Why might K-pop's SM Entertainment sever ties with founder and chief producer Lee Soo-man?

SM Entertainment announced on September 16 that it may sever official ties with its chief producer Lee Soo-man.

Lee founded the South Korean media company in 1995, and has been integral to the forming of the modern K-pop industry, producing acts including Girls' Generation, Exo and Aespa.

SM Entertainment plans to terminate its contract with Like Planning, a music production company owned by Lee.

SM Entertainment has spent the past few years being questioned by investors on its 20-year commitment with Like Planning and the millions of dollars – around six per cent of SM's annual revenue – that are paid annually to Lee.

Following the announcement of the planned shift, shares in the company jumped an equivalent of nearly US$10 (S$14.12), before dropping slightly, as investors aimed to be part of the company's new shape.

Many investors have criticised the relationship between SM Entertainment and Like Planning, with some demanding the two merge rather than have Like Planning be paid like an outside company.

The contract between SM Entertainment and Like Planning is set to expire in December 2023, with an option to renew if SM decides its connection with Lee cannot be severed.

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Despite Lee's role in the success of SM Entertainment and K-pop, many investors and fans see a shift away from his influence and Like Planning as part of a new era for SM Entertainment, which was the top-ranked South Korean music company for years.

SM Entertainment has fallen behind BTS's label Hybe and JYP Entertainment, home to Twice, and there has been a push for a new direction by the K-pop company.

In related news, also on September 16, SM Entertainment boy band NCT 127 released their fourth Korean-language LP, 2 Baddies.

This article was first published in South China Morning Post.