In November last year, Park Jin-young, the chief producer and largest shareholder of JYP Entertainment, urged investors to buy JYP stocks. “Now is a good time. If I had extra money, I would definitely buy JYP stocks,” he said. At the time, JYP Entertainment’s stock price hovered around 92,000 won, and Park personally invested 5 billion won ($3.7 million) in JYP shares. Some fans, inspired by his optimism, followed suit.
Fast forward ten months and those same investors might regret their decision. JYP Entertainment’s stock price has halved to around 43,000 won. South Korea’s other publicly listed K-pop labels have also struggled. HYBE’s stock price has dropped 31% year-to-date, while SM Entertainment and YG Entertainment have seen their stock prices fall 40% and 36% over the same period.
K-pop’s popularity has not waned - in fact, its global reach has only grown. K-pop streams on Spotify have jumped 180% in the United States, over 420% in Southeast Asia, and 360% worldwide, according to data Spotify provided to CNBC. But K-pop’s popularity is not reflected in the stock performance of their management agencies.
Experts say weak earnings at Korea’s “Big Four” entertainment agencies have created this gap. JYP Entertainment’s operating profit in the second quarter of this year was 9.3 billion won, down nearly 80% from the same period last year. HYBE and SM Entertainment’s second-quarter operating profits fell more than 30% from a year ago.
Several factors have contributed to this downturn, including the temporary absence of major stars due to mandatory military service, ownership risks at major agencies, a saturation of multi-label group concepts, and a still-closed Chinese market.
Analysts have pointed out that K-pop’s traditional revenue model, which relies on album sales, has reached its limit. K-pop agencies have employed tactics such as releasing multiple versions of albums with different cover photos, including different types of collectible photo cards and posters, to encourage fans to buy several copies. Some artists have even bundled tickets to fan autograph signings with albums, pushing fans to buy more albums to increase their chances of attending, which has drawn criticism.
Billboard noted that many K-pop fans in Korea don’t even own a CD player, but record labels focus on selling CDs and merchandise. The “fan mentality” of wanting their favorite artist to surpass rivals or outdo the sales of their previous album has kept albums a major source of revenue for record labels.
Even though most fans listen to K-pop through streaming platforms like Spotify, HYBE’s album sales generated 2.3 times more revenue than streaming last year, while JYP’s was four times higher. “Entertainment companies favor album sales because they come with lower production costs compared to other revenue streams, like live performances,” said Kim Gyuyeon, an analyst at Mirae Asset Securities.
However, album sales have been slowing down this year. HYBE’s album sales in the first half of this year were 234.8 billion won, down 17% from the same period last year. JYP’s album sales saw an even sharper decline, plummeting by more than 60% to 44.4 billion won. “This is a sign that the overheated competition for album sales in recent years is stabilizing, returning to a normal state,” said a music industry insider.
Analysts predict shares of Big Four entertainment companies will recover in the fourth quarter. “Stock prices are expected to rebound as several major K-pop stars make comebacks in the fourth quarter,” said Ahn Do-young, an analyst at Korea Investment & Securities.
