K-Pop Industry Faces Challenges, But Optimism Remains
The K-pop industry has been experiencing a slowdown, with three of South Korea’s four largest agencies posting disappointing financial results in the third quarter. The decline in album sales and the inactivity of top groups like Blackpink and BTS have contributed to this downturn.
The Big Four K-Pop Companies: A Mixed Bag
Hybe, the largest K-pop company by market cap, saw its earnings decline due to limited artist activities and higher costs associated with the launch of a new group in the US. SM Entertainment’s revenue decreased due to a decline in album sales, while operating profit was also affected by production costs and weaker earnings from subsidiaries. YG Entertainment’s operating loss was attributed to the inactivity of its artists, with only a rookie group and a solo artist releasing material in the third quarter. JYP Entertainment, however, was a bright spot, with a dramatic rebound to profitability thanks to the activities of boy group Stray Kids.
A Brighter Future Ahead?
Despite the current challenges, research firm Citi Research is optimistic about the sector’s future. Analysts expect the aggregate revenue of the Big Four agencies to grow by over 21% in 2025 and nearly 15% in 2026. The return of top groups like BTS and Blackpink, as well as improved monetization of fandom platforms, are expected to drive revenue growth.
Fandom Platforms: A Key to Success
Fandom platforms, such as DearU and Weverse, are expected to play a crucial role in driving revenue growth. These platforms provide exclusive content and services to fans, generating revenue through subscription fees. The return of popular groups is expected to boost user traffic and revenue for these platforms.
Foreign Exchange Tailwind
A weakening Japanese yen is also expected to provide a foreign exchange tailwind, benefiting JYP Entertainment in particular due to its higher revenue exposure to Japan.
Analysts’ Take
Citi analysts prefer Hybe for its balanced IP portfolio, while SM Entertainment is seen as more dependent on China momentum due to the nationality of its artist lineup. YG Entertainment is considered a high delta play, with the return of Blackpink expected to drive significant growth. JYP Entertainment, however, faces a challenge in maintaining long-term growth as newer artists struggle to find success.
A Growing Global Fanbase
Goldman Sachs and Morgan Stanley have also expressed optimism about the K-pop sector’s future, citing the growth of the global fanbase, especially in the US and Japan. The sector’s potential for valuation re-rating and long-term growth is significant, with K-pop becoming increasingly mainstream globally.
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