The Miracle of SMEs: What It Has Brutally Proven

In the spring of 2023, the narrative of Korean popular music briefly resembled a fairy tale. An obscure five-member group that had debuted in November 2022 saw their single—released in February—go viral across TikTok and YouTube; by March, it had entered the Billboard Hot 100, climbing to No. 17 on the chart dated May 20. Its 15-week consecutive chart run was then the longest ever for a K-pop girl group song, and it reached No. 8 on the UK Singles Chart—the first time a K-pop girl group had ever cracked the Top 10. You don’t need to be from a major agency. The industry dubbed this “the miracle of mid-sized companies.”

However, on June 19, when the members filed a preliminary injunction to suspend the enforcement of their exclusive contracts against the agency, Donghwa turned into an industry case study. Issues cited included opaque accounting, violations of health‑care obligations, and insufficient support capabilities. The agency claimed “tampering by external forces.” The most contentious events that year were not plagiarism accusations, military enlistments, or a takeover battle between massive conglomerates. The biggest success of the smallest company was that it set the fundamental blueprint of Korean K‑pop in a courtroom.

The key term in this case is not the flashy chart, but the dry word “settlement.” And in Korean K-pop, this word has two entirely different faces. To the members, it was the language of deprivation—“We produced a hit song, yet we have nothing in our hands.” To the agency, it was the language of accounting—“We are still in the recovery phase.”

The standard settlement structure in K‑pop is simple. The agency first recoups the production and activity costs it has invested from album and streaming revenues, and then any profit that arises afterward is shared with the artist. The known production costs amount to about 6 billion won, and external investments were around 10 billion won. A music label collective responded, “Advance investments are offset by the revenue generated each month, and raising settlement issues right after debut is a misunderstanding.” The time lag between the chart numbers and the figures in the bank accounts was the real trigger of this dispute.

The problem lies in the fact that this time lag is bridged not by “institutional” mechanisms but solely by “trust.” Until the settlement process is complete, artists can hardly review the financial records of their own successes. The greater the success, the stronger the doubts they feel during this opaque period—explaining why the larger the miracle, the wider the rift.

The agency filed a police complaint, claiming that an external production partner and its representative attempted to poach the members, and stated that the copyright registration for “Cupid” had been changed—in March, without their knowledge—to the partner’s name. The media and public opinion quickly aligned around the “tampering” frame. That term—referring to unauthorized external contact with an artist under exclusive contract—proved highly effective in simplifying the dispute into a moral drama of “loyalty versus betrayal.”

Yet moral dramas obscure structural issues. Even if external interference were true, an outsider’s hand cannot enter where there is no gap. In the year between obscurity and global hit status, the chasm between skyrocketing sales and the accounting, healthcare, and communication systems needed to support them—this chasm was, in fact, the real limit of a small company. While the Tempering controversy identified perpetrators, it failed to pinpoint the industry’s structural voids.

Of course, we must also honestly listen to the opposing side’s voice. The counterargument is that requiring a company that hasn’t even recouped its investment yet to “share the fruits of success” fundamentally undermines the very principle of risk-bearing that sustains the industry. If every agency investing billions of won in each debut group were forced to settle accounts immediately upon scoring just one hit, companies would simply stop investing in unknowns altogether. The most uncomfortable truth in this case is that neither side can be entirely right.

Thus, reducing this dispute to a “bad company versus good artist” narrative misses the most important point. The real issue was not the allocation of responsibility, but rather the absence of standards and transparency that would prevent anyone from arbitrarily assigning that responsibility.

The summer turmoil that year ultimately ended with the contract termination, but the bill the industry had to pay did not disappear. The fact that a single global hit led to the disbandment of an entire group revealed that while Korean K-pop has reached world-class excellence in “creating hits,” its “system for sustainably managing hits” still relies heavily on luck and trust.

The SME miracle was the most expensive proof that miracles cannot replace systems. To ensure the next miracle does not end once again in litigation, the industry must confront not external intervention but its own internal blueprint. Only when everyone can view the ledger of success through the same lens does “Cupid” become not a fairy tale but an industry asset.