In today’s Finshots, we dive into the long-simmering troubles in Korea’s pop music scene and explore whether there’s any hope for a turnaround.
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The Story
Kakao Corp’s founder Kim Beom-soo just got arrested for his involvement in an alleged K-pop agency stock price rigging scandal.
For the uninitiated, Kakao is South Korea's most popular social media platform, and it's been diving into the entertainment world, by branching into the Korean pop music industry or what you popularly call K-pop.
Last year, Kakao made headlines by buying a stake in SM Entertainment, one of the major players in the K-pop arena. Talent agencies like SM Entertainment are the heartbeat of K-pop. They’re the ones who turn aspiring artists into full-fledged K-pop idols, pick the best trainees to form those iconic idol groups and keep the momentum going even after the debut. Right now, the K-pop scene is ruled by the Big 4 ― SM Entertainment, YG Entertainment, JYP Entertainment and HYBE Corporation.
But Kim has landed in hot water for allegedly teaming up with a private equity fund to artificially boost SM Entertainment’s stock prices and block its rival, HYBE Corporation, which was also gunning for a controlling stake in SM Entertainment.
This isn’t just dragging down Kakao’s stock price, but might also throw more fuel on the already raging K-pop crisis. For context, over the last year, shares of the Big 4 K-pop agencies have tanked by nearly 50% from their peak in 2023. That has already wiped out a whopping ₩8 trillion (over $5 billion) in market value for some of these companies.
And with a stock price manipulation scandal like this, things could get even messier.
But hold on… K-pop is a massive moneymaker for South Korea. Back in 2021, the K-pop events market was valued at a cool ₩11 trillion ($8 billion) and is projected to double by the end of the decade. Just a few years ago, the South Korean music industry, including K-pop, hit a record-breaking sales revenue of around ₩11 trillion, with millions of dollars in export potential. So, what changed, you ask?
Well, last year, the Big 4 K-pop agencies saw record-high album sales and streaming revenues, hitting close to ₩2 trillion ($1.3 billion). But those numbers took a nosedive pretty quickly.
First off, inflation may have taken a serious bite out of K-pop album sales. See, K-pop album success is typically measured by sales in the first week after an album drops. And these numbers don’t just come from streaming but from old-school CD sales. Yup! In Korea, physical albums still hold a lot of clout. Fans rush to grab the latest CD from their favourite idol groups, often buying multiple copies as collectibles rather than just for listening. For example, last year, 80% of recorded music sales at JYP Entertainment came from these CD sales.
But when inflation hits, those extra CD purchases become less of a priority. Fans might cut back on buying multiple copies, leading to a dip in those crucial first-week sales.
But theories suggest that inflation might not have been the main culprit here. South Korea’s inflation rate for 2023 was 3.5%, which was actually lower than the 6% from the year before. In fact, it dropped even further to 2.25% in the first half of 2024. Despite this, K-pop stocks kept falling. If inflation were the real issue, these stocks wouldn’t have taken such a hit.
So, a major factor could actually be BTS, one of K-pop’s biggest bands, which went on hiatus last year due to South Korea’s compulsory military service. This service requires physically fit men aged 18 to 35 to enlist, and BTS’ members were among those called up.
In 2018, Hyundai Research Institute reported that BTS was pumping over ₩4 trillion ($3 billion) into the South Korean economy each year. That’s about the same impact as 26 midsize companies combined! They were also attracting 1 out of every 13 tourists to South Korea in 2017 and raking in an estimated ₩1 trillion ($700 million) from consumer goods exports like merchandise and cosmetics in just one year.
So, it’s no surprise that their military enlistment had a serious impact on HYBE Corporation’s stock price, the K-pop agency that manages them. The stock plummeted to its lowest since the company went public two years earlier. On top of that, new bands launched by K-pop agencies haven’t managed to stir up the same excitement as their predecessors, falling short of topping South Korean music charts.
That’s not all. Another reason for the drop in K-pop sales is the slump in exports to China, a major market for K-pop. China has previously cracked down on K-pop performances and sales due to geopolitical tensions with Korea. On top of that, the Chinese economy took a hit during the pandemic, which likely contributed to a dip in South Korea’s exports, including K-pop.
In fact, the export volume for K-pop CDs, not just to China but overall, fell in the first half of 2024. This decline marks the first downturn in nine years.
And the only way to turn things around for K-pop is to focus on global markets where the Hallyu wave is still riding high. If that sounds new, Hallyu is a term derived from the Chinese word “hanliu” and refers to the global popularity of Korean popular culture, including K-pop music and K-dramas.
See, K-pop’s appeal isn’t just limited to Asia. It’s also making waves in the United States, Europe and Latin America. So, in response, agencies like JYP Entertainment and HYBE are launching localised music groups in these regions, using the K-pop model but with a twist. They’re essentially taking the “K” out of K-pop by creating bands with few or no Korean members, who will be trained to emulate the K-pop style and sound while performing mainly in English.
How well this strategy could fare amid the stock market turmoil for K-pop agencies is something we’ll have to wait and see. But if these agencies continue to be tainted by scandals like stock rigging, even their global expansion efforts might not be enough to stop their stock prices from slipping on the Korean stock exchange.
What do you think?
Until next time…
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