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(LEAD) (Yonhap Feature) Star agencies expand portfolio outside K-pop

All News 10:35 March 17, 2016

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(Editor's note: This story is the second of our feature series on the global boom of Korean pop culture, known as "hallyu" in Korean.)
By Chung Joo-won

SEOUL, March 17 (Yonhap) -- With the turn of the millennium, Asia's fourth-largest economy welcomed the development of local star agencies, a type of "soft power," within the export-intensive economy.

From 2003-2009, major South Korean labels sought to enter the global music market solely with K-pop idol bands. With lessons and tips from its predecessors, S.M. Entertainment, YG Entertainment and JYP Entertainment, known as South Korea's big-three star agencies, claimed the highest tier of the local K-pop idol markets. This was when the three labels led the industry, presenting some of the longest-surviving idol groups in K-pop history like TVXQ, Super Junior, 2AM, 2PM, BigBang, Girls' Generation, Wonder Girls and 2NE1.

With a dependable idol-incubating system on hand and success in the Japanese music market, the three agencies reached out to the larger global music markets of western economies.

However, the cultural barriers were too high for a breakthrough even in the realm of pop, as seen in the failure of S.M.'s BoA and JYP's Wonder Girls in the U.S. market.

To lower the barriers, the three set out to bundle entertainment factors with non-entertainment ones such as fashion, food and marketing, paving the way for the bloom of Korean pop in the global market, or "hallyu."

S.M., YG and JYP are diversifying their business portfolios to expand beyond their borders, yet within different fields of business.

"The star agencies have created a stable source of profit from its homegrown business, K-pop. Now they have the capacity to go for different businesses," said Korean pop music commentator Seo Jeong Min-gap.

"These agencies tend to start expansion with the grey areas adjoining the pop industry, such as S.M.'s travel business and YG's fashion apparel business. It is a natural cycle of a profit-making business, which equally applies to the entertainment companies," he continued.

S.M., the country's second-largest talent agency with market capital of 818.7 billion won (US$690 million), bet big on the retail business. It forged business partnerships with Korean retail giant Shinsegae and Chinese e-commerce site the Alibaba Group.

At the end of 2015, S.M.'s chief Lee Soo-man met with Shinsegae Group Vice Chairman and Chief Executive Chung Yong-jin to apply star marketing to the processed food products of eMart, the supermarket chain business of Shinsegae.

On March 3, 2016, eMart launched private brand products with packaging designs featuring S.M.'s idol group artists through its 146 local branches and its online channels. Fans of EXO, Girls' Generation, Super Junior and TVXQ surged to local eMarts to hoard "EXO Sonjjajang," or instant noodles with black bean sauce, "Girls Generation Popcorn," "Super Junior Habanero Ramen," and "TVXQ Almond Caramel."

The next day, S.M. launched its own convenience store unit, "SUM Market," in its office building in southern Seoul.

SUM Market sells Korean manufactured food products with the names, emblems, photos and other intellectual property of the K-pop stars under its label. Unlike the private brand products in eMart, many of the products in SUM Market -- the crispy seaweed snack "Exo Gim Me Gim Me," fruit preserves "Super Junior SuperJam," bottled water "SHINee Sparkling Water" and much more -- are collaborations with local small and medium enterprises.

S.M. and its retail partners have their fingers crossed that these "star" commodities will lure more international travelers and consumers to visit Korea.

"The SUM Market is a value-added business backed by (S.M.'s) artist content. Celebrity-backed lifestyle is the central part of S.M.'s restaurant and lifestyle businesses," S.M.'s marketing official said.

"We hope that the partnership with local businesses will contribute to creating a marketing platform for (South Korean) companies, brands and individual designers as well."

Outside Korea, S.M. sold 870,000 shares of its newly issued stocks for 35.5 billion won to China's e-commerce behemoth Alibaba Group, according to a regulatory filing made public in February. Now Alibaba owns 4 percent of S.M.'s total stake.

Since its launch in 1995, S.M. has been low on foreign investment. Of the total of 20,885,663 shares, foreigners take up only 9.55 percent of its stake, largely due to the relatively large uncertainties of local entertainment businesses and the limited size of the Korean music industry.

With China's listed retail giant with international investors, S.M. seeks to expand both the market and secure transparency in its business deals with its Chinese peers.

In addition to its involvement in the retail business, S.M. is testing the waters in the restaurant business. S.M.'s food affiliate S.M. F&B launched Korean cuisine restaurant e-Table in 2008, which closed in 2011. The next year, S.M. F&B opened fried chicken and pub restaurant ChiMc with premium burger franchise Kraze International, yet quit the business several days after launch.

In January 2016, S.M. tried a third attempt in the restaurant business with fusion restaurant "SMT Seoul." The five-story venue offers fusion Asian plates and tapas, deserts and coffee. On Thursday and Friday nights, the restaurant turns into a lounge bar with assorted DJs. SMT Seoul's goal is to catch taste buds from all around the globe.

In fact, YG, the country's third largest entertainment agency with 583.2 billion won in market capital, was faster and more successful than S.M. to enter the world of the dining business.

YG founder and chief Yang Hyun-suk is pushing the globalization of the company's food and pub subsidiary, YG Foods.

YG Foods opened its first Korean-style pub "Samgeori Pocha" in 2004. After dubbing Noh Hee-young, former brand strategy executive of Korean retail giant CJ Group, to head YG Foods, the YG affiliate set sail in the restaurant business with Korean grill "Samgeori Butchers" in 2015.

YG introduced "YG Republique," or an integrated cultural space, in Hotel 28 in Seoul's main shopping street of Myeongdong and IFC Mall in the city's business district of Yeouido. YG Republique runs with the dine-drink-dance concept to provide a space in which customers can enjoy food, lifestyle and entertainment in one visit.

Outside the home terrain, YG Republique is to open in Thailand, China and the U.S. The first YG Republique in Thailand will nest inside the premier retail and entertainment mega-complex Show DC in Bangkok in the third quarter of 2016. The Thai branch aims to attract 2,000 visitors a day, according to Show DC. The branches in Orange County, California and China are slated to open within this year.

Although YG has had a better hand in the dining business compared to S.M., YG is still stumbling with its cosmetics and fashion operations. YG Plus, the advertisement and cosmetics retail subsidiary of YG Entertainment, has The Face Shop, the cosmetics unit of LG Household & Health Care Ltd. among its clientele.

YG Plus launched its own cosmetic brand Moonshot in 2014, with YG's BigBang and 2NE1 members as the brand's models. Yet top models did not guarantee the business's success. Most notably, the cosmetics brand's inroads into the Chinese market went astray due to rising market protectionism among the Chinese regulators.

In 2015, YG Plus came down with 7 billion in operating losses, up 4.3-fold from the previous year. During the same period, net losses amounted to 4.5 billion won.

Nonagon, the fashion apparel brand co-created by YG Plus and Samsung C&T -- then Cheil Industries -- opened in 2014, specializing in urban hip-hop style casual wear. Despite a murky outlook in the local market, YG is still seeking ways to globalize the brand, starting with pop-up stores in larger department stores.

In January, Nonagon's pop-up store was set up in the Galleria Department Store in Seoul's posh Gangnam area. The hip hop apparel brand also planted pop-up stores in Beijing, Shanghai, Hong Kong, Tokyo and Osaka. The pop-up store rally will continue in Isetan Department Store in Tokyo in May.

The affiliate businesses of JYP, one of the country's largest star agencies with 154.7 billion won in market capital, has the closest ties to K-pop entertainment.

Launched in 1996 and named after its founder and K-pop artist Park Jin-young, JYP has been struggling in its main business, K-pop and entertainment, rendering the diversification of its business portfolio more pressing than its two peers.

Once dubbed the country's third largest star label by market cap, JYP is currently struggling in the stock market. Investment losses from sending the Wonder Girls to the U.S. pop music market led to a huge opportunity cost in the company's local business.

Suzy, of JYP's actress and girl group member missA, helped the agency win countless television commercial and printed advertisement deals, and yet JYP did not diversify its sources of profit.

Amid growing emphasis on the business management part of K-pop agencies, JYP's portfolio has leaned excessively on the entertainment business.

Outside the K-pop realm, JYP is eyeing the Chinese web drama market with its film production unit JYP Pictures.

In January 2015, JYP Pictures released its first fantasy-romance web drama "Dream Knight" simultaneously in Korea, China and Thailand. The school rom-com was aired via Korea's video streaming channels Naver TV Cast, China's Youku Tudou and the drama's main web page on Tudou.

In the first week of its launch, "Dream Knight" raked in 13 million views total in Korea, China and Thailand.

Yet the cast of the web drama remained largely limited to JYP's idol group singers, including members of boy band GOT7 and girl group missA, generating criticism that the drama sacrificed cinematic value for eye candy.

The film production business is slower to show tangible outcomes compared to YG's restaurant businesses and S.M.'s retail business.

Outside the entertainment business, JYP has recently signed a cooperative pact with local fashion apparel maker Avista, targeting the local and overseas markets. Details of the joint business have not yet been released, and the pact only points at the beginning stage of an actual deal.

Market observers say that JYP's potential fashion business model may be close to Nonagon, a fashion brand launched by its rival star agency YG and Samsung C&T.

The year 2016 will be daunting for the three giant labels, with new businesses to launch and expand overseas.

With abundant challenges and opportunities ahead, S.M., YG and JYP are marching into the global market.

jwc@yna.co.kr
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