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In the K-Pop world, Tattle about the latest scandals and rumors, including Korean pop stars, is not just light entertainment, but information that drives the market. Even the smallest details of the star’s personal life can affect the stock price of Korean entertainment companies. But there is a greater risk than celebrity drama: political tension.
For K-Pop entertainment companies, fandom is just as valuable as album sales and streaming revenue. The K-Pop Group creates wealth through a combination of concerts, brand support, product sales and sponsorship. All of this is supported by fan engagement.
This model is scale dependent. The larger your fan base, the more opportunities you have to generate revenue. The biggest constraint of K-Pop is now the size of its home market.
South Korea’s population of approximately 52 million has limited domestic growth and makes exports essential to its business model. With 1.4 billion people, China was a major driver of K-Pop’s international growth until 2016.
Since then, the industry has faced major challenges, blocking performance and content, and entertainment companies have suffered a dramatic decline in concert sales and overall revenue. The hopes for a recovery have repeatedly been delayed as the ongoing uncertainty and falsehood begin to stagnate industry efforts to regain Chinese revenues once they have earned revenue.
It may finally be time for a comeback. Last week, Chinese tech giant Tencent bought nearly 10% stake in SM Entertainment, one of the sector’s biggest names, for around $180 million. This was a 15% discount on the market price, reflecting geopolitical risks and liquidity constraints associated with large privately owned placement.
This rare move shows the potential melting in K-Pop’s relationship with China and, albeit slightly different dynamics, a gradual return of K-Pop’s presence in China. Tencent, one of the biggest Chinese groups in music and social media, paves the way for a new model of K-POP distribution across China, leveraging its vast platform, and helps bypass some of the geopolitical frictions of the past.
In the case of Tencent, it represents a low-cost, low-risk entry. Stock prices of four biggest K-POP entertainment groups, SM, YG, JYP and HYBE, have won over 30% over the past year, reflecting new optimism.
So, while the cloud appears to be lifting up for K-Pop, the industry relies on overseas markets and cross-border partnerships for growth and profitability. The industry continues to generate a ton of entertainment gossip, but the political kind also becomes increasingly important.
june.yoon@ft.com
