'K-pop Kingdom' Faces Its Biggest Crisis

ADOR, the agency for NewJeans, started sending complaint emails to its parent company HYBE on the 3rd of this month. 

This happened just over a week after HYBE’s other label, BELIFT LAB, debuted their new girl group ILLIT on the 25th of last month. Shin Dong-hoon, the vice president of ADOR, demanded a quick response from Park Ji-won, the CEO of HYBE, and Kim Tae-ho, the CEO of BELIFT LAB, regarding issues such as plagiarism of choreography and imitation of concepts without the subsidiary’s consent.

Min Hee-jin, the CEO of ADOR, took matters into her own hands on the 16th. She sent emails not only to Park Ji-won, the CEO of HYBE, but also to Bang Si Hyuk, the chairman of HYBE, and Scooter Braun, the president of HYBE America, directly targeting them over ILLIT's 'copying NewJeans'. She criticized the blatant attitude of ignoring obvious issues, which she claimed contradicted HYBE’s initial stance against longstanding unfair practices in the entertainment industry at the time of its founding. She also criticized HYBE's management style for causing conflicts of interest between subsidiaries.

Currently, HYBE holds an 80% stake in ADOR. Last year, Min became the second largest shareholder after HYBE by acquiring an 18% stake (573,160 shares) in ADOR. She had received a call option to purchase shares at the launch of ADOR, which she exercised. The remaining 2% (78,400 shares) is held by another executive at ADOR.

In this context, the allegations of Min seizing control of the management might seem exaggerated. Indeed, Min has also retorted in the media, "How can I take over the management with just 18% of the shares?" It is also unlikely that HYBE is currently considering selling their shares.

However, by issuing new shares to external investors through a third-party allotment, it could dilute HYBE's shareholding in ADOR. Currently, the ADOR board is composed of Min's associates, and the third-party allotment can proceed if it passes through the board. Reports have emerged suggesting that Min strategized to sell the management shares HYBE holds in ADOR to a private equity fund she aligned with.

It is known that the vice president, who moved from HYBE to ADOR, led this initiative. Documents prepared by ADOR that involve plans orchestrated by national wealth funds like the Singapore Investment Corporation and the Saudi Arabian Public Investment Fund to take over have also been confirmed. HYBE has also noted an indirect mention by ADOR about 'management independence'.

However, ADOR's vice president has clarified in an interview that the document was merely a memo saved on a company laptop, stating, "It was written based on personal thoughts and experiences and was not discussed with other executives at ADOR including Min Hee-jin."

Moreover, HYBE’s audit team is investigating if Min’s side has leaked internal data to secure investments. Yet, Min has countered in the media, "I have never met any investor with the intention of taking over the company's management."

The Limitations of the Independent Label Experiment

This situation has exposed the limitations of HYBE's independent label model. The label strategy, highly praised after NewJeans' huge success, showed cracks all of a sudden, putting HYBE's governance structure to the test. In 2020, at the time of its IPO, HYBE was evaluated not against major entertainment companies but against platform companies like Naver, emphasizing its distinct investment appeal by acquiring various labels and managing them sequentially without relying solely on one producer or artist, which was a major risk factor for other entertainment companies.

No matter the outcome of this dispute, HYBE is likely to suffer significant repercussions. CEO Min holds the strong trust of NewJeans members as her trump card. Even if HYBE wins legally, it is expected to incur inevitable damage to its core intellectual property.

An industry insider noted, “As seen in the controversy over copying NewJeans, mimicking successful models to increase profitability might be effective for the parent company HYBE, but it has shown the limitations of its control and the issues of conflicting interests between labels.”

HYBE's Market Cap Drops by 850 Billion Won (approximately 632 million US dollars) in Two Days

The situation continues to develop as both sides prepare for potential legal disputes over contract termination and other issues, highlighting ongoing tensions and possible future conflicts within the K-pop industry.

Despite concerns due to Min's plagiarism allegations, ILLIT has shown unwavering resilience. Their debut song 'Magnetic' topped the daily charts on all major South Korean music platforms such as Melon, Bugs, and Genie Music on the 22nd, achieving a 'Perfect All-Kill'. This is only the second time a K-pop group has accomplished a Perfect All-Kill with their debut song since BLACKPINK's 'Whistle' in 2016.

However, there is a shared concern in the K-pop industry that members of NewJeans and ILLIT could be hurt by this incident. An official from a mid-sized entertainment company expressed worries, "The members of both groups are at a sensitive age, and even though the executives of both companies may have disputes, they must be careful to ensure that the members and their fans do not get hurt."