SM Entertainment Co., which Hybe Co. owns the biggest stake in, decided to entrust its label and music distribution exclusively to Kakao Entertainment Corp. as part of an agreement with Kakao Corp. earlier this month, according to sources on Thursday.

SM signed an agreement to sell new shares and convertible bonds to Kakao Corp. to facilitate the Kakao’s participation in SM management on Feb. 7.

Under the agreement, SM will grant exclusive rights to the digital platform giant’s subsidiary, Kakao Entertainment, for the distribution of music in Korea and will also cooperate in overseas distribution through Kakao Entertainment and its affiliates. Currently, the distribution of music from SM singers is handled by Dreamus Co., in which SM holds a partial stake.

SM also agreed to work with Kakao Entertainment on the distribution of its tickets for domestic concerts and fan meetings. SM has a limited number of performances per year under a sole contract with Dream Maker Entertainment Ltd., partially controlled by Lee Soo-man, the founder of SM Entertainment, but the partnership with Kakao will remove the limit.

SM said in its “SM 3.0” business plan released earlier this year that it will increase the number of annual performances per singer to 20. If the plan is realized, SM’s total number of performances will reach more than 400 per year, which could significantly increase its revenue.

SM and Kakao Entertainment also agreed to establish a joint venture and discuss ways to jointly form new K-pop groups through global auditions.

The collaboration between SM and Kakao represents a meeting between two of the world’s best content and platform, SM said on its official YouTube channel on Wednesday, adding this is a mutual strategic partnership that will create horizontal synergy and a virtuous cycle.

SM said the partnership is a content-to-platform meeting which will strengthen the business performance of SM and Kakao, while maintaining the diversity of the entertainment industry, stressing the need for SM-Kakao collaboration.

In response, Hybe said that the expansion of the two global fandom platforms, Hybe’s Weverse and SM’s Bubble, will be globally competitive beyond Korea, and the two companies will join forces to create a top company that can vie with the world’s three major music labels.

Meanwhile, SM released agenda items for its 2023 annual shareholder meeting on March 31, proposing Jang Cheol-hyuk, chief financial officer of SM Entertainment, Kim Ji-won, head of Marketing Center, and Choi Jung-min, head of Global Business Center, as candidates to the board.

The company’s non-executive director nominees include Lee Chang-hwan, CEO of Align Partners, and Jang Yoon-jung, Vice President of Global Strategy at Kakao Entertainment.

The current board members of SM, including co-CEO Lee Sung-soo, will step down.

By Park Se-yeon and Minu Kim

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]