- When members of the girl band were due to renew their contracts, shares of their label YG Entertainment went on a wild ride.
- Why do these contracts matter in K-Pop, and how are they different from Western music acts?
INDIO, CALIFORNIA – APRIL 22: Jennie, Jisoo, Lisa, and Rosé of BLACKPINK perform at 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 come as quickly as they go.
Most contract renewals take place without much fanfare — but not for Blackpink, one of the biggest girl groups in the world.
When members of the girl group were due to renew their contracts, shares of their label YG Entertainment went on a wild ride.
In September, shares of the Kosdaq-listed YG Entertainment plunged on two separate occasions. Stocks of the entertainment group fell 9% on Sept. 14 and tumbled 13% on Sept. 21 when media reported that three of its members will not renew their contracts with the label.
Nonetheless, YG’s stock has risen so far this year, with the company recording a year-to-date gain of 23.38% as of Nov. 21.
Just this week, South Korean outlet Munhwa Ilbo revealed that individual members will not be renewing their exclusive contracts with YG, but the group will reportedly continue group activities as Blackpink under the label. Shares of YG climbed about 3% on that news.
Analysts have mixed sentiments over the recent development.
[YG Entertainment] has relied too much on a few artists while its rivals have reinforced their artist lineups.
Senior Analyst, Samsung Securities
Samsung Securities senior analyst Minha Choi cut his target price for YG Entertainment by 9.5% to 76,000 won, representing an upside of 41% from Tuesday’s close.
“Three months have passed since Blackpink members’ contract expired in August. But there has been no official announcement about the contract renewal. The uncertainty is weighing on shares,” Choi said in a Nov. 14 note.
However, given that members Jennie and Rosé released material under YG in October and November respectively, the analyst assumes the contract renewal will take place in his current valuation, although he remains “conservative about the number of the group’s activities.”
The upcoming debut of new girl group Babymonster on Nov. 27 will likely serve as a growth driver for the company, Choi added.
However, he pointed out that YG “has relied too much on a few artists while its rivals have reinforced their artist lineups.”
On the other hand, NH Investment and Securities maintained their “buy” rating and target price of 87,000 won on the stock, representing an upside of more than 60%.
The analysts, Hazell Lee and Seungjun Lee, said in a Nov. 14 report that the firm’s current share price has baked in all major risk factors, including artist departure, which means an easing of earnings uncertainty for YG.
Unlike Western artists and music acts, who are typically formed before signing with a label to promote, K-pop artists usually enter a management company as a trainee.
They train for a period of months or years before being selected as a full fledged artist. If the trainee doesn’t make the debut lineup, the person will have to leave the company.
Contract renewals are a milestone for K-pop groups because of the standardized seven-year contracts that artists sign with labels — it’s even been referred to as the “seven-year curse,” where groups disband at the end of their contracts.
Some media outlets even questioned if Blackpink would survive the “seven-year curse.”
As such, should a successful group leave a label, this would mean a huge loss for the company, given the cost needed to train and debut a new group from scratch.
South Korean media outlet JoongAng Ilbo reported in December that the cost of creating a girl group can range between 2 billion won and 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 just over $2.47 million.
Bokyung Suh, director and senior research analyst at Bernstein said: “We know that entertainment is often considered as a lottery business, as we cannot easily forecast the future and performance before launching the intellectual property, such as Squid Game or Game of Thrones.”
“So this is the reason why the global leading entertainment players try to diversify their IP portfolio, to run their business more sustainably,” he told CEuroJournal’s “Street Signs” in an interview on Sept. 25.