The Money Behind K-Pop
10 min read

The Money Behind K-Pop

Hello, hello. Today I have a little announcement to make. Starting today and for the next six newsletters, Penny Fractions will have its first sponsor: Infinite Catalog, a royalty accounting software and service company. I’ve known the co-founder Hunter for years, and have always really enjoyed chatting with him about industry issues and getting to know his company’s work. So, for the next six issues, we’ll have a brief message from Infinite Catalog in the newsletter and I def encourage any artists or labels interested to connect with them to get to know their excellent work

Now, this week I wrote about K-Pop and wanted to mention Kara from the Idol Cast podcast. I’ll admit this newsletter is very much not focused on the artists of the genre but rather on the companies, so I wanted to say thank you to Kara for providing some research help on this.

Spotify arrived late. The Swedish music streaming platform might be one of the largest in the world but when it launched in South Korea this February, it could only tout some billboards and playlists to mark the occasion. Until recently, Spotify kept its non-European expansion to Latin American and the Middle East with a light presence in Southeast Asia. That might be why Spotify’s biggest splash in the market this year wasn’t its launch but the public disagreement that arose between the firm and Kakao, a massive South Korean internet firm.

In early March, negotiations broke down between Spotify and Kakao M, the entertainment arm of Kakao, allegedly over disagreements with global and local licensing deals of Kakao M’s artists on Spotify’s platform. This caught mainstream press attention because suddenly a number of large K-Pop stars were no longer on Spotify across the world, even though Kakao M alleged the fallout stemmed from local licensing deal concerns. Kakao, the parent company of Kakao M, bought MelOn in early 2016, which is South Korea’s largest music streaming platform and it appears, though not confirmed, that they sought pushback against a new streaming challenger entering the market. Ultimately both sides settled but I was left wondering how exactly South Korea’s largest local streaming platform ended up under the same roof as one of its most dominant labels. Now to answer that question, we’ve got to go back to the early 2000s.

How to Build a Record Industry

Contemporary K-Pop canonically begins with the televised debut of Seo Taiji and Boys, a crew of South Korean musicians and dancers that adopted hip-hop style and birthed a new musical movement. Many, many, labels emerged from the 90s emulating this style and became an ascendent force within Korean recorded music. Thus, pretty quickly South Korean communications and technology firms took an eye to the newly emerging entertainment sector. Park Jin-young, a performer himself, in 1997 founded JYP Entertainment, which only five years later would be half bought up by SK Telecom, one of Korea's largest mobile companies. The Village Voice in 2007 cited that the deal provided JYP's artists' promotion on, a precursor to the highly popular streaming platform that was then a digital media store.

The South Korean record industry in the 00s, much like the rest of the world, saw a massive downturn. However, unlike the United States and the United Kingdom, where digital revenue took nearly a decade to recover from the decline in physical sales, the South Korean record industry rebounded off the strength of affordable digital subscriptions. Still, by the end of the decade, the record industry successfully lobbied the government of Seoul, the country’s capital, to invest in live music infrastructure and other goods to help an industry they said was being harmed by digital piracy, despite revenue already trending upward.

In 2010, SM Entertainment, JYP Entertainment (again half-owned by SK Telecom), YG Entertainment, Star Empire, and a number of other large K-Pop-centered labels and management firms, joined hands to form KMP Holdings, a single firm that was created to help further the impact of K-Pop. The following year, a similar tack was taken with a handful of newer artist agencies banning together with an explicit eye on global expansion. However, these early cross-company moves didn’t fully pan out with KMP Holdings being bought by KT Corporation, South Korea’s largest telecommunication company, and JYP Entertainment failing to go public in 2011, showing a lack of confidence within this particular entertainment sector. Yet, it showed the clear ambition beyond South Korea behind these firms.

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Let The Consolidation Begin

The surprise global success of Psy’s “Gangnam Style” in 2012 paired with K-Pop's reach into Japan and the United States through highly stylized videos on YouTube, prefigured a wave of mergers and acquisitions. The genre, while popular in South Korea, was increasingly shifting its attention towards Japan, the United States, and China. In September 2013, SM Entertainment merged its subsidiary SM Culture & Contents with Woollim Entertainment to create Woollim Label, and before the close of the year, Loen Entertainment purchased 70% in Starship Entertainment, an early backer of KMP Holdings. LVMH, the luxury brand company, used its private equity division to invest $80 million in YG Entertainment, only a couple of years post-“Gangnam Style”. Tencent, the giant Chinese media firm, also jumped into YG with another $80 million in 2016, alongside Weiying, an online ticketing firm. Then, to close out our journey with Psy, SK Telecom in 2019 put a little over $4 million into its own newly-established label P Nation, showing the overall eagerness to follow a single global hit for money.

(A brief summary of the four main South Korean streaming platforms. MelOn, founded by SK Telecom, began as a website and was purchased by Leon Entertainment in 2009, which was one of the largest Korean record labels at the time. The private equity firm Affinity Equity Partners bought over 50% of the company in 2013, only for Kakao to buy the company, and streaming platform, in 2016 and rename it Kakao M in 2018. While MelOn passed through telecom to private equity to internet firm owners, the other big streaming players shared similar corporate interests. The next largest app Genie Music is owned by KT Corporation. Then, SK Telecom, a decade since the creation of, returned to the digital music real in 2018 with Flo Music, which was backed by the large labels including S.M. Entertainment, JYP Entertainment, and Big Hit Entertainment. While domestic companies have found the most success, earlier this year it was reported that YouTube Music is now starting to break through in terms of subscriptions, even though its influence on the non-Korean audiences can be seen since the late 00s.)

If western success is a bellwether for future investments, it shouldn’t be a surprise to see who's become the biggest mover within K-Pop. Home to BTS, HYBE Corporation, formerly Big Hit Entertainment, pulled off a number of remarkable deals within, and outside, of the South Korean record industry. In 2019 it acquired Source Music, allegedly to try to bring more female idols onto its roster. Last May it became the largest stakeholder in Pledis Entertainment and earlier this year bought a $63 million stake in YG Entertainment. This was after the company went public in late 2020 with a valuation of over $4 billion, which would place the company’s worth at double the entire record music industry’s revenue only a decade prior. Not content with these regional moves, Big Hit bought Scooter Braun’s Ithaca Holdings in April and renamed itself HYBE. A move that cemented it as one of the biggest Korean music firms and notable force within global management agencies.

The rise of K-Pop in the western press is often contextualized as soft power building for South Korea following the Asian financial crisis in the late 90s. However, this obscures the private capital motives that have driven the international success of K-Pop in the last decade. The largest South Korean record labels/management firms predated any heavy government investment in the cultural sector (This isn’t to overlook the role of their heavy investment in high-speed internet paid).

Smaller labels and management firms can form but it’s clear the South Korean record industry is going through a moment of reorganization. Naver, a massive Korean internet firm, invested $321.6 million in a subsidiary of HYBE, which acquired part of Naver’s “V LIVE Division” with the hopes of meshing together the two companies’ fan-engagement platforms. Though not directly music-related, Kakao, owner of MelOn, spent nearly a billion dollars on US-based comic book and fiction apps this year, while SK Telecom said it is increasingly moving towards paid subscriptions. Many South Korean music trends are not so unique to the country (see: physical sales are rising but concentrated in mega pop acts), but it’s by trying to piece back the puzzle of how the country arrived at this increasingly financialized crossroads. It’s the moves of telecommunication and software companies that signal the future of the country’s chief cultural export.

Unheard Labor

Earlier this month, Music Week reported that Four Tet, a long respected UK electronic musician, sued his label Domino Records for not paying him enough for streams and downloads of records he released throughout the 00s. The suit could potentially lead to a number of knock-on effects for artists that signed deals right before the rise of digital downloads and streaming.

Members of the US House of Representatives continue to chastise Twitter for not properly moderating content and protecting copyrights. I’m curious to see how long the record industry will twist Twitter’s arm to fork over money before this ends up in court. Twitter’s reluctance to pay what is effectively a tax on having recorded audio on its platform is understandable from a business point of view, but the record industry has done this since the mid-00s (remember YouTube?) so I wouldn’t bet against them. Also in the House is the Open Apps Market Act, which would bar Apple and other firms from charging a surcharge on third-party developers and implement a number of other reforms to open up smartphones from the iron grip of Apple and Android in particular. The last bit of regulatory news is that the Copyright Royalty Board is in the process of redoing its ruling on Photorecords III, which affects mechanical royalties, and still appears to be looking for an increase, though likely not at the original rates ruled a few years ago.

A Note of Financialization

Drama alert in the world of song assets. In August, the Hipgnosis Songs Fund announced the purchase of Christine McVie’s catalog, but then a few days later Universal Music Publishing disputed the claim. Hipgnosis responded saying that they bought McVie’s “writer’s share and neighboring rights”, which UMP feels misrepresents the volume of the singer’s catalog they own. Certainly, if UMP owns different fractional shares of McVie’s catalog, it doesn’t look good to see headlines saying “Hipgnosis Buys Catalog from Fleetwood Mac’s Christine McVie”. Rather than getting lost in the woods of corporate mud-slinging, I think it’s a great time to point out how these reported deals are simply just hype-building press releases.

A couple of big private equity moves were made this month. Bloomberg reported that Insight Partners invested an undisclosed amount in DistroKid, the Spotify-aligned distribution company, which raised its valuation to $1.3 billion. A lotta money. Then SESAC, an American Performing Rights Organization owned by the Blackstone Group, purchased Audiam, an agency devoted to collecting streaming royalties. This move was criticized by Jeff Price, TuneCore founder, for potential conflict of interest between Harry Fox Agency, also owned by SESAC, and Audiam, since it was Audiam’s own investigation into HFA that eventually led to a lawsuit against the firm. Hard to foresee how more consolidation in this space, especially private equity-backed consolidation, is going to help an already contentious part of the industry.  

In other acquisition news, Pershing Square Holdings purchased 7.1% of Universal Music Group but didn’t do it via a special-purpose acquisition company, which was what was originally reported earlier this summer. (Oh, also, Bill Ackman of Pershing Square Holdings is getting sued over his SPAC. Happy days.) Tempo Music Investments bought the catalog of Twenty One Pilots songwriter, Tyler Joseph, and will reportedly be working with him on future deals. Last up, Round Hill picked up 50% of Trevor Rabin’s catalog, the former Yes band guitarist and film composer.

Can Spotify Break Out of Its Lane? - The Music Industry Blog

I’ve been curious about the role of social media companies in the record industry for a few years now, but 2021 appears to be the moment folks are really seeing how much money is coming from this sector. Now, I fail to see why Spotify should be too concerned about major labels getting more money, but I’m sure the guys negotiating deals with them won’t be too happy.

Spotify the Attention Broker - Water and Music

Cherie Hu explores Spotify’s continued lean into its advertising business and where exactly artists fit into the equation. None of this sounded particularly great for artists who can’t afford a dedicated marketer, but Hu’s observation of Spotify’s potential anticompetitive behavior via a paper written by the current FTC chair Lina Khan did catch my eye.  

The Rebels are Winning - Worm Capital / TIGR, TME & CHINA INTERNET Painful Sell-Off Provides Generational Buying Opportunity - Kerrisdale Capital

I increasingly fret over the influence and power of finance capital in the record industry. So, why not directly engage with their own thinking on these same topics? Worm Capital and Kerrisdale Capital put out letters explaining both positive and skeptical views around what recent government regulations mean for the future of Tencent Music. I’d say Kerrisdale’s read of the market is astute but the side-by-side comparison is interesting.

Who Actually Gets to Create Black Pop Culture? - Culture Affairs

An amazing essay on not only the emptiness of middle class-oriented black pop culture but also an indictment of just how little mobility there really is for working-class black people in the United States. Just because there are black faces in positions of power doesn’t mean that anyone, much less the vast majority of poor black people, is seeing any benefit from that.

Xi Jinping’s Capitalist Smackdown Sparks a $1 Trillion Reckoning - Bloomberg News

A clear-eyed breakdown of what Chinese tech regulations over the past year could potentially mean and what is motivating this more assertive move by Xi Jinping’s government. (Hint: The Chinese Communist Party wanted to make sure its private sector firms know who’s ultimately in charge.)

Hyperpop Origins (Documentary) - Noah Simon / The Brash, Exuberant Sounds of Hyperpop - The New Yorker

A cute two-hour fan-made documentary on Hyperpop, the not-a-genre genre, caught my attention a couple of weeks ago and I highly recommend it. Then, on the same beat, the New Yorker penned a few words on the emergent style.