Korean popular music, a.k.a. K-pop, is on the verge of expanding its global fan base. After more than 20 years of cultivating a devoted following in Asia, the South Korean pop music phenomenon is poised to take a leap into the mainstream, generating investment opportunities in the process.
“A wave of global interest in all things South Korean, from TV shows and movies to food, has helped K-pop amass a large following in the West,” says Morgan Stanley Research equity analyst Seyon Park. “Now, many of the newest performers are incorporating Western pop elements, including input from Western songwriters, to broaden their listener base.”
K-pop’s viral rise didn’t happen by accident. It’s the result of effort, planning, and trial and error by an industry that set its sights on creating a genre that would transcend niche regional offering to reach global appeal. Along the way, Korean music companies learned how to optimize content, train performers and enhance interactions with international fans.
“Currently, K-pop only accounts for an estimated 3% of the U.S. recorded music industry, pulling in less than half the revenue of Latin and country genres,” says Park. “We see a long runway for K-pop to grow and expand its share in this market and, more broadly, in the $130 billion global music industry.”
Loyal Following
The K-pop industry thrives on its dedicated fan base and Korean music agencies that manage the acts have been especially savvy at cultivating connection between stars and followers. For annual fees, members can get peeks into performers’ carefully planned activities and gain access to exclusive events and group purchases of tickets and merchandise.
This investment in maintaining close relationships with fans has paid off. For instance, top K-pop group Blackpink outperforms superstar Taylor Swift in terms of worldwide subscribers to the leading video-sharing platform, while matching her in terms of views per month, despite underperforming her in terms of songs streamed or concert ticket sales.
“This loyal fan base also provides a solid foundation for future album sales and concert attendance and distinguishes K-pop from Western pop, whose consumers tend to be more casual fans,” says Park.
Runway for Growth
The surge in K-pop fandom has driven substantial growth in revenue for the genre's four largest Korean music agencies. Between 2019 and 2023, their combined revenue roughly tripled to nearly 4 trillion Korean won ($3 billion) while operating profit reached 600 billion won ($450 million).
This growth stems from increases in the number of artists, album sales and live performances, all of which pushed up concert and merchandise sales. While globally recognized groups such as Blackpink and BTS still dominate, newer entrants on the K-pop scene are making an increasing contribution.
“The fact that the industry's expansion isn't limited to a few performers but encompasses a growing number of newer acts with their own concepts and target audiences, should bode well for future growth,” says Park.
Potential Risks
Nevertheless, analysts caution, the Korean entertainment industry comes with its own set of risks that may weigh on growth potential. Recent challenges such as renegotiating contracts with key performers, fan friction over stars’ personal lives, and a drop in album sales in China, where Korean artists have been restricted to perform in recent years, have prompted an industry correction over recent months.
“Given the potential effect on revenue continuity and the fact that protracted talks can pressure a managing agency’s share price, coming contract renewals will be key to watch,” says Park.
In light of these challenges, the industry needs to demonstrate sustained growth potential through a combination of new talent, higher streaming revenues and more concerts from existing artists. News of strong album sales, entry into the Billboard charts and high demand for concert tickets will be pivotal for the next phase of the industry.
"Companies that can continually evolve their business models to make deeper inroads in new markets and broaden the audience base will prove most successful," says Park.
For deeper insights and analysis, ask your Morgan Stanley Representative or Financial Advisor for the full note, “K-Pop: Time to Turn on the Music Again” (March 4, 2024).
