aespa, Red Velvet struggle as K-pop declines in China

K-pop girl group aespa poses before performaing at the 2023 Music Bank Global Festival in Yeondeungpo District in western Seoul on Dec. 15. [YONHAP]

Declining K-pop album sales in China are dealing a serious blow to SM Entertainment and other Korean agencies that rely heavily on Chinese fandom.

Album sales from China have been declining since June. Sales from aespa and Red Velvet, especially, began nose-diving from early October, potentially due to direct and indirect restrictions from the Chinese government. K-pop agencies' shares have been falling since the middle of that month.

China has long been home to an incredibly loyal K-pop fan base whose members are known for bulk-purchasing albums to support their favorite idols.

Export volume of audio-related products, including the physical CDs for K-pop albums, fell 95 percent to $156,000 from May to June, according to Korea Customs Service data, and hit a low point of $96,000 in August.

Shares of SM Entertainment, which dominates markets in China and Southeast Asia, plunged 19.42 percent to 100,800 won ($77.68) between Oct. 5 and Oct. 31. The price has struggled to recover and closed at just 90,400 won on Tuesday.

A Kyobo Securities report released last month lowered SM Entertainment's target stock price by 19.4 percent to 145,000 won, maintaining a conservative outlook due to China's falling album sales.

Shares of YG Entertainment, JYP Entertainment and HYBE fell 8.96, 7.9 and 1.35 percent, respectively, during the same period.

China's influence in the K-pop industry, as a whole, has been on the decline.

“It explains why the first-week CD sales from aespa and Stray Kids, who made comebacks in November, have been relatively disappointing,” said Shinhan Securities analyst Ji In-hye. “Albeit unclear, the reasons behind the drop in China's sales may include the slowdown in local economic conditions, rising emphasis on patriotic consumption and an increase in black market sales that are not reflected in the Korea Customs Service’s official data.

“Fortunately, the latest monthly data from November show that export volume from China is on the rise again, hitting $2.17 million. Not the highest, but enough to calm worries about plunging figures.”

Meanwhile, K-pop agencies are diversifying their revenue streams by expanding to other regions to pry themselves away from Chinese influence. The numbers may reflect their efforts. Despite downturn in China, CD exports from other countries growing fast, and the curve of overall CD sales is rising.

Export volume for K-pop CDs jumped 17 percent on year to $270.2 million between January and November.

Japan took up the 42.8 percent of the entire volume with a volume of $115.7 million, followed by the United States with 21.8 percent and China with 9 percent.

On year, export volume from the United States has shown the highest surge of 52 percent for the first 11 months, followed by Japan with 38 percent. Exports from China, meanwhile, fell 49.87 percent.

“All in all, we maintain an upbeat outlook on the entertainment sector as a whole,” Ji said. “K-pop agencies are preparing for a series of new artist debuts and the comeback of several rising artists with low dependence on China such as Riize, ITZY and Nmixx.”

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]