Why K-pop contracts have a significant impact on share prices.

• The renewal of contracts for the girl band's members caused a wild ride in the stock prices of their label, YG Entertainment.
• What is the significance of these contracts in K-Pop, and how do they differ from Western music acts?

K-pop music scene is characterized by the rapid emergence and disappearance of groups.

Blackpink, one of the world's biggest girl groups, did not renew their contract quietly like most do; instead, they made a big announcement.

As the contracts of the girl group were about to expire, YG Entertainment's shares experienced a significant fluctuation.

In September, YG Entertainment's shares dropped 9% on Sept. 14 and 13% on Sept. 21 due to reports that three of its members would not renew their contracts with the label.

As of Nov. 21, YG's stock has experienced a 23.38% year-to-date increase.

This week, it was reported that individual members of YG's exclusive contracts will not be renewed, but the group will continue as Blackpink under the label. As a result, YG's shares climbed about 3%.

Analysts have mixed sentiments over the recent development.

Samsung Securities analyst Minha Choi reduced his target price for YG Entertainment by 9.5% to 76,000 won, resulting in a 41% increase from Tuesday's closing price.

Since August, three months have passed since Blackpink members' contract expired. However, there has been no official announcement regarding the contract renewal. The uncertainty is affecting the shares, as stated by Choi in a Nov. 14 note.

The analyst believes that the contract renewal of members Jennie and Rosé, who released material under YG in October and November respectively, will occur at their current valuation, but he is cautious about the group's future activities.

The launch of the new girl group Babymonster on Nov. 27 is expected to boost the company's growth, according to Choi.

He noted that YG heavily relies on a limited number of artists, while its competitors have diversified their artist roster.

While NH Investment and Securities kept their "buy" rating and target price of 87,000 won on the stock, the potential increase is over 60%.

According to a Nov. 14 report by analysts Hazell Lee and Seungjun Lee, YG's current share price reflects all major risk factors, including artist departures, resulting in reduced earnings uncertainty for the company.

The girl group Blackpink is considered one of YG's most successful acts, with the company stating that their recent world tour drew in 2.11 million people worldwide, across 66 shows in 34 cities.

The group was the first Asian act and K-pop girl group to headline both the Coachella festival in the U.S. and the BST Hyde Park festival in the U.K., making history as the first K-pop group to headline a major festival in both countries.

The first girl group to top the Billboard 200 is Blackpink, and they also hold the Guinness World Record for the most-viewed music channel on YouTube for a group.

‘Seven year curse’

Unlike Western artists and music acts, who typically sign with a label before promoting, K-pop artists usually join a management company as trainees.

If a trainee does not make the debut lineup, they will have to leave the company after months or years of training.

K-pop groups face a significant event with contract renewals due to the standard seven-year contracts they sign with labels, which has been dubbed the "seven-year curse" resulting in groups disbanding at the end of their agreements.

Some questioned if Blackpink would endure the "seven-year curse."

If a successful group departs from a label, it would result in a significant financial loss for the company due to the expense of training and introducing a new group from scratch.

The cost of forming a girl group in South Korea can range from 2 billion won to 5 billion won, which is equivalent to $1.55 million to $3.89 million, according to JoongAng Ilbo's report in December.

According to a report, the estimated cost of creating a girl group with three years of training for its members is around 3.18 billion South Korean won, which is equivalent to approximately $2.47 million. This information comes from South Korean entertainment company Fantagio.

According to Bokyung Suh, director and senior research analyst at Bernstein, entertainment is often viewed as a gamble since it is challenging to predict the future and success of intellectual properties like Squid Game or Game of Thrones before they are launched.

The reason why global leading entertainment companies diversify their IP portfolio is to sustain their business, as stated by the interviewee on CNBC's "Street Signs" on Sept. 25.