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Korean entertainment

K-pop labels' revenue model shift to usher in new valuations

By Feb 03, 2021 (Gmt+09:00)

BTS hosts a livestream party with fans to celebrate topping the Billboard Hot 100 list.
BTS hosts a livestream party with fans to celebrate topping the Billboard Hot 100 list.

South Korean entertainment companies are expanding their scope beyond the music scene and shifting to platform services, ushering in new valuations with the change in revenue model. 

A leading example is BTS label Big Hit Entertainment Co. Before its initial public offering in 2020, Big Hit positioned itself as a content platform and applied a price-to earnings ratio of 80 times, in line with platform giants such as Netflix and Korea-based production company Studio Dragon.

The BTS label increased the revenue portion of its content-related businesses, such as intellectual property and video streaming, as its founder Bang Si-hyuk called for a revamp of the music industry.

Initially, Bang received lukewarm response from the industry, with some even criticizing him for crediting the label's success to management performance, when it was clearly indebted to BTS.

But the criticism died down when Big Hit made a successful trading debut last year and went on to integrate its fan community platform Weverse with Korean platform giant Naver Corp.’s streaming service V Live, creating a new industry standard.


The global pandemic forced a change in the entertainment industry, which had been in a stalemate for some time. Instead of relying on concert ticket sales, the companies had to find fresh revenue streams, as nearly all offline events were canceled due to the COVID-19 outbreak. 

Last April, SM Entertainment was the first Korean label to kick off a paid online live concert brand, Beyond Live. The concerts featured the label's popular artists such as TVXQ, Red Velvet, EXO, NCT and Super Junior. SM Entertainment maximized the benefits of a streaming concert by offering virtual interaction between artists and fans, and even showcased a 3D mixed reality performance.

SM Entertainment duo TVXQ performs on stage while virtually interacting with fans.
SM Entertainment duo TVXQ performs on stage while virtually interacting with fans.

Other entertainment labels also began to utilize online platforms. Big Hit Entertainment streamed the BTS concert on its fan community platform, Weverse, in October last year. The Map of the Soul ON:E online concert drew in nearly 1 million viewers from 191 countries. Ticket revenue was estimated to have reached 49.1 billion won ($44 million).

YG Entertainment Co.'s artist Blackpink also collaborated with the 3D avatar app Zepeto to hold a virtual signing event for fans. 

Industry watchers say that Korean entertainment companies’ adoption of new technologies, such as augmented reality, in addition to their use of platform services, have effectively targeted their core audiences.

The reception to the companies' fresh efforts was evident in their earnings as the four major Korean labels, Big Hit, SM, JYP and YG, saw their revenue and operating profit soar last year amid the COVID-19 crisis.

The four major labels' combined revenue in 2020 is estimated to be around 623.1 billion won, up by 110.3% from the previous year, while their combined operating profit is expected to be near 66.1 billion won, up by 93.3%, according to eBest Investment & Securities Co.

As of Feb. 2, the four companies’ combined market capitalization topped 10 trillion won.


Korean IT companies are becoming more eager to invest in K-pop related opportunities as the entertainment industry continues to generate new revenue models and stretch its business scope.

Last month, Naver invested 412 billion won ($370 million) in Big Hit to combine their fan community platforms. The Korean platform giant has been aggressive in securing a leading position in the K-pop fan community scene by collaborating with major labels, such as SM Entertainment and YG Entertainment.

Naver's V Live app offers various fan community services.
Naver's V Live app offers various fan community services.

Other IT latecomers to the industry plan to catch up by using their technology, such as artificial intelligence. In January, Korean game publisher NCSoft Corp. announced plans to launch its own K-pop fan community service app, UNIVERSE.

The company said it would use its AI technology, which was used in game development, to offer a call feature that will allow fans to feel like they are talking to their favorite artists. NCSoft is also set to launch a joint venture with the domestic entertainment behemoth CJ ENM within the year.

Meanwhile, Kakao Corp., the operator of the country's largest messaging app, is focusing on content creation via web novels and webtoons rather than K-pop distribution.

"The entertainment industry's nature is becoming more similar to a platform industry, which has drastically raised the industry value," said an investment banking source.

"There is a rising demand for entertainment content that will be offered in autonomous driving cars, and we're also seeing AI pop idols being made -- the entertainment industry has infinite potential," the source said.


Japan was the hub for Asian music until the 1990s, positioned as the world's second-largest record industry following the US. Many Korean entertainment labels had benchmarked Japanese labels.

But the tables have turned over the last three decades. It’s difficult to find traces of J-pop, whereas K-pop artist BTS topped Billboard's Hot 100 list three times in 2020. Entertainment industry watchers say that SM Entertainment paved the way, YG Entertainment and JYP Entertainment developed the market, and Big Hit is taking it to another level.

SM Entertainment is credited with systemizing the domestic entertainment industry in the 1990s, considering that it had no clear structure or guidelines before then.

Until the mid-1990s, making it in the domestic entertainment industry was dependent on luck. If the artists on the label became popular, the label would make money; if not, they would go broke.

But SM Entertainment changed the landscape in 1996 when it unveiled H.O.T, one of the most popular first-generation boy bands in Korea. Starting with H.O.T, the label adopted a system for nurturing talent, from selecting trainees to offering a thorough training process.

In the 2000s, JYP, the label behind Twice, 2PM; and YG Entertainment, the label behind Big Bang and Blackpink, rose as strong competitors, which enhanced the quality and diversity of K-pop content, leading to the eventual global K-pop wave.

But the profit structure in industry didn't change much for 20 years. Despite the domestic entertainment boom, the Korean music market remained in a deadlock as the introduction of digital albums led to illegal distribution, which halted industry growth.

Instead of succumbing to these circumstances, K-pop labels carried on with new efforts, even overlooking copyright infringement to some degree. As a result, K-pop albums began to expand and penetrate across various platform channels, including YouTube.

Korean singer Psy's Gangnam style became a YouTube sensation in 2012.
Korean singer Psy's Gangnam style became a YouTube sensation in 2012.

In 2012, Korean singer Psy’s Gangnam Style became a global hit, credited to releasing the music video on YouTube.“We can’t talk about K-pop becoming a global sensation without the proliferation of YouTube culture,” said Kim Suk-young, a professor at UCLA.

The changing trend in platforms has prompted Korean labels to change their structure through new technology.

Big Hit chose IT innovation to make a breakthrough by selling content via Weverse, such as real-time interactive communication membership packages, instead of relying on album and concert ticket sales.

SM Entertainment's latest group, Aespa, features a twin avatar for each member.
SM Entertainment's latest group, Aespa, features a twin avatar for each member.

SM Entertainment also recently launched its new group Aespa, a group combining real artists and their AI avatars. The company is noted for offering innovative concepts when it debuts new groups.

The company's operating system runs on the concept of Culture Technology, a convergence of systemized culture and technology, created by SM Entertainment's Founder and Chairman Lee Soo-man, who says the future will be the world of AI and that infinite possibilities will emerge when avatars begin to replace our friends and assistants.

Write to Seong soo-young at

Danbee Lee edited this article.

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