Korean Wave Spreading Further on Netflix and YouTube

Japanese media, which have been watching the Korean entertainment industry since the drama “Winter Sonata” enjoyed a smash hit in 2004, recently referred to the surge in worldwide popularity of Korean entertainers such as BTS and Twice as the “third wave.” While the first wave that started with the popularity of Winter Sonata was limited to Asia, the second wave that started with the appearance of Girls' Generation and Psy in the early 2010s expanded the scope to South America and North America. At that time, the share price of SM Entertainment, the management company of Girls' Generation, rose about 100 times in the KOSDAQ market over four years.

Experts say that the third wave, which began in the second half of last year, is far more powerful than the two preceding ones. As streaming (real-time playback) companies such as Netflix, YouTube, and Spotify are replacing the existing broadcasting market, a new opportunity has opened up for the Korean content industry. BTS has given wings to Korean entertainment companies by proving that they can grasp this new opportunity.

Among the entertainment stocks that are showing a strong performance in the KOSDAQ market this year, the one benefitted most from the “Netflix effect” is Studio Dragon. It is a content producer that created the hit dramas, “Dokkaebi” and “My Uncle.” It has signed management contracts with 71 representative drama writers of Korea, including Noh Hee-kyung and Kim Eun-sook.

Studio Dragon’s stock price recorded its all-time high of 110,400 won on June 1, up 2,700 won from the previous day. On June 4, it closed at 108,900 won. The company gained about 70% this year. Studio Dragon is providing various content including dramas to Netflix and expanding its market around the world. “Hwayugi,” a drama produced by Studio Dragon and aired early this year, was sold for US$500,000 (about 540 million won) per episode.

YouTube, an affiliate of Google, which is competing with Netflix, resorted to BTS to increase the membership of YouTube Red, a paid service. “BTS: Burn the Stage,” a documentary released only to paid subscribers in March, recorded more than 12 million views.

Thanks to the intensifying competition among global streaming companies over creative content, the values of domestic entertainment companies are soaring. Netflix said it plans to spend more than US$8 billion this year, 33 percent more than last year, to secure original content. Amazon plans to spend about US$4.5 billion, and Apple about US$1 billion.

Three leaders of Korea’s entertainment companies, Bang Shi-hyuk of Big Hit Entertainment, Jeong Wook of JYP Entertainment, and Kim Young-min of SM Entertainment formed a study group to better meet the changes in the media industry stemming from the Fourth Industrial Revolution. Their move is thought to be different from that of J-pop of Japan, which gained a global popularity in the 1990s but remained within Japan without releasing sound sources on YouTube.

Unlike in the past, when the entertainment stocks were largely driven by the supply and demand of individual investors, the recent outstanding performance of the entertainment stocks is backed by solid earnings. In the first quarter of this year, operating income of SM Entertainment and JYP Entertainment increased 9.3 and 2.1 times, respectively, to 10.3 billion won and 8.3 billion won, respectively. According to the securities industry, SM Entertainment, JYP Entertainment, Big Hit Entertainment, and YG Entertainment are expected to earn operating profits of nearly 160 billion won this year, twice more than last year.

Amid the expectations of growth and improving performances, foreign investors are actively seeking to have corporate visits and investment briefing on Korean entertainment companies. It is to gain more information about Korea entertainment stocks. JYP Entertainment, the management company of Twice, held an investment briefing session with 11 institutional investors including Dai-ichi Life Insurance in Tokyo, Japan last month. The securities industry says it is unusual for foreign investors to show interest in a KOSDAQ-listed company with a market cap of less than 1 trillion won.