Analysis of Kpop Agencies

-- by Charlie Chengrui Zheng 02/22/2021

Introduction

Kpop entertainment companies play significant roles in Kpop industry. These talent agencies train trainees to become idols, select excellent trainees to form idol groups and keep managing their group activities after they debut. This system was created by SM entertainment in 1995. Because of the great success of SM's first Kpop group H.O.T., this kind of system was widely adopted by other agencies and made Kpop industry developed very fast. Now, there are already 231 Kpop companies. Among them, 6 greatest companies went public. They are SM, YG, Big Hit, JYP, FNC, and Cube.

Revenues

I obtained the 6 companies' financial data from Wall Street Journal from 2015 to 2019 and analyzed their performance using pandas and plotly. Here is an interactive data visualization figure below. If you hover your mouse above those line, there will be an information box telling you the revenues of the companies in that year.

Here are some of my insights driven by the data above.

  1. SM entertainment, has always been the leader in Kpop industry. It has the most revenue and keeps growing. As I mentioned in my last Kpop Data Analysis, SM had the most groups (15 groups) and the most successful groups and idols.
  2. Big Hit entertainment, home to BTS, was a small company before. After the great success of BTS, Big Hit went public and acquired several other Kpop agencies in 2020, and had the 2nd highest revenue since 2018. Its revenue kept growing because of the great popularity of BTS and TXT.
  3. YG entertainment, has always been having great amount of revenue but began falling since 2018, may due to the Burning Sun Scandal. When the YG's artist Seungri and YG's founder Yang Hyun-suk faced criticisms for this scandal in 2017, YG had a tremendous negative impact and even its stock price tumbled.
  4. JYP, FNC and Cube had comparatively lower revenues than the 3 companies mentioned above. FNC and Cube did not have significant change in their revenues. However, JYP's revenue kept growing steadily. In 2015, JYP's revenue was 50 billion KRW. It doubled in 2017 and tripled in 2019. This is probably because of the great success of TWICE. When JYP debuted the girl group TWICE in 2015, TWICE' popularity kept rising up and became the most success group of JYP.

Net Income

Although Kpop companies have large-scale business, this industry is not so profitable. When we look at the net incomes of the 6 companies, we can see that only JYP is making steady growth of net income. Cube almost have no net income in recent years, while FNC were always losing money. SM and YG have the same pattern, they stayed profitable but both tumbled at 2019. Big Hit was making a great leap from 2018 to 2019. Maybe Big Hit will be the future leader of Kpop industry.

Big 3's Group Management

Among all Kpop companies, SM, YG and JYP earn the name 'Big 3'. They represent the 3 best Kpop companies in the industry because they have long histories of managing most successful Kpop groups. Although FNC and Cube also have long history, their groups are not as successful as Big 3's. Although Big Hit has the most successful group, its history is not as long as Big 3's. Therefore, I will analyze Big 3 as the representatives of Kpop industry. In Western world, singers are also their own song-writers and usually start their career as lounge singers. When they gradually gain fame, they sign labels which release songs for them. However, Kpop's system is very industrialized. Kpop is more company-oriented rather than singer-oriented. Kpop companies are like "star factories". Kpop stars are "built" as the company train their own trainees. Then, companies debut the groups as their "franchise". Companies decide strategies to promote and manage groups' activities.

First, let us take a look at SM entertainment's group.

As we can see, in recent years, SM entertainment debuts a new boy group every 4 year and a new girl group every 5-6 years. Because Kpop groups' popularity cannot last long, companies usually keep debuting new groups to keep having profitable artists. Usually, companies will debut a new group when their last group was at the top of their career or their popularity started decreasing. After a year or 2, the old group may not be so successful but the new group started to shine. For example, SM's girl groups Girls' Generation and f(x) were both super girl groups in 2014. Later in 2014, Jessica's departure from Girls' Generation and Sulli's hiatus from f(x) made a negative impact on the groups and the company. That year, SM debuted the new girl group Red Velvet. After a while, Girl's Generation and f(x) both suffered great loss of popularity, but Red Velvet quickly developed and caught the relay on.

You may notice that in earlier years, SM debuted groups more frequent. For example, TRAX debuted a year later than TVXQ!, and Super Junior also debuted a year later than TRAX. However, these groups were actually very different. This is because the agency do not want their groups to compete with each other, so that all groups can be more profitable. TRAX was not a typical idol group but a rock band. Though Super Junior is also a mainstream Kpop group like TVXQ!, Super Junior had 12 members rather than 5 members. As I mentioned in the last Kpop Data Analysis. The average number of group members is 5.5. Therefore, we can say that groups having fewer than 6 members are small groups. Groups having over 7 members are big groups. Small groups' charisma is usually the talents of individual group members because they can each draw more attentions from fans. Big groups' charisma is usually the spectacular group dance and the diversity of group members. This kind of differences reduced the competition between SM's TVXQ!, TRAX and Super Junior even though they were active at the same era. The same strategy also were applied to The Grace, Girls' Generation and f(x). Note that in recent years, EXO and NCT are both mainstream big groups; f(x), Red Velvet and aespa were all mainstream small groups. The time gaps between these groups' debuts are long enough to avoid competition.

According to this pattern, after 4 years of NCT's debut in 2016, SM should have debuted a new boy group in 2020. But NCT is quite unusual because SM keeps adding new idols to NCT. Therefore, SM did not need to debut a new boy group in 2020, but debuted the new girl group aespa in 2020 after 6 years of Red Velvet's debut.

Another interesting pattern is that the groups focus on different international markets to avoid competition. SM is famous for expanding their groups' activities to Kpop's largest international markets, Japan and China. SM had different strategies for these countries. The company takes Chinese members in their groups so that Chinese members attracts Chinese fans. They are Super Junior's Han Geng; f(x)'s Victoria and Amber (Though she was from America); EXO's Kris, Lu Han, Tao, and Lay; and aespa's Ningning. As for Japan, the company seldomly takes Japanese idol but train their Artists to speak Japanese, translates their songs into Japanese and perform Japanese version of their original Korean songs. My personal opinion about the cause of this difference is that it is easy for Koreans to learn Japanese. Korean and Japanese languages are very similar as for their grammar and vocabulary, but Chinese is way more different. It is cheap to teach Korean artists to learn Japanese than to learn Chinese. On the other hand, it is easy to recruit Chinese trainees than Japanese trainees. Because Japan also has a very developed Jpop idol industry, the company need to move their whole Kpop group to perform in Japan, partnering with Japanese agency Avex, to compete with Jpop idol groups. But China's idol industry is not as developed as Japan and Korea. Solo activities are more welcomed in China. Many Chinese idols are willing to be trained in Korea to be more competitve and go back to China for solo activities. Therefore, different pattern for Chinese and Japanese markets maximizes the company's profit. This kind of system was also adopted by other agencies.

TVXQ! sing Japanese songs and gained great success in Japan. The next group Super Junior had Chinese members and sing more Chinese songs than Japanese song because they focuse on Chinese markets. This switch between China and Japan continues through the later groups to avoid competitions. But it stopped at NCT. After 2017, China had political conflicts with South Korea and began obstructing Kpop's development in China. SM's strategy was letting NCT have Japanese member and sing Japanese songs for market in Japan, and debuted a Chinese sub-unit of NCT, WayV, only active in China. China's policy change poses a great barrier for Kpop's activities in China and may cause Kpop companies to adopt more new patterns.

Now, let us look at another Big 3 company -- JYP.

JYP also adopted similar strategy for group management. It keeps debuting new groups. There are long time gaps between same-type groups and short time gaps between different-type groups. DAY6's debut was close to GOT7 but DAY6 is a rock band. 15&'s debut was close to miss A but 15& is a duo. Since the time gap between DAY6 and Stray kids is 3 years, I predict that JYP will debut a new boy group in 2021.

However, JYP's strategy for international markets are different from SM in recent years. JYP only tried taking Chinese members in miss A but it was not very successful in China. After China's policy change, JYP did not seek development in China very much. JYP took 3 Japanese members for TWICE, also managed their group activities in Japan, and achieved great success in Japan. JYP was also ambitious in entering Western markets. The company used to send Wonder Girls to US to perform in earlier years, but was not successful. But as Kpop became more and more popular in Western countries, JYP tried to expand the new girl group ITZY's markets to western countries again by releasing English versions of their songs.

Another strategy of JYP was to let the idol participate survival reality shows when they were trainees, so that the idols draw public attention before they debut. This pattern was adopted by TWICE, Stray Kids and ITZY, and was very successful.

YG's strategy is also like the 2 other companies. However, it has fewer groups but the groups' revenue was very still high. It might be possible for YG to debut a new girl group in near future. YG's international strategy is also different. All of YG's groups sing Japanese songs. Treasure also has a Japanese member. But the company never has a Chinese member nor released a Chinese song. The company also values the markets in Southeast Asia by managing Thai idol Lisa of BLACKPINK and Korean-Filipino idol Dara. BIGBANG and BLACKPINK also achieved enormous popularity in Western countries. BLACKPINK promote themselves in Western countries by having collabs with Western singers, such as Lady Gaga, Dua Lipa and Selena Gomez. This kind of pattern was a newly successful strategy for Kpop's development in Western countries. Notebly, Big Hit Entertainment's BTS also used the same strategy.