Key Takeaways
- SM Entertainment is betting big on AI and plans to increase M&A activity in the music industry
- The company aims to build Asia’s largest and most respected publishing company through its Kreation Music Rights (KMR) subsidiary
- SM Entertainment will leverage AI to upgrade its A&R systems and recommend tracks to artists and fans
- The company is strengthening its presence in key markets through local partnerships and introducing a Multi-Creative structure to place artists at the core of the creative process
- SM Entertainment is positioning merchandise as a medium for fans to experience an artist’s universe and plans to expand into lifestyle merchandise
Introduction to SM Entertainment’s New Strategy
SM Entertainment Co-CEOs Daniel Jang and Dmitry YJ Tak have unveiled a new blueprint for the company’s growth, dubbed "SM NEXT 3.0". This strategy represents the "borderless expansion of K-pop" and aims to evolve the company from its existing "SM 3.0" system into a "Multi-Creative" structure. The plan includes increasing M&A activity in the music industry, building Asia’s largest publishing company, and leveraging AI to upgrade its A&R systems. The company, known for acts such as NCT 127, EXO, Riize, and aespa, is looking to expand its global presence and strengthen its position in the K-pop industry.
M&A Activity and Publishing Ambitions
SM Entertainment plans to "more actively" pursue M&A opportunities in the music industry, with a focus on building Asia’s largest and most respected publishing company through its Kreation Music Rights (KMR) subsidiary. According to Chief A&R Officer Chris Lee, KMR has established a strong foundation for a global repertoire by expanding from Korea and Europe into the United States in 2025. The company maintains exclusive or sub-publishing agreements with over 370 composers worldwide and manages a core K-pop catalog of over 7,000 songs. Lee stated that the goal is to build Asia’s largest and most respected publishing company within the next five years and to grow further as a hub for intellectual property (IP) and a leader shaping the future of the music market.
Leveraging AI for Growth
SM Entertainment sees strong potential for meaningful synergy at the intersection of a rapidly evolving K-pop landscape and AI. The company plans to leverage the AI technological capabilities of its majority shareholder, Kakao, to upgrade its A&R systems. AI will be used to analyze tens of thousands of songs accumulated over SM’s 30-year history to recommend tracks with a high level of suitability for each artist, helping fans discover music that better aligns with their individual tastes. This move is expected to drive growth and transformation in the company’s music business.
Global Expansion and Local Partnerships
SM Entertainment is strengthening its presence in key markets through local partnerships. The company is working with Tencent Music Entertainment in China, True in Thailand, and is currently in discussions with multiple partners in Japan. The focus is on creating locally resonant IP while maintaining SM’s creative identity. This approach is expected to help the company expand its global reach and build a stronger presence in key markets.
Multi-Creative Structure and Artist-Centric Approach
SM Entertainment is introducing an enhanced Multi-Creative structure, designed to place artists "at the core of the creative process". The company aims to achieve growth and transformation simultaneously by placing artists at the center and flexibly assigning the most optimal creative teams. This approach will allow every artist’s transformation to be realized with the highest level of precision and quality. The company is also positioning merchandise not merely as products, but as a medium through which fans can experience an artist’s universe.
Business and Investment Strategies
SM Entertainment is responding to evolving fan consumption patterns, particularly around merchandise and concerts. The company is focused on delivering concert experiences optimized for fan communities in each region and is leading new trends in the merchandise space. SM is also expanding into lifestyle merchandise and plans to continue collaborating with global platforms to deliver K-content experiences to fans worldwide. The company has brought DearU, operator of superfan platform Bubble, into its group as an affiliated subsidiary, and will continue to invest in bold, forward-looking initiatives to shape the future of the global entertainment market.
Financial Performance and Future Outlook
In its most recent financial results, SM Entertainment reported a 261.6% year-over-year increase in operating profit for Q3 2025, driven by a streak of hit albums, rising concert revenue, and growth at fan platform DearU. The company is well-positioned for future growth, with a strong foundation in the K-pop industry and a clear strategy for expansion and innovation. With its focus on AI, publishing, and global expansion, SM Entertainment is poised to continue shaping the future of the music industry and delivering value to its fans and shareholders.
