[News] YG follows path of SM, JYP with IPO, but prospects mixed at best

Are Korean entertainment agencies bankable assets?
YG follows path of SM, JYP with IPO, but prospects mixed at best

Korean record labels and talent agencies are desperate to exploit the global hype generated by their pop stars but the jury is out on whether they are destined for a lucrative future or disappointment.

The companies have so far benefited from the uniqueness of the domestic music market and it remains to be seen whether their unproven business model will prove enough to secure their long-term success as publicly-traded firms.

YG Entertainment, which controls popular groups like Big Bang and 2NE1, recently decided to follow rival SM Entertainment JYP and go public. However, the company’s executives are first to admit that the initial public offering (IPO) has many risks.

“Entertainment companies have inherent risks. This is for sure,” said YG CEO Yang Min-suk at the press conference Tuesday. “We believe that because of these risks, the whole industry presents exciting new opportunities.”

YG appears to have multiple hurdles, its over-the-counter price per share surpassing 70,000 won this month notwithstanding.

Its famous in-house producing system, “YG Familism,” which has thus far been credited as its key asset for maintaining a unique sound and keeping it as a readily-identifiable brand, could either prove a blessing or a curse.

“We believe that our core assets make us very competitive in the industry,” said Yang, claiming that there are companies in other countries that want to emulate this system.

Like other players in the Korean pop (K-pop) industry, YG recruits pre-teens to teenagers, trains them, arranges their debuts and manages them throughout their careers. The problem is that it also resorts to creating music with its own producers, stifling diversity and creativity.

With a few exceptions, their key artists, five-member boy band Big Bang and female foursome 2NE1, have taken songs from the same YG artists, with their instruments churning out similar sounds and beats. Sometimes it is obvious they are using the same machines, probably proprietary ones at the YG studio in Hapjeong-dong in western Seoul.

Tellingly, the largest amount of newly-raised money will be spent on capital goods, renovating recording and dance studios, according to Yang.

The agency’s flimsy artist portfolio would present some problems as well, with Big Bang and their members’ individual activities bringing in at least half the company’s revenues. Even its sister group 2NE1 pales in comparison.

The strong brand identity also has its downside, as a single publicity mishap by one member can leave lasting damage on the performer as well as other “family” members.

Nothing else shows this better than the abrupt postponement of the IPO last month, after one of YG’s most valuable assets, singer and producer G-Dragon, was caught by the authorities for smoking marijuana, causing the company to suspend his activities with Big Bang. The upcoming releases of his albums, one a solo offering in Korea and the other with band mate TOP in Japan, have been postponed indefinitely.

The valuation of the company was reduced by 10 percent by this incident, according to the books.

Currently, neither Big Bang nor 2NE1 has newly-released music to plug.

Although Yang said there were more than 30 trainees in his studio ― “ready for their professional debut” ― and proudly previewed some rehearsal video footage to journalists, counting on their success seems risky, especially if they come out with the same YG-brand music, yet again.

Yang’s projections were rosy, nonetheless, expecting at least 80 billion won in revenue this year and at least 100 billion in 2012. In the first three quarters of the year, the company’s rough estimates say it earned 60 billion won in revenue and 9.7 billion in net income.

YG is issuing 1,246,539 shares. The issue price is expected to be between 22,100 to 28,800 won per share. This would put the value of the company between 110.2 to 143.6 billion won.

Source: Korea Times