BTS, Blackpink absence, CD sales slump depress Q2 earnings for K-pop 'Big 4'

Industry

Published: 17 Jul. 2024, 08:28

BTS, Blackpink absence, CD sales slump depress Q2 earnings for K-pop 'Big 4'

People look around a record store in downtown Seoul on Dec. 19, 2023. [YONHAP]

[NEWS IN FOCUS]

All of the "Big 4" K-pop agencies — HYBE, SM, YG and JYP — will likely post disappointing earnings in the second quarter, taking a one-two hit with reduced CD exports, especially to China, and the absence of activity by A-list artists like BTS and Blackpink.

Analysts have lowered their target stock prices for HYBE and YG Entertainment as their earnings are projected to miss the market consensus.

HYBE’s target price has been lowered 6.5 percent to 290,000 won ($209.44), according to analyst Lee Hyun-ji from Eugene Investment & Securities.

Lee projects second quarter revenue to grow 5.5 percent on year to 655 billion won, but operating profit to fall 20.9 percent to 64.3 billion won.

“The return of major artists such as Tomorrow X Together, Seventeen and NewJeans as well as remarkable performances by new artists have driven growth, but several factors are expected to increase costs to result in lower profits,” Lee said.

Those include promotional costs connected to the lackluster performance of its game subsidiary’s role-playing game ASTRA: Knights of Veda, the production costs derived from its U.S.-based girl group Katseye, and the classification of earnings from NewJeans’ fan meet in Japan as net sales.

“The ongoing poor performance in the first half of the year, coupled with unresolved issues related to ADOR, are expected to limit stock price gains in the short term,” Lee commented.

YG’s target stock price was lowered by 10.2 percent to 44,000 won, according to analyst Kim Hyun-yong from Hyundai Motor Securities. Kim forecasts quarterly revenue for YG to nose-dive 40 percent on year to 95 billion won and operating profit to plunge 94.5 percent to 1.6 billion won. Both figures are below the market consensus of 108.4 billion won in quarterly revenue and 8.1 billion won in operating profit, as compiled by market tracker FnGuide.

“The key factors to performance recovery in 2025 are the resumption of full-group activities by Blackpink, the scale-up of concerts by BabyMonster and Treasure, and the debut of new artists,” Kim said. “BabyMonster is planning its first solo concert tour, which will include more than 10 venues in Korea, Japan and potentially the U.S. Its long-term goal is to follow Blackpink’s growth trajectory.”

Kim also retains his target stock price for JYP Entertainment at 80,000 won. The label’s revenue is expected to fall 22.8 percent to 116.1 billion won and operating profit to dwindle 42.9 percent to 26.1 billion won.

Its key artists such as Twice, Stray Kids, Nmixx and ITZY are either expected to return with a new EP, or host fan concerts or world tours, but a significant decrease in concert attendees will make it challenging to achieve meaningful profit growth.

SM Entertainment’s target stock price holds steady at 110,000 won based on market expansion from the latter half of this year, according to analyst Kim Gyu-yeon from Mirae Asset Securities.

Kim predicts revenue to remain flat at 239 billion won during the April-June period, and operating profit to fall 6 percent to 33 billion won.

“aespa debuted in Japan with the single EP ‘Hot Mess’ on July 3, and is expected to formulate fandom by staging concerts there,” Kim said. “Riize is also expected to debut with a single EP in Japan, and NCT Dream looks to expand its presence to the North American and European regions."

The major culprit behind the downbeat performance is the stagnant sales of CDs abroad.

The export volume for K-pop CDs has declined in the first half of this year, marking the first downturn in nine years.

The export volume of audio-related products, including physical CDs of K-pop albums, fell 2 percent to $133.2 million from January to June, according to data from the Korea Customs Service.

The previous drop in CD export sales came in 2015, when the figure fell 7 percent to $12.77 million. However, export volumes have been growing each year since then, riding on the global popularity of Hallyu.

By country, Japan spent the most on Korean CDs at $46.93 million, followed by the United States with $30.45 million and China with $18.4 million.

China's share of the export volume has been shrinking since last year, potentially due to the imposition of direct and indirect restrictions by the Chinese government. For the first six months of 2023, China took third place in record sales, with the U.S. outperforming China for the first time since 2020, only the second time after the previous overtake in 2012.

Total K-pop album sales for the first half of this year also slumped, according to data by Kim Jin-woo, a head researcher at Circle Chart.

Sales of the top 400 albums from January to June fell 14.39 percent on year to 47.6 million units.

K-pop artists’ album sales for the first week of release have also shrunk.

First-week sales for Seventeen fell from 5.09 million to 2.97 million, ZeroBaseOne from 2.13 million to 1.35 million, BTS’s RM from 0.62 million to 0.56 million, IVE from 1.61 million to 1.32 million and Red Velvet from 0.41 million to 0.27 million, according to market tracker Hanteo Chart.

aespa’s first full-length album, "Armageddon," sold 1.15 million units, up from the preceding EP's sales of 1.13 million, but failed to surpass its third EP’s 1.7 million released last year.

“The competition for initial sales among K-pop artists last year was more intense than ever,” researcher Kim said. “The pressure from production companies and fans to match or surpass the sales of competing artists or previous albums led to market overheating with practices such as bulk purchasing or enticing fans with meet-and-greets. This year’s decrease is seen as a result of some of that bubble shrinking.”

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