K-pop music labels are grappling with an $8 billion market downturn, triggered by a drop in album sales, prompting a search for new strategies to rejuvenate their businesses.
Hybe Co., SM Entertainment Co., JYP Entertainment Corp., and YG Entertainment Inc. have seen their stock values plummet by up to nearly 50% from their peak in 2023. These companies are now focusing on launching new acts, securing distribution agreements, and enhancing their presence on streaming platforms to recover their market positions.
With renowned groups like BTS and Blackpink pausing their activities and a noticeable decline in album sales in China, these K-pop giants are in dire need of a fresh growth blueprint. Analysts from Goldman Sachs Group Inc. and HSBC Holdings Plc. believe that expanding fan engagement through live concerts and extending market reach into the U.S. and Japan could yield significant benefits.
Despite the current pessimism surrounding the K-pop industry, there are ample opportunities to monetize the fanbase beyond album sales, according to Junhyun Kim, an analyst at HSBC. The shift towards digital streaming, despite reducing physical album sales, doesn't spell doom for the industry as companies pivot towards alternative revenue streams.
Hybe is leading this strategic shift by partnering with Universal Music Group NA for distribution, aiming to broaden its digital footprint and geographical coverage. This move has already shown promise with ILLIT, a new girl group under Hybe, setting records on Spotify for the most first-week streams for a K-pop debut album.
Competitors are not far behind, with SM banking on its new talent Riize, and JYP relying on established acts like Stray Kids and Twice to sustain its revenue. Meanwhile, YG's Blackpink is highly anticipated to resume activities, further buoying the industry's prospects.
Goldman Sachs analysts highlight that the real measure of K-pop's growth should now focus more on concert audiences rather than solely on album sales, especially with the easing of pandemic-related restrictions.
The K-pop fan base is projected to grow by 26% annually over the next three years, driven primarily by increased popularity in Japan, indicating a robust recovery path for the industry despite facing challenges such as artist re-contracting, drug investigations, and a decline in group album purchases in China last year.
While it remains uncertain if the new wave of artists can maintain the momentum set by icons like Blackpink and BTS, the K-pop sector's valuations are now seen as attractive, trading around one standard deviation below their five-year average forward earnings. This presents a lucrative opportunity for investors to capitalize on the long-term potential of K-pop as it edges closer to becoming a mainstream global music genre.
