SM Strengthens High-Profit Secondary IP Business... Aiming for 4x Operating Profit in 3 Years

[Asia Economy Reporter Yuri Choi] SM Entertainment announced that through 'SM 3.0,' it aims to increase its operating profit (separate basis) to 420 billion KRW by 2025. This represents more than a fourfold growth compared to last year.

On the 21st, SM revealed its 'SM 3.0: Intellectual Property (IP) Monetization Strategy' via its YouTube channel. The core idea is to move beyond the primary IP business and generate revenue from the secondary IP business. The primary IP business includes the foundational areas of the entertainment industry such as albums, music tracks, performances, and appearance planning. The secondary IP business involves merchandise planning (MD), IP licensing, fan platforms, and video content businesses based on the results of the primary IP business.

The sales target on a separate basis for 2025 is set at 1.2 trillion KRW, more than double compared to last year. The operating profit margin target is set at 35%.

First, the company plans to overcome the structural limitations of the current management strategy and immediately improve performance. This includes ▲a 6% increase in operating profit margin (expected increase of about 31 billion KRW) due to the termination of the Like Planning contract and the settlement agreement after contract termination ▲internalization of the MD distribution business currently conducted by SM Brand Marketing ▲internalization of the performance planning function handled by Dream Maker ▲enhancement of SM performance sales and profitability through competitive bidding.

Through the Multi Production Center, SM plans to grow primary IP business sales by an average of 26% annually. The sales target for 2025 is set at 760 billion KRW. Specifically, the company will pursue ▲at least two new releases per year for each artist IP ▲breaking free from the 'annual maximum performance limit' due to the exclusive contract with Dream Maker ▲expansion of music genres and individuality ▲achieving optimized logistics costs and improving profitability.

SM will also expand the highly profitable secondary IP sales. The current annual MD/IP licensing sales of about 120 billion KRW are planned to increase to 300 billion KRW by 2025. To achieve this, SM introduced plans to ▲produce character IPs of artists owned by SM ▲monetize SM's unique intellectual property universe IPs such as SM Culture Universe and the Gwangya worldview ▲expand IP licensing through contracts with global licensing partners.

Jang Cheol-hyuk, SM's Chief Financial Officer (CFO), said, "By combining the effects of the IP monetization strategy and the investment strategy to be announced soon, we will achieve an operating profit margin of 35%," adding, "We will grow into a company that leads the K-pop industry in every aspect."