K-pop companies recognize the risk and expand their reach

Girl group Le Sserafim [SOURCE MUSIC]

Can K-pop companies stay safe from the risks of their biggest assets, the stars?

The volatility of K-pop companies resurfaced as HYBE’s stock inched up Wednesday following the retirement of a controversial member of a girl group.

On Wednesday morning, HYBE announced that it terminated its contract with Kim Ga-ram, a member of its new girl group Le Sserafim who had been ridden by allegations that she bullied her peers at school since before the group debuted on May 2.

Following the announcement, HYBE’s stock rose by 0.33 percent compared to the previous day, stopping a three-day losing streak to close at 153,000 won ($117).

With Kim's bullying accusations surfacing even before her debut, people online have been demanding that the agency exclude Kim as a member of Le Sserafim. HYBE pushed through with the original six-member format, but was continuously met with complaints.

"We decided to terminate our contract with Kim. We sincerely apologize for causing discomfort to many people due to the controversy regarding Kim," HYBE said in a press release. “Le Sserafim will continue as a five-member group.”

Entertainment companies have been considered risky investments because they rely on humans, who cannot be fully controlled or easily predicted.

YG Entertainment stocks crashed in early 2019 after Seungri, a former member of boy band Big Bang, was found to be mired in criminal activities surrounding his club named Burning Sun.

SM Entertainment’s shares bled in October 2020 after Irene of girl group Red Velvet was accused of mistreating the on-site staff.

HYBE has also been struggling to recover from the blow it took in mid-June, when BTS posted a video saying it will be taking a break from group activities. The company’s stock shed 25 percent in a single day after the abrupt announcement.

“It’s getting even more difficult these days because rumors spread very easily on social media,” said an industry insider who wished to remain anonymous. “And even though the agency tries to be as thorough as it can about finding out about a star’s past, there’s nothing we can do if the person lies and the truth is unveiled online.”

In an attempt to buffer any possible human-related risks, entertainment companies have been expanding their scope into various businesses.

Last month, SM Entertainment and LG Electronics established a digital health care joint venture, Fitness Candy. The venture will introduce an app with subscription-based health care content services by September at the earliest, according to the companies.

HYBE presented an upgraded version of its fan community app Weverse, which merged with Naver's V Live online video service to provide a live communication tool to connect fans and artists.

These efforts are paying off, according to analyst Ji In-hae, an analyst at Shinhan Investment.

"There are risks to entertainment companies, but they are expected to perform moderately," Ji said. "Global fandoms are growing, and so are companies' content businesses. A loyal fandom is likely to minimize the possible damage from unexpected variables."

BY YOON SO-YEON [yoon.soyeon@joongang.co.kr]