SM Entertainment, once a pioneering force in the K-pop industry, now faces significant challenges as both internal and external issues have tarnished its reputation and led to a decline in market performance. Despite creating legendary acts like H.O.T, S.E.S, BoA, TVXQ, Super Junior, Girls’ Generation, SHINee, and f(x), and continuing to produce successful groups like aespa and RIIZE, the company has struggled with management problems and falling stock prices.

The company’s golden era was marked by its dominance in shaping K-pop’s history, with artists that defined generations. Even today, SM retains a strong fanbase, known as “SM Stans,” highlighting its impressive production capabilities. However, challenges began to surface when founder Lee Soo Man’s controversial influence raised governance concerns, leading to a bidding war between HYBE and Kakao for control of the company.

Internally, SM has faced significant setbacks, such as the departure of EXO members Chen, Baekhyun, and Xiumin, exposing risks related to contract renewals. Additionally, rising production costs and continued losses from some subsidiaries have hindered the company’s growth. Most recently, NCT’s main vocalist Taeil’s alleged involvement in a sexual assault scandal, which led to his removal from the group, has brought SM’s management issues into the spotlight.

These struggles are reflected in the company’s stock price, which has dropped by 58% over the past year—nearly double the decline seen by HYBE, which has also experienced internal conflicts. SM’s forward price-to-earnings ratio (PER) has been halved from 23.8x to 12.4x, indicating diminished growth prospects compared to its competitors YG and JYP, which maintain higher PER ratios.

In response to these challenges, SM is implementing changes. The company recently debuted the AI virtual idol nævis and is preparing for the debut of the UK-based group Dear Alice. Additionally, SM is pursuing financial restructuring by selling off subsidiaries like SM C&C and KeyEast. Industry insiders expect that a significant personnel overhaul may follow as part of the company’s restructuring efforts, possibly by early next year.

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