After suffering a $8 billion equity loss due to worries over declining album sales, K-pop music companies are in desperate need of a comeback.
After seeing their stock prices drop by as much as 50% from its 2023 high, Hybe Co., SM Entertainment Co., JYP Entertainment Corp., and YG Entertainment Inc. are attempting to turn things around through signing new artists, striking distribution partnerships, and capitalizing on streaming services.
A new growth plan is needed for K-pop companies in light of the popular groups BTS and Blackpink going on hiatus and a fall in album sales in China.
A number of experts, including those at Goldman Sachs Group Inc. and HSBC Holdings Plc, have predicted that these music agencies’ plans to increase fan engagement at concerts and expand their business in the United States and Japan will be successful.
“Current concerns about the K-pop outlook do appear to be excessive,” commented Junhyun Kim, an analyst at HSBC. He assured them that there are “various other ways to monetize K-pop fans” even if album sales in physical form decline in 2024.
Despite the rise of digital streaming, K-pop agencies have continued to rely on physical record sales, which may be enhanced with unique goods, to generate revenue. The three months leading up to December had Hybe’s worst quarterly growth, however, due to declining album sales in the second half of 2023.
Yuanta Securities Co. predicts a 5.3% year-over-year decline in album sales to 82.7 million copies in 2024 from the four main K-pop agencies. The revenue growth rate has been over 40% for the last four years running.
Out of the four, Hybe’s strategic shift has put it in the driver’s seat in terms of market value. Its digital and geographical reach will be expanded by a distribution contract it inked with the world’s biggest music firm, Universal Music Group NA.
The company’s persistent presence on worldwide streaming platforms also contributed to the K-pop debut album ILLIT’s record-breaking first week of Spotify streams.
To counteract China’s negative effects, peers are also boosting younger talent. Morgan Stanley predicts that SM’s earnings will rise thanks to Riize’s rising star power, and that JYP will be able to keep its revenue base strong thanks to the busy schedules of its top artists, such as Stray Kids and Twice. Many are also hoping that YG’s Blackpink will resume their activities soon.
After the constraints caused by the pandemic have lifted, experts at Goldman Sachs believe that offline concert attendance, rather than album sales, should be used to judge K-pop’s progress.
In a note dated March 14, experts at Goldman Sachs, including Eric Cha, predicted that K-pop’s fan base will grow by 26% each year for the next three years, with the majority of that growth coming from the Japanese market.
This rebound follows a year in which the business battled worries about drug investigations, a drop in group album purchases in China, and the re-contracting of major performers.
How long this current wave of artists can keep going strong is anyone’s guess. The world’s most famous girl band, Blackpink, and Hybe’s BTS have contributed to South Korean entertainers’ meteoric rise to fame.
Here are some more details we have covered about BTS:
- BTS Teams Up with Disney Korea for ‘Toy Story Tiny TAN’ Collaboration
- BTS’s “ON” Kinetic Manifesto Film Hits 600 Million Views Mark!
A substantial de-rating during the last six months has made prices more appealing, nevertheless. Bloomberg data shows that Hybe, JYP, and SM shares are currently trading at a price that is around one standard deviation lower than their average forward profits over the past five years.
“We see K-pop on the cusp of being a mainstream genre in the global music industry and think the risk-reward for the sector is attractive,” said a note last month from Morgan Stanley analysts Seyon Park and others. There is now “an opportunity for investors to ride the longer-term theme” thanks to the recent share price fall.
