K-pop market remains bullish as entertainment shares soar

South Korean entertainment giants, SM Entertainment Co, YG Entertainment Inc, and JYP Entertainment Corporation, are sitting pretty as their share prices soar unaffected by global coronavirus-led market volatility alongside further weakening in the global music industry.

On August 28, YG’s share price touched an intraday high of 52,500 won ($44), a 52-week record, and the highest since the end of 2015. SM Entertainment posted a 2.04% gain closing at 35,050 won and JYP emerged the frontrunner of the three as its market cap exceeded 1 trillion won closing Aug. 28 with a 0.29% gain at 35,100 won. In August alone, the three companies' share prices have seen 10 to 20% increases.

YG’s share-price surge is likely owing to today's (Aug. 28) "Ice Cream" release, a collaboration with YG's Blackpink and US pop star Selena Gomez. The four-member girl group BlackPink is the third most-subscribed channel on Youtube with 45.4 million subscribers.

Securities industry players also credit anticipation surrounding the launch of new groups as key in boosting the companies’ valuations and share prices. JYP and YG both recently debuted their latest groups NiziU and Treasure, respectively.

The Korean music industry, or K-pop, has maintained bullish this year despite bearish global events, with both recorded music albums and streamed albums seeing a surge in exports.

K-pop's resilience is in sharp contrast to the rest of the music industry. According to the International Federation of the Phonographic Industry, the global recorded music market shrank from $23.8 billion in 1999 to $4.4 billion in 2019, posting annual reverse growth. Declined global demand is primarily due to streaming albums eclipsing physical albums, such as CDs.

Further, the impact of the global coronavirus has rendered it nearly impossible for artists to hold concerts or attend promotions in person due to social distancing and restricted traveling measures.

But these hurdles have not stunted the K-pop industry, who seem to be countering the trend away from physical albums.

In Korea, recorded album shipments have seen explosive growth in recent years, from 7.39 million in 2014 to 24.76 million in 2019. Cumulative shipments from January to July 2020 reached 20.4 million copies, a sharp 34% rise compared to the same period last year. Korean music albums also saw an increase in exports, from 5.52 million in 2019 to 7.52 million copies so far this year.

“Overseas fans account for over 40% of album purchases,” said Park Sung-ho, an analyst from Yuanta Securities Korea.

While the global music market continues to witness a drop in recorded album demand, growth in the K-pop market remains solid thanks to a steady inflow of overseas fans. The securities circle is betting that K-pop entertainment companies have sufficient growth potential to compete against global record labels.

Write to Ji-yeon Sul at sjy@hankyung.com