When Luke stepped through the doors of SM Entertainment, he saw Lee Soo-man and Kangta waiting for him at the entrance. Behind them, a crowd of SM staff watched excitedly but kept their distance, not daring to approach.
"Welcome, Mr. Luke. Your visit truly honors our humble company," Lee Soo-man said with a smile, stepping forward to shake Luke's hand.
Despite his best efforts to appear warm and friendly, Lee Soo-man's smile had a sly edge, like he was forcing it.
He was the company's boss now, but before that, he'd been a singer. And even earlier? Believe it or not, a coder. In the early '80s, Lee Soo-man studied in the U.S., earning a master's degree in computer engineering from Cal State Northridge. If he hadn't gone into entertainment, he might've become a tech mogul in Korea—who knows?
Life's funny like that. Different paths lead to wildly different views.
"Nice to meet you, President Lee. Sorry for dropping in like this," Luke said, returning the handshake with a smile.
"No trouble at all! You're a guest we'd beg to have. This way, Mr. Luke," Lee Soo-man said, still grinning as he led Luke toward the meeting room.
In SM Entertainment—and the entire Korean music industry—Lee Soo-man was nicknamed "the Tyrant." There's no such thing as a wrong nickname, only a wrong name. Stories floated around fan circles about Lee Soo-man allegedly roughing up his artists, leaving them bruised and forced to perform behind masks. Those kinds of rumors were a dime a dozen.
Yet today, in front of Luke, this "Tyrant" was acting downright gentle.
Once Luke and Lee Soo-man entered the meeting room, Kangta, who'd been trailing behind, didn't follow. Instead, he carefully closed the door and stood guard outside.
"Thank you for gracing us with your presence, Mr. Luke. To what do we owe the pleasure?" Lee Soo-man asked, his tone polite but insincere.
He was playing dumb. Luke had already made his intentions clear at the press conference, but Lee Soo-man was acting like he had no clue.
Luke had been upfront: he wanted to invest in a Korean entertainment company.
Did SM need money? Was investment welcome?
The answer was a resounding yes and absolutely.
Right now, SM had three idol groups under its wing: two boy groups, H.O.T. and Shinhwa, and one girl group, S.E.S. They were supposed to be cash cows, but things weren't going well.
H.O.T. had disbanded last year. S.E.S. was almost certainly not renewing their contracts and would likely dissolve by year's end. As for Shinhwa, they weren't as profitable as the other two and were showing signs of instability. Chances were, they'd also break up when their contracts expired next year.
That meant SM's revenue streams were drying up, with no new groups ready to debut. Even if they did debut a new act, there was no guarantee it'd make money.
SM was in a precarious spot and desperately needed an outside investment to stabilize things.
Lee Soo-man's feelings about Luke's visit were mixed. On one hand, he was eager for Luke to pour money into the company—a lifeline to keep things afloat. On the other, he knew SM's valuation was low. Accepting investment could mean losing control of the company, which made him hesitant.
To Luke, Lee Soo-man's fake politeness was transparent, but he responded with straightforward sincerity. "I'm bullish on K-pop's future, so I'm looking to invest in a Korean entertainment company. SM is my top choice. What do you think, President Lee?"
Lee Soo-man seized the chance to probe. "If I may ask, how much are you looking to invest, Mr. Luke? And how much of SM's shares would you want in return?"
His mental prediction was 6 billion KRW (about 30 million CNY) for 20% of the company. But he wasn't confident about that figure. SM's current revenue couldn't justify a 30 billion KRW valuation. Sure, their artists seemed hot, but the Korean entertainment market was tiny. K-pop hadn't gone global yet, and domestic earnings alone were meager.
Yes, SM's artists had endorsement deals and concerts, but those were future prospects, not current cash flow. It was 2002, and K-pop's commercial potential was still largely untapped. SM's main income came from album sales. Take H.O.T., for example: their best-selling album moved about a million copies. At roughly 70 CNY per album, that's about 70 million CNY in sales. But after distributors took their 50% cut, SM was left with half. Then came production costs, manufacturing, artist splits, company overhead, taxes…
No wonder Kangta, despite being part of Korea's hottest boy band for years, had only earned a few million CNY. It was decent compared to the average person, but it paled in comparison to Western artists—or even artists before their earnings ballooned.
Lee Soo-man was hoping for 30 million CNY for 20% but kept quiet, waiting for Luke to name a figure first. That way, he could negotiate and maintain some control.
But he didn't know Luke had already seen through his hand. SM's financial struggles weren't exactly a secret. Before Luke, Lee Soo-man had pitched to several local Korean investors, and his asking price was no mystery in those circles. Lee Boo-jin, with a little effort, had gathered that intel and passed it to Luke.
So, Luke held a massive informational advantage.
He had two options. The first was to play hardball, maybe even lowballing below Lee Soo-man's—like 20 million CNY for 17% of the shares. But Luke wasn't going that route. It was too shortsighted.
Anyone who's done procurement knows the saying: a contract only matters if your partner gets enough profit to care. As the stronger party, you could strong-arm a deal with unfair terms. Sure, the other side might sign it, gritted teeth and all. But did that mean you won?
Hardly.
Squeeze them too hard, and they'd find ways to cut corners or skim profits behind your back to make up the difference.
Luke's approach to this acquisition was the same. Hardball tactics were cheap. He needed Lee Soo-man's full cooperation, not just a signature. After all, he wasn't going to micromanage the company himself.
The smarter play was to dangle a bigger, long-term carrot—something to keep Lee Soo-man motivated and running full speed ahead.
With that, Luke laid out his plan.
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