Ask a Korean! News: The Business of K-Pop

Here is a fun article from late last year about the business side of K-pop, and how the "idol industry" is dictated by business concerns.

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YG-Version of Girls' Generation -- The Answer Lies In the Stock Market

On November 21, the media reported news about a new girl group by YG Entertainment ("YG") with a sensational headline. The headline from OSEN [TK: an entertainment newspaper] read:  "YG's New Girl Group Contracted Not to Have Plastic Surgery." The story reported:  "In its exclusive contract with a seven-member girl group to be debuted early next year, YG Entertainment is reported to include a clause that prohibited plastic surgery." It also quoted comments from a YG representative:  "The new girl group is entirely consisted of members who did not receive any plastic surgery, and their contract with the company specifies that they would not receive any plastic surgery in the future." The representative further said: "The contract was made possible because the company focused on creating a new girl group that emphasizes the members' natural beauty."

The representative added:  "This girl group began with looking at the pretty singers from other management companies, and wondering what color they would take if they performed YG's music. The previous color for YG emphasized talent, but good looks are now included as well. It will be a group that has not existed in the pop music market previously. This group already garnered attention because it would include Kim Eun-Bi, from Mnet's Superstar K 2. Right now it has seven members, although it could add one or two more. They are planning to debut by early next year."

The purpose of this news article appears to be rather clear, considering the timing and the content. The article ran two days before YG's initial public offering with KOSDAQ. It is common-sensical to view this as an information leaked in order to create a buzz right before the IPO. Regardless of the type of business, releasing information about a promising new product right before an IPO is not even a strategy -- it is just common sense.

YG Announces Plans to Benchmark Other Management Companies

But actually, the article was rather shocking, not in the least to the fans of YG, because the girl group described in the article is contrary to YG's original image as a label in every conceivable way. It was akin to YG attempting to imitate SM Entertainment, DSP Media or Core Contents Media. To a certain extent, it could be seen as a betrayal of YG's original direction. The article blatantly states:  "This new girl group is the first group where YG can confidently say that we took the looks into account," and plastic surgery was unnecessary because of their excellent looks. By adding the extra bit about how they were "looking at the pretty singers from other management companies," YG reveals that it is benchmarking other management companies.

(More after the jump.)

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So far, YG's label has aspired not simply to ignore the looks, but to actively recruit those who came up short in the looks. Big Mama is a prime example. Even as YG entered the idol market through Big Bang, it leaked such information as "the members were ignored by other management companies because of their looks." Thanks to this directionality, the idols from YG could garner the image of "idols beyond idols" or "actually talented idols," opening up the third market between idols and artists.

Also, by adding the information that the group was made up of seven members with possibly one or two more, the article implied a birth of a large girl group. It is a matter of course that the more members a group has, the less an image of talent the group projects because more members mean less role for each member in songs and performances. This is nearly a mathematical conclusion, and it is a conclusion that is hugely divergent from YG's directionality. As discussed above, YG is a label that discovered its own niche market. The large girl group described in the article appears to be an attempt to enter into the pre-existing idol market. In this sense, this group can hardly be called a YG idol -- they are merely created by YG.

New Girl Group Changes in Just Two Hours

But this is where it gets interesting. This shocking information was partially reversed in just two hours, by Star News. The Star News article, titled "YG's New Girl Group Has 5-7 Members, No Plastic Surgery Due to Their Age," contains a quote from YG representative: "The new girl group that will meet the fans next year will have 5-7 members, and the candidates are still undergoing rigorous competition because the membership is not finalized."

First, the number of members went from seven-plus to five-to-seven. And whereas the OSEN article said YG was confident that it could present pretty members without resorting to plastic surgery, the Star News article said: "We inserted the no-plastic surgery clause because every candidate for the new girl group is in her teens, aged between 15 to 19." The subsequent reports mostly followed the line in Star News rather than OSEN. This level of reversal cannot be explained in any way other than YG's intent to change the information and the nuance thereof. And the thought behind it must be the negative effect of the first article on the IPO on KOSDAQ.

The line about how YG prohibited plastic surgery because "it may be a health risk for teens, and it may work contrary to the teenage appeal" appears to focus on the public morality. Since YG lost a lot of points on the public morality front because of the marijuana incident involving G-Dragon, member of Big Bang, YG apparently is redirecting the plastic surgery point from praising the members' looks to covering the public morality front. The reduction of the number of members shows the consequence reduction of idol-ness, and the line about how the number of members is not yet determined served to mask the appearance of a micro-managing company.

In other words, the leaked information is redirecting the product from benchmarking other management companies to emphasizing YG's own business model. This is so particularly because the later article emphasized Kim Eun-Bi from Superstar K 2 even more, as Kim augments YG's own "talented idol" image. In just two hours, YG made a U-turn on the directionality of the new girl group.

Why the Benchmarking, and Why the U-Turn?

What explains this confusion? To deduce the answer, we must first figure out why YG leaked an information that appeared so remote from its own character at such a sensitive time period. The answer is actually easy:  a successful IPO of an entertainment management company is much more than how much domestic market share it has.

Korea's entertainment market is small. When examined on the level of the scale or revenue, even the best labels are excellent mid-sized enterprise. A mid-size enterprise that plays in a gambling-like game, to boot. Thus, every investor is focused on the game of hallyu, the Korean Wave -- at least as far as stock market is concerned.

The world's second-largest market, i.e. Japan, is 30 to 40 times larger than Korean market. As the Japanese market begin to open up, the amount of money exchanging hands is exponentially greater. But the problem is that YG is not particularly strong in Japan. In Japan, YG is less successful than SM with Dongbangshinki and Girls' Generation and DSP with KARA. Strictly speaking, YG may not even be as successful as JYP Entertainment, which just launched 2PM in Japan. The best singles sale by Big Bang in Japan was last year's "Tell me good bye," which sold 46,449 copies. The YG label album that sold the most in Japan is also from last year's "Big Bang 2", which only sold 91,217 copies.

The same goes for 2NE1. The album "NOZLA", which was released this past September, sold 45,781 copies thus far -- decent for an album debut, but like Big Bang the singles sale is lagging. 2NE1's first Japanese single, "Go away," was released on November 16, and sold 13,581 copies in the first week. This is approximately 10,000 copies less than the debut singles by Rainbow or After School, and around the same number as "Madonna" by Secret. Given these numbers, the prevailing analysis is that 2NE1 is not headed toward a greater commercial success than Big Bang.

Thus, to convince the investors that YG will be successful in the Japanese market, YG may have been compelled to fade out YG's own colors and announce that it would emulate other management companies that had created better results in developing the Japanese market.

Then why reverse course in just two hours? Perhaps YG thought, regardless of the initial consideration, benchmarking other management companies would cause more anxiety among the investors after all. It would decrease the stability of the label, as it is attempting to do something new. It would also cause a concern that YG was abandoning its development of the American market -- in which YG had more success than others -- in favor of the Japanese market. As most analysts still believe that 2NE1 is better suited for the American market than Girls' Generation, it may appear that YG was retreating rather than advancing.

YG's Initial Thought Was Not Wrong

At any rate, YG's IPO happened on November 23, and immediately became a hit. The stock opened at KRW 68,000, double the offering price of KRW 34,000, and closed at the ceiling of KRW 78,200. By November 25, the stock price went up to KRW 97,200. Of course the price cooled thereafter, but YG's IPO so far has been a remarkable success.

However, looking back after having succeeded in the IPO, it must be noted that the first strategy by YG regarding the new girl group was not exactly wrong. The brand value of a management company does not persist simply by producing the same type of product. Given the speed of Korea's pop culture trend, change is necessary.

Currently, through 2NE1, YG is moving away from the hip-hop/R&B image of the label. "Ugly" by 2NE1 is deep into rock and electronica. It is a good strategy to keep fresh the existing groups with slightly different musical colors, while new groups gradually move away from the old business models to establish the difference -- like the way SM Entertainment gradually moved from H.O.T./S.E.S. (first generation) to Dongbangshinki/Girls' Generation (second generation) to ShiNee/f(X) (third generation).

In addition, even if hallyu expands to the U.S. and Europe, Japan is now the most important foreign market and always will be. The center of foreign market strategy will always remain in Asia. Japan, with the most transparent and enthusiastic market as well as geographical proximity, will have to serve as the base camp for exploring the foreign markets. There are always good reasons to create a model that enables a company to operate smoothly in Japan.

Thus, rather than producing another 2NE1, the original idea that may be derided as imitation in the short term could have been a better option for the management company, as it responds to both the needs of the label to reinvent itself as well as the necessity of establishing a base camp for developing overseas market. In fact, I would expect YG's new product would take that direction, regardless of what it said on news articles.

At any rate, should YG's new product create a clear hallyu effect, Korea's entire pop culture industry would benefit. As the IPO finished successfully, it is time for YG to concentrate on the final check-ups on the new product. I look forward to next year.

YG판 소녀시대 소동? 주식시장에 답있다 [Dong-A Ilbo]

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