YG Entertainment Inc.

Posted on September 27, 2017 by Yoon Mi Ji
  1. Introduction

On December 31st in 2012, “Dick Clark’s New Year’s Rockin’ Eve” was in full swing at Times Square in New York. People around the world were there to see the show. PSY was the only Korean singer to take the stage. His hit song, “Gangnam Style,” set a record by hitting over 2.8 billion YouTube views. Other K-pop singers, like Big Bang, EXO, BOA, G-Dragon, etc., have been active overseas and the popularity of K-pop sweeping across Asia resulted in K-pop exports topping $354 million in 2015 (Jeon, 2016).

K-pop fever did not happen by accident. It is the result of years of experience, tireless attempts and generious investments. In this study, we analyze YG Entertainment Inc., which is leading the Korean wave by producing many high profile artists.  How did it become the driving force behind the success of K-pop? How long will its golden age last? Is there any threat to the music industry’s Big Three?

 

  1. Company Profile

YG Entertainment Inc. is one of the Big Three in the Korean music industry. Yang, Min-Seok is its chief executive officer and a younger brother of Yang, Hyeon-Seok, who is the largest shareholder and a chief producer of YG Entertainment. It is located in Seoul and, as of January 20, had approximately 668 employees. Since 1998, it has produced the biggest K-pop acts to gain international fame and recognition, including PSY, Big Bang, 2NE1, Black Pink and others. Its songs and style – hip hop and R&B – are more suited to a club than to a music stage for other idol groups in Korea, which makes them unique. With offices in the U.S., Japan, China and Korea, it continues to exceed standards by successfully reaching global markets as the powerhouse behind the Korean music industry. For convenience, the terms “the Company” and “it” are used to refer to the parent company, YG Entertainment Inc.

 

  1. Assets

 

The Company owns over $61 million worth of tangible assets, including land, buildings, vehicles, and so on and over $33 million worth of intangible assets, such as membership fees, development costs, exclusive contract costs, etc. There are about 55 talented people composed of 27 singers, 19 actors and actresses, two entertainers, and seven TV producers (Hwang, Bo-Kyeong, 2017). It’s actively trying to scout TV producers for its own audition show on TV or cable channels and short-form videos for new media channels (Yong, 2017).

 

  1. Business Model

It is a diversified worldwide entertainment company with operations in two industry segments: YG Entertainment Inc., which is engaged in field scouting, training new artists, researching markets, development, production, marketing, and distribution of recorded music and related videos. YG PLUS, Inc. undertakes production and distribution of advertising and merchandising. Also, there are six business segments under YG PLUS, Inc.: advertising, model management, cosmetics, restaurant business, sports management, and financial investment services (Lee, Gi-Hoon, 2015).

 

 

 

  1. Production System

The Company has established the self-production system called “In-House.” Unlike other record companies, which work with outside resources, the Company has its own composers, producers, engineers and studios where the whole process of recording can be done in one place. This system enables the Company to save money and time and lower possible risks. Almost all artists compose music and write lyrics for themselves. Over 10 producers have already proven their talent in producing albums. Engineers correct tuning and timing issues and remove noises on the recordings. Also, they are in charge of mixing instrument tracks and adding effects. Lastly, in the mastering phase, engineers and artists thoroughly check sounds and tracks and send the songs to where the songs are printed as physical recordings and made as a digital file (Kang, 2009).

 

  1. Revenue Model

The Company proceeds with diversification of a profit model under 360º deals. It reaps profits from artists’ publication and artist-branded products made through YG PLUS, Inc. and it sells them on its online shopping mall, YG E-SHOP. Also, the Company gets licensing income from artists’ posters, smart phone wallpapers and ringtones by joining hands with KAKAO TALK and LINE, Korean social networking services, and works on mobile business via applications (Kim Y. , 2016). By using multiple channels such as broadcasting, advertisement, games, concerts, and so on, its royalty earnings are steadily on an upward trend, which enables the Company to enter the global market like Japan, China, South Asia, the U.S., and Europe. In 2016, it generated revenue of over $321 million which was a $128 million increase from 2015 (Hwang, Bo-Kyeong, 2017).

 

  1. Opportunities and Threats

Endless attempts have been made to achieve vertical integration, diversity and scale of its business. Since YG Sports, Inc. acquired a golf course-booking agency, Green Works, for $31 million, it has shown rapid growth – up 57% compared to last year. Its operating income increased 60% to $784,000. The Company keeps attempting to expand its golf business by signing a contract with more golfers who have shown outstanding performances in Japan and the U.S., and raising and supporting young golf prospects (Kim, 2017). There is a reason the Company has been milking the cash cow. Hundreds of new artists pour into the industry, yet few of them catch people’s attention, which means it’s more and more difficult for both new and existing singers to survive. This increased the costs for training new artists and production and distribution of recordings. What is worse, two groups of singers who represent the Company, 2NE1 and Big Bang, left the spotlight for some time (Jeong, 2017). The stock price of YG Entertainment has been declining and YG Sports’ stock price has been moving up. Isn’t it the tail wagging the dog?

 

 

Works Cited

Website

[1] http://www.ygfamily.com/index.asp?LANGDIV=K

[2] http://www.ygeshop.com/

Book

Kim, Youna (2016, December 29th), Routledge Handbook of Korean Culture and Society, pp. 287

Reports

[1] Jeon, Jong-Geun, Kim, Seung-Nyeon, Lee, Han-seok, Lee, Hyeong-Oh, & Kim, Yeong-Mi (2016, February), A Study on Economic Effects of Korean Wave in 2015, pp. 9

[2] Hwang, Bo-Kyeong (2017, March), A Business Report on YG Entertainment Inc., pp. 32-41

Articles in Journal

Kang, Myeong-Seok (2009, April 22nd), All-Around Producer Teddy, “From Composing and Engineering to Styling.” Ten Asia, pp.86-88.

Articles in Periodical

[1] Kim, Geon-Woo (2017, August 29th), YG PLUS, Synergy Effect of between YG Sports Inc., and XGOLF, pp. 1. Available: http://news.mt.co.kr/mtview.php?no=2017082817104373601

[2] Jeong, Woo-Seong (2017, September 12th), Winner “SM”, “JYP”…Loser “YG”, pp.1. Available: http://vip.mk.co.kr/news/2017/613058.html

[3] Yong, Ji-Soo (2017, July 6th), SM and YG, “We’re Going to Establish Broadcasting Stations”, pp. 1. Available: http://www.mediatoday.co.kr/?mod=news&act=articleView&idxno=137737

Telephone Interview

Kim, So-Hee, Manager in Promotion & Publicity departments

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