SM Entertainment on Tuesday announced its intellectual property monetization strategy, a business it sees as a core growth area and the first part of the company’s ambitious SM 3.0 business project to be unveiled.
Under the plan, the K-pop powerhouse targets at reaching 1.2 trillion won ($926 million) in revenue with an operating margin of 35 percent by 2025. This would be a 134 percent growth in sales compared to the 512.1 billion won in preliminary sales last year.
SM plans to achieve such goal by branching beyond its primary IP business -- the main revenue driver in entertainment -- such as albums, digital music, concerts and artist management, to the secondary IP business, which refers to merchandise, IP licensing, fan platforms and video content business.
SM Entertainment Chief Financial Officer Jang Cheol-hyuk said the primary IP business was the "driving force" behind the 30 percent growth rate per annum during the past three years.
“Based on SM's such unique identity and competitiveness, we want to take another leap forward in the age of SM 3.0,” Jang said in a video on SM's official Youtube channel.
The SM 3.0 project involves establishing five different production centers and independent music labels to diversify production.
SM will first terminate business contracts with Like Planning, a production company wholly owned by SM founder Lee Soo-man, and internalize merchandise production and distribution, and the concert planning business that used to be handled by contract companies such as Dream Maker, to increase operating profit by 6 percent.
In regard to the primary IP business, SM has aimed at hitting an average annual sales growth rate of 26 percent by 2025. The plans include launching artist IPs at least twice a year, releasing at least 40 physical albums to sell 27 million copies a year, and holding at least 400 concerts annually.
“The merchandise and IP sales from the secondary IP business, which stands at 120 billion won, will be increased to 170 billion won by 2023, and 300 billion won by 2025. Secondary IP, which has much higher profitability compared to primary IP will become the core growth platform for SM 3.0," Jang said.
To achieve that, SM plans to create a character IP for each of its artists, create webtoons, web novels and videos, expand IP licensing through agreements with global licensing partners, and expand IP distribution by establishing dedicated organizations in key regions such as the US, Europe and Japan.
SM will also establish an integrated fan platform directly managed and operated by SM, and monetize video content to achieve 150 billion won in sales by 2025.
“The new IP monetization strategy for SM 3.0, including the resolution of the issues in SM 2.0 described today, is a powerful growth engine for SM," Jang said, adding that it hopes to become an "unrivaled leader in the K-pop industry in all aspects."
"The entire management and employees of SM, including myself, will do our best to keep the promise of meeting target results with our shareholders,” he said.
The first outline of SM's ambitious road map follows a management right feud between two parties, SM and Kakao on one side and SM founder Lee Soo-man, now the largest SM shareholder Hybe, on the other.
Earlier this month, Hybe signed a deal with Lee to buy his 14.8 percent stake in SM for 422.8 billion won, making Hybe the largest shareholder.
Hybe is also attempting to buy off minority shareholders’ shares via a tender offer to acquire 40 percent of SM’s total shares for which it will be injecting more than 1 trillion won.
SM has since sought to lobby shareholders to make their decision after looking into the overall strategy of SM 3.0, which the company will continue to share before Hybe’s tender offer application deadline on March 1.