Hearts2Hearts aims to lead SM's 1 trillion won revenue following Lee Soo-man's exit

Could the rookie girl group 'Hearts2Hearts' lead the growth of SM?

Hearts2Hearts, SM Entertainment's first fifth-generation girl group, is drawing attention as it officially debuts on the 24th. Hearts2Hearts is SM's rookie girl group launching about five years after aespa in 2020.

SM plans to exceed 1 trillion won in sales for the first time based on the successful debut of Hearts2Hearts. SM recorded sales of 961 billion won in 2023. This is more than double the sales of the domestic entertainment industry leader HYBE (2.178 trillion won).

◇ SM's first fifth-generation girl group 'Hearts2Hearts'

The performance of corporations in the entertainment industry is derived from the activities of their artists. In particular, when the growth of newcomers is combined with the activities of existing popular artists, there is a rapid growth trend.

BTS from HYBE and BLACKPINK from YG Entertainment are representative examples. In particular, it is known that BTS accounted for about 60% of HYBE's overall sales when they were active as a complete group before members' military transfer. This is the background against which the girl group being introduced by SM after five years is receiving high expectations. Currently, SM has active artists including aespa, regarded as a fourth-generation girl group, as well as Girls' Generation (debuted in 2007) and Red Velvet (debuted in 2014). The first generation was SES.

The eight-member girl group Hearts2Hearts will kick off their activities by releasing their first single 'The Chase' on the 24th. On the 3rd, they drew fans' attention by unveiling a short teaser video on YouTube and social media.

Although Hearts2Hearts has not yet revealed an exact team concept, it is expected to embody a warm and emotional style, as suggested by the team name 'Hearts2Hearts,' which implies communication with fans through various feelings and sincere messages.

This concept is distinctly different from aespa, which has a strong image. In particular, the eight-member girl group, with an average age of 17, is expected to showcase a vibe that friends of that age can present. SM explained, 'Hearts2Hearts seeks a mysterious and beautiful musical world.'

The market is also paying attention to the competition among fifth-generation girl groups against rivals such as HYBE's NewJeans, which is facing controversies including the termination of the contract with YG's BabyMonster.

The market response to Hearts2Hearts is positive. Stock prices reacted first. SM's stock price, which recorded just above 70,000 won in early January, rose to 87,600 won on the 7th. The expectation for a rookie girl group debut in five years played a role.

Whether Hearts2Hearts succeeds in the market is expected to influence SM's performance rebound. SM recorded sales of 242.2 billion won and an operating profit of 13.3 billion won in the third quarter of the previous year. Compared to the same period last year, sales decreased by 9% and operating profit plummeted by 73.6%. Annual sales amounted to 961 billion won in 2023. Financial analysts estimate that sales in 2024 will be similar to the previous year, ranging from 960 billion to 980 billion won.

SM plans to exceed 1 trillion won in sales in 2025 based on the activities of Hearts2Hearts and to accelerate growth.

◇ 'The leader is not visible'

'Achieving 1 trillion won in sales' is significant. It is considered that this could be an opportunity for a 'new leap for SM' two years after founder Lee Soo-man sold his equity and left the company in 2023.

After Lee Soo-man left the company, SM introduced the 'SM 3.0' system, which centers on a multi-label system. The existing system of singular production by Lee Soo-man was changed to a system where each label in the SM group produces artists, and a transition was made to a joint leadership system under Jang Cheol-hyuk and Tak Young-jun. Jang, who is a certified public accountant, focuses on corporate growth and management, while Tak, known as an artist management expert, handles production.

However, there are reports in the market stating, 'There is no visible leader in SM since Lee Soo-man left.' It is said there is no leader who possesses charisma like Bang Si-hyuk of HYBE or Park Jin-young of JYP Entertainment. The role of a leader who can drive corporate growth is crucial.

An industry insider noted, 'This is the time for SM to prove itself without Lee Soo-man,' and said, 'If SM falls behind, it could be overtaken by YG and JYP.' As of 2023, YG recorded 569.1 billion won in sales, while JYP recorded 566.5 billion won.