Shares of South Korean entertainment companies have been falling since the beginning of the year. The recent slump in stock prices is attributed not to the dating lives of some of its artists, as some speculated, but to sluggish album sales.
While analysts expect album sales to recover in the second quarter, sales will likely fluctuate depending on the economic conditions in key markets. The outlook is more positive for Hybe and JYP Entertainment, which targets the U.S. and Japanese markets. But SM Entertainment may have to brace for an extended slump as it relies heavily on the Chinese market.
JYP Entertainment experienced the steepest year-to-date stock price fall among leading entertainment companies, with a 29.3% drop, according to the Korea Exchange on Mar. 12. SM Entertainment was down 18.8%, followed by Hybe at 15.9%, and YG Entertainment at 7.9%.
Analysts point to declining album sales as the primary factor behind the downward trend in the shares of Korea’s “Big 4″ entertainment agencies. Album sales usually make up 40 to 50% of total sales. A seasonal decrease in concerts coupled with lackluster album sales has negatively impacted share prices, according to analysts.
It also does not help that these stocks generally have a high price-to-book ratio (PBR) - investors have favored low PBR investments for the past few months.
“Entertainment companies rely heavily on album sales and concerts, with album sales accounting for an overwhelmingly large share of revenue,” said an analyst at a local asset management company. “During the pandemic, the only way fans could express their love for artists was by buying albums, but album sales took a downturn as concerts made a comeback post-pandemic.”
Experts say album sales are set for a rebound in the second quarter, based on better-than-expected sales estimates for the first quarter.
Hybe, the agency behind BTS, is poised to lead sales among the “Big 4″ agencies. Hybe’s album sales peaked in the fourth quarter of last year at 13.68 million units. Analysts say that while first- and second-quarter figures may not be able to top that, album sales are still projected to be steady.
Hybe has several projects up its sleeve, including the debut of K-pop boy group TWS last January and the upcoming debut of K-pop girl group ILLIT on Mar. 25, both by Hybe subsidiary Pledis Entertainment. BTS members V and Jungkook plan to drop a “surprise” album this month. Le Sserafim’s latest album, “Easy”, surpassed 1 million units in sales, boosted by strong performance in the U.S. and Japan, two of the world’s largest music markets.
JYP Entertainment is anticipated to match its previous year’s album sales, hitting around 3 million units. “Although the album sales of girl groups ITZY and NMIXX slowed down compared to their previous releases, TWICE’s recent comeback achieved ‘career-high’ in album sales,” said Lee Sun-Hwa, an analyst at KB Securities.
SM Entertainment, however, faces challenges. Despite new releases from NCT WISH, Red Velvet’s Wendy, and NCT DREAM, album sales are projected to fall because most of SM Entertainment’s artists are popular in China.
K-pop fans are famous for competitively buying their favorite artists’ albums to show support. But Chinese authorities cracked down on the practice of raising large sums of money to support celebrities last year, which led to a decline in the collective purchase of albums among K-pop fans. Unlike Hybe and JYP Entertainment, with a focus on North American and Japanese markets, SM Entertainment’s sales have been hard hit by Chinese restrictions.
“SM Entertainment’s album sales have been decreasing since the beginning of the year, and the recent relationship revealed by girl group Aespa’s Karina has exacerbated the decline in its share price,” said Yuanta Securities analyst Lee Hwan-wook.
