After graduating from Seoul National University and pursuing his own career as a singer, Lee Soo-man surveyed teenage girls on what they wanted to see in music groups and started the boy band H.O.T. and girl group S.E.S.. Both groups became successful during the late 1990s. Soon thereafter, Lee created Shinhwa, and once again, the band attained the same popularity and success, continuing Lee's streak of successful artists.

However, problems began appearing in SM Entertainment following the breakup of H.O.T. Some assumed financial issues to be the problem, but real reasons have never been officially disclosed. S.E.S. disbanded a year after H.O.T., and a few years later in 2003, SM Entertainment would see the departure of Shinhwa as well, though the group shifted towards a new management instead of breaking up and continued their success outside of SM Entertainment. In the following years, some of its newer ventures, such as Isak N Jiyeon and Black Beat, failed to attain the popularity achieved by earlier SM artists.

The agency later found new successes in acts such as BoA and TVXQ. In addition to marketing to domestic audiences, the two artists have been aggressively promoted in Japan, as part of the company's recent blue ocean strategy to export Korean talent to larger overseas music markets. SM entered into a joint venture with Avex Trax to release music of BoA, TVXQ, The Grace, Super Junior and The TRAX in Japan. Super Junior and Zhang Liyin have been heavily promoted in China, Taiwan, Hong Kong, and other Chinese-speaking communities, and Super Junior M, who sings in Mandarin Chinese, was created to target Chinese-speaking audience.