The move comes as China is widely expected to lift its nearly decade-old unofficial ban on K-pop performances in mainland China. That potentially opens South Korean companies such as SM Entertainment to resume music distribution through the relationship with Tencent.
Shares of SM Entertainment jumped by more than 7% in early trading after the news, while that of its fan platform subsidiary DearU Co soared as much as 13.3%. DearU, which operates a fan-artist messaging app Bubble, announced a partnership with Tencent late last year. Both stocks gave up their early gains to trade flat by midday.
“We’ve seen early signs of thawing Korea-China relations,” John Yu, analyst at Citi, said in a note, adding that momentum is building as the pro-China candidate Lee Jae-myung leads in opinion polls ahead of next week’s presidential election in South Korea.
“We continue to believe SM is better positioned among the four major K-pop agencies to resume fan-driven revenue streams in China, once the opportunity reopens.”
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SM and Hybe are K-pop agencies managing different K-pop artists.
Before the restrictions, China was one of the largest markets for K-pop. K-pop idol groups from SM Entertainment, as well as its rival YG Entertainment, held concerts and events in the mainland, raising tens of millions of dollars from the world’s second-largest economy.
But China imposed the so-called “K-wave ban” in 2016 in retaliation for South Korea allowing the US military to deploy missile defence system called Thaad, or Terminal High-Altitude Area Defense, on its soil.
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Tencent Music was not available for a comment when reached by Bloomberg News.
For Tencent, the deal would mark its first major investment in South Korea’s music industry in years. It owns a 4.3% stake in YG Entertainment and a 5.95% holding in Kakao Corp, South Korea’s biggest Internet company which is also the largest shareholder of SM Entertainment.
The selldown will bring an end to a bitter battle for control of SM Entertainment. Hybe and Kakao sought to buy SM Entertainment in 2023, in what would have been one of the country’s biggest media sector deals. However, Hybe dropped its pursuit of SM after the bidding war pushed up the SM stock price, making it too expensive.
The deal also resulted in Kakao founder Brian Kim getting caught up in the regulatory cross hairs, over charges that he allegedly tried to manipulate the SM Entertainment shares. Kim has repeatedly denied any wrongdoing.
South Korean entertainment stocks have been among the biggest gainers in the Korean equity market this year, driven by expectations they will be shielded from tariff wars. The rally is also underpinned by expectations of China lifting its K-pop ban. SM Entertainment shares have rallied 72% so far this year while YG Entertainment Inc. jumped 77%.
Hybe said in a statement it divested non-core assets and the proceeds will be used to fund future growth.
