Despite the increasing popularity of K-pop, agency stock prices are not benefiting.

• Despite the growing popularity of K-pop on the global music scene, its share prices do not appear to have increased.
• Worldwide, commercial success has been achieved by groups such as BTS and Blackpink, with record-breaking accomplishments on Spotify, YouTube, and Billboard Charts.
• In 2024, the market capitalization of listed K-pop companies has decreased by between 29% to 56%.

Despite South Korean pop stars breaking records and performing at top music festivals in the West, their management agencies' stock performance is not reflecting their success.

The "Big Four" K-pop agencies in South Korea, including Hybe Corporation, SM Entertainment, JYP Entertainment, and YG Entertainment, are all publicly listed. Hybe is the largest and is listed on the blue-chip Kospi, while SM, JYP, and YG are on the small-cap Kosdaq. This year, Hybe shares have dropped 29%, SM lost 36%, and YG plummeted 37%. The largest loser is JYP Entertainment, which has more than halved since the start of the year, falling 56%.

Despite the declines, K-pop artists continue to solidify the industry's position on the global music stage, breaking records on YouTube and Billboard Charts.

Since 2018, K-pop streams on Spotify have increased by more than 180% in the US, over 420% in Southeast Asia, and over 360% worldwide, as of Sept. 3.

In 2023, nearly 2.2 billion first-time listeners discovered South Korean artists on Spotify.

In April 2023, South Korean President Yoon Suk Yeol stated to Congress that even if individuals did not recognize his name, they might still be familiar with BTS and Blackpink.

Both BTS and Blackpink have made history in the K-pop industry. BTS is the best-selling act in South Korean history, while Blackpink became the first K-pop act to perform at Coachella in 2019. Additionally, Blackpink is the first South Korean band to headline a major U.K. music festival, performing at London's BST Hyde Park festival in 2023. NewJeans and Stray Kids have also performed at Lollapalooza this year.

'Complex' headwinds

The Big Four has faced a complex mix of governance issues and declining earnings, which has resulted in a gap between fan fervor and pessimistic investors, according to Kim Gyuyeon, financial analyst at Mirae Asset Securities.

The recent success of BTS and Blackpink has set a high standard for new groups to follow in the West, but few have been able to replicate that success, which may dampen investor sentiment since it suggests the market has not expanded since 2020-2021.

The members of BTS are currently serving their mandatory military service and will not be able to perform as a group until 2025. Meanwhile, Blackpink has renewed their contracts with YG Entertainment for group activities in late 2023, but the members have opted to pursue individual projects outside of the label.

The Big Four's earnings have decreased, with each recording year-on-year operating losses in the second quarter. YG's operating profit dropped by 94.5%, while JYP's fell by 79.6%. SM and Hybe experienced smaller declines of 30.7% and 37.4%, respectively.

In the first half of 2024, South Korean media reported that album export sales decreased for the first time in nine years. Additionally, the Seoul Economic Daily reported in July that the Big Four's first-half album shipments fell to 44.74 million, down from 53.45 million in the first half of 2023.

Historically, physical sales have been the most profitable segment for a label, accounting for the majority of its revenue, Kim stated. She explained that high physical sales indicate a large fan base, which in turn measures the potential market for a company.

The South Korean entertainment industry has a unique element called "fansigns," where fans enter a lottery to meet the artist and get their album signed. The lottery system allocates higher odds to fans who purchase more physical albums within a specific time frame, increasing their chances of attending the fansign and interacting with the artist.

Incentivizing fans to purchase more albums, fansign events offer more entries for each album purchased in the streaming era.

The decline in physical album sales not only affects earnings but also raises doubts about the validity of the "continual high growth" investment thesis.

Is streaming killing the CD star?

Despite the prevalence of streaming, physical album sales remain a significant indicator for investors, with CD players becoming obsolete like cassette tapes.

Despite the disadvantages of taking up space and being a burden, people who buy physical albums are huge fans of the artist and spend a lot of money, as Mirae's Kim explained.

As of Sept. 3, royalties generated by South Korean artists on Spotify surpassed 180 billion won ($138 million), representing a threefold increase from 2019 and an astounding 780% increase since 2017.

Kim noted that the high base in 2023 supported a thesis that there would be "continual high growth" for these companies, but it has since collapsed.

Kim stated that streaming revenues account for a small portion of these agencies' income.

In 2023, she stated that Hybe's digital streaming revenue was only 13% of its revenue base, while SM and JYP's proportion was smaller, at 10% each. Kim pointed out that physical sales revenue is 2.5 times more than streaming revenue at Hybe and up to four times more at JYP.

Nonetheless, analysts are still largely positive on all four stocks.

The Big Four companies are still recommended for purchase by Samsung Securities, NH Securities, and Mirae Asset Securities, although some have adjusted their target prices.

The second half of 2024 and 2025 are expected to see a rise in artist activity, including comebacks and concerts, which will positively impact the financial performance of companies.