- As the girl group members were set to renew their contracts, shares of their label YG Entertainment went on a wild ride.
- Why are these contracts important in K-Pop and how are they different from Western music groups?
INDIO, CALIFORNIA – APRIL 22: Jennie, Jisoo, Lisa and Rosé of BLACKPINK perform on the Coachella Stage during the 2023 Coachella Valley Music and Arts Festival on April 22, 2023 in Indio, California. (Photo by Emma McIntyre/Getty Images for Coachella)
Emma McIntyre | Getty Images Entertainment | Getty Images
In the oversaturated K-pop music scene, groups arrive as quickly as they disappear.
Most contract renewals happen without much fanfare — but not for Blackpink, one of the biggest girl groups in the world.
As the girl group’s members were set to renew their contracts, shares of their label YG Entertainment surged.
In September, shares of Kosdaq-listed YG Entertainment plunged twice. Shares of the entertainment group fell 9% on September 14 and 13% on September 21 when media reported that three of its members would not renew their contracts with the label..
Nonetheless, YG shares have risen so far this year, with the company posting a 23.38% year-to-date gain as of November 21.
Just this week, South Korean media outlet Munhwa Ilbo revealed that individual members would not renew their exclusive contracts with YG, but that the group would continue operating under the name Blackpink. YG shares rose about 3% following the news.
Analysts have mixed feelings about the recent developments.
(YG Entertainment) relied too much on a few artists while its competitors strengthened their artist line-up.
Senior Analyst, Samsung Securities
Minha Choi, senior analyst at Samsung Securities, lowered her price target for YG Entertainment by 9.5 percent to 76,000 won, up 41 percent from Tuesday’s close.
“Three months have passed since Blackpink members’ contract expired in August. But there has been no official announcement regarding contract renewal. Uncertainty is weighing on stocks,” Choi said in a note from November 14.
However, given that members Jennie and Rosé published documents under YG in October and November respectively, the analyst assumes that the renewal of the contract will take place according to its current valuation, although he remains “cautious on the number of group activities.
New girl group Babymonster’s upcoming debut on Nov. 27 will likely serve as a growth engine for the company, Choi added.
However, he pointed out that YG “has relied too heavily on a few artists while its competitors have beefed up their artist line-ups.”
On the other hand, NH Investment and Securities maintained its “buy” rating and price target of 87,000 won on the stock, representing an upside of over 60%.
Analysts Hazell Lee and Seungjun Lee said in a Nov. 14 report that the company’s current stock price takes into account all major risk factors, including the artist’s departure, meaning a reduction in profit uncertainty for YG.
Unlike Western artists and music groups, who typically form before signing with a label to promote, K-pop artists typically enter a management company as an intern.
They train for several months or years before being selected as artists in their own right. If the intern is not part of the first team, he will have to leave the company.
Contract renewals are an important milestone for K-pop groups due to the standardized seven-year contracts that artists sign with labels – it’s even referred to as the “seven-year curse”, where groups disband at the end of their contract.
Some media outlets even questioned whether Blackpink would survive the “seven-year curse.”
As such, if a successful band left a label, it would mean a huge loss for the company, given the cost required to form and launch a new band from scratch.
South Korean media outlet JoongAng Ilbo reported in December that the cost of starting a girl group could range from 2 billion to 5 billion won (about $1.55 million to $3.89 million).
Citing South Korean entertainment company Fantagio, the report said the cost of creating a girl group with three years of training for its members is estimated at 3.18 billion South Korean won, or slightly more of $2.47 million.
Bokyung Suh, director and senior research analyst at Bernstein, said: “We know that entertainment is often seen as a lottery business because we cannot easily predict the future and performance before launching IP, like Squid Game or Game of Thrones. »
“So this is why the major global entertainment players are trying to diversify their intellectual property portfolio, in order to run their businesses in a more sustainable way,” he told CNBC’s “Street Signs” in a interview on September 25.
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