM Entertainment's board, including his nephew, rallied around the assessment. of activist investor Lee Chang-hwan and decided to end the "unfair" deal with Like Planning.

The group Blackpink performs on stage during the MTV Video Music Awards at the Prudential Center in Newark, New Jersey, on August 28, 2022 © ANGELA WEISS / AFP

Right after, Lee Soo-man sold the majority of his stake in SM - 14.8% of the company - to his former rival HYBE, the agency that manages BTS, for $325 million.

This operation made HYBE the main shareholder of SM, a move seen by its board of directors as a hostile takeover creating a monopoly of HYBE and damaging the enormous potential of the industry.

In an attempt to regain control, SM management tapped South Korean Kakao, a sprawling tech conglomerate that owns the country's most popular messaging app.

Kakao is now looking to buy a controlling stake to block HYBE.

"The Valley of Death"

This feud sparked a succession battle within the Lee family, with founder Lee's nephew Lee Sung-su, who is the company's CEO, flaunting their dirty laundry in public via YouTube.

Accusing his uncle of tax evasion using foreign companies, he asked him to "kneel down and apologise" for his alleged crimes.

Lee Soo-man did not respond to these attacks and could not be reached by AFP, but Yonhap reports that he said Lee Sung-su is a "good nephew" and his "heart aches." of this quarrel.

Experts note that this conflict illustrates a recurring problem in South Korean "chaebol" - family conglomerates such as Samsung - where the founding families have a strong decision-making power, without being a majority, through a complex network of cross-shareholdings. .

Lee Chang-hwan of Align Fund believes that SM Entertainment's case is similar: "It's a bad example of someone running the company as if it were their private entity."

He also disagrees with the attempt to control HYBE, believing that his efforts to create a monopoly bode badly for the market.

K-Pop has "great growth potential," he said.

“BTS was already a huge success and we saw the formation of a real K-pop fan community in North America and Europe.”

According to him, SM Entertainment is "undervalued" due to its management issues and seems like a good target.

© 2023 AFP