[Exclusive] SM C&C Initiates Efficiency Improvement of Advertising Business Organization

Discussion on Organizational Efficiency for Advertising Business Employees
Speculation on 'Slimming Down' for Sale

SM Culture & Contents (SM C&C), a subsidiary of SM Entertainment (SM), is confirmed to be reviewing organizational efficiency improvements in its advertising business division.

According to industry sources on the 22nd, SM C&C recently held a briefing session for employees in the advertising business division and informed them that it is discussing restructuring plans to improve organizational efficiency.

SM C&C logo. [Image provided by SM C&C]

Within the industry, there are speculations that SM C&C may undertake workforce reductions such as voluntary retirement or encouraged resignation as part of the organizational efficiency efforts. Some reports suggest that the company plans to implement encouraged resignations for some employees in the advertising business division.

However, an SM C&C representative emphasized, "We are reviewing various measures to improve organizational efficiency in the advertising business division to prepare for the rapidly changing advertising industry environment," adding, "Discussions with members of the advertising business division are currently ongoing, and nothing has been decided yet." The representative further stated, "No decisions have been made regarding workforce reductions, and we will discuss various options with the members concerning organizational efficiency."

SM C&C is a subsidiary of SM that operates businesses including advertising agency services, entertainment management, content business, and corporate specialized travel. The company changed its name to SM C&C after SM acquired a small to medium-sized travel agency called BT&I in 2012 and added the entertainment management business. As of the end of last year, the largest shareholder is SM Studios, a subsidiary of SM. SM Studios is a wholly owned subsidiary established by SM to integrate management of non-music businesses. SM Studios holds 29.23% of SM C&C's shares.

SM C&C entered the advertising business in 2017 by acquiring the M&C division, the advertising agency business unit of SK Group affiliate SK Planet. The acquisition was conducted by acquiring and merging SM Contents & Communications, a newly established company spun off from SK Planet's advertising business division. Even after the acquisition, SM C&C has secured advertising projects from major companies such as SK Telecom, Hana Financial Group, and CJ CheilJedang. However, the advertising division has reportedly faced difficulties recently due to changes in the advertising market caused by the spread of new media.

There is also an interpretation that SM C&C's move toward organizational efficiency is part of a "downsizing" effort for a potential sale. Since last year, SM has been pushing for the sale of its subsidiaries SM C&C and KeyEast as part of non-core asset restructuring. After Kakao became the largest shareholder, SM announced its future vision called "SM 3.0" and plans to reorganize non-core businesses to invest about 1 trillion KRW.

Current regulations that prohibit simultaneously owning an advertising agency and a media rep company also accelerate SM C&C's sale. According to Article 13 of the Act on the Sale of Broadcast Advertising, advertising agencies cannot own shares in media rep companies. Media reps are companies that handle the sale of broadcast advertisements. Since Kakao became SM's largest shareholder last year, SM C&C has become a related party to Kakao, which holds a 10% stake in SBS M&C, a media rep company.

Previously, the Korea Communications Commission (KCC) judged last year that Kakao violated ownership restrictions on broadcast advertising sales agencies by acquiring SM and thus SM C&C. In July last year, the KCC issued a corrective order to Kakao for violating ownership restrictions on advertising agencies, and on the 27th of last month, it issued a second corrective order. Lee Sang-in, Vice Chairman of the KCC, said last month, "We acknowledge Kakao's efforts to resolve the issue, such as proceeding with the sale process after the first corrective order," but added, "As long as the legal violation persists, imposing a second corrective order is unavoidable."

SM C&C recorded sales of 127.3 billion KRW and an operating profit of 2.1 billion KRW last year. Sales decreased by 19.4% compared to the previous year, while operating profit (2 billion KRW) increased by 5%. However, net loss amounted to 9.9 billion KRW, turning to a deficit compared to the previous year. In particular, sales in the advertising business division were 80.359 billion KRW, about 25% less than the previous year's 107.381 billion KRW.