Revealing the Secret of K-Pop's Global Success

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If we were to travel 15 years back, who would have thought that South Korean music industry or otherwise known as K-pop would rise to become one of the world’s leading recorded music industries. With worldwide fanbases, statistics have shown that South Korea succeeded on becoming the sixth largest global music businesses in 2017. Needless to say, the total streaming revenue on 2013 reached up to $89.78m. These findings lead us to one concrete question – ‘How do K-pop music industry manage to be this successful?’. This essay aims to unveil the reasons behind the success of K-pop in the global music industry.

Introduction

The evolution of the research and development (R&D) sector of became the impetus for the changing nature and structure of the music industry. The term ‘music piracy’ or ‘Internet piracy’ came into the surface when Internet was first introduced into the public. This had made the act of illegally copying and distributing of recordings of a piece of music without the owner’s consent possible. In 2005, statistics showed staggering total revenue figure where global music industry has approximately lost $3.3 billion worth of total revenue at that period showing the negative effect of widespread free streaming. While this phenomenon has negatively struck the whole music industry, this became a trajectory to the South Korean music industry instead. As a matter of fact, South Korean music industry had shown positive figures relative to the rest of the world for the consecutive period after the fall. In 2013, South Korea had become one of only four countries (United Kingdom, United States, and Sweden) who exports music more than it imports. From the statistical evidence mentioned earlier, one could fairly say that the South Korean music industry is economically and culturally successful – often referred to the K-pop phenomenon.

Korean Wave (Hallyu)

Korean Wave or Hallyu (‘flow of Korea’) refers to the globalization of South Korean culture – ranging from entertainment, music, TV dramas, and movies across East, South, and Southeast Asia initially and now extending further into the Western countries.

The Korean Wave or Hallyu first embarked in 1995 responding to the economic crisis in South Korea which pushed the South Korean government to shift their focus from domestic markets into the global markets. It was around this time when the South Korean policy makers became aware of the importance of nation branding to improve their competitiveness in the global market. In fact, they discovered that their cultural product could be used not only as a financially viable export product but to control the global image of South Korea. Private investments into media, entertainment and other industries were highly encouraged by the government in effort to create a national ‘brand’ that builds upon the idea of entertainment which became the foundation of Korean Wave.

Evidently, the Korean Wave or hallyu has gained much attention and love from people across the globe – attracting not only domestic consumers but extending to young and old people from Asia, North America, and Europe. It was recorded that the total revenue of Hallyu was estimated around $11.6 billion in 2014, with K-pop exclusively contributed $2 billion of revenue towards the Korean economy annually.

Contributors of the Success of K-Pop

While Hallyu established a basis for which South Korean music to reach the global audience, however the main driver of the Korean Wave is the innovation of technology itself which forces Korean companies and policy makers to adapt to macroenvironment changes. This section will discuss about how these changes had brought about the eventual success of the South Korean music industry.

Technology and Social Media

Music industry is essentially not one but a combination of three different industries – recorded music industry, music licensing industry and live music industry. In the pre-Internet era, the music industry was heavily dominated by record labels and physical media for music distribution. Looking back, there were not really a platform for which an artist could engage themselves with audience, if not through these record labels and hence making it hard for music disseminate to different countries. This became the rationale of how South Korean music was before where primarily made for domestic listeners and was not considered a popular genre in the global music industry.

However, the emerging technological advancement severely changed the structure of the music industry, especially the rise of online piracy, which negatively affected the way recording companies are able to generate its revenue. This is because audience can enjoy music freely through different platforms (such as televisions, radios, etc.) without having to pay any subscription fees to the recording companies. Furthermore, when YouTube was first introduced into public, it allowed for the dissemination of music videos around the world freely upon request. This forces the music industry to change the way their business operates in order to benefit from the free access of music around.

Business Structure

Ever since it was introduced, YouTube has grown into a successive music platform. In response, K-pop agencies in South Korea shifted to ‘Business to Business (B2B)’ strategy that focuses on selling content to multinational enterprise (MNEs). Music producers, artists, and songwriters upload their content online in hopes to gain royalties from MNE based on the number of views that they got on YouTube. The South Korean music industry has in fact relied on YouTube as the backbone of their music dissemination (reference). Since the royalties revenues that are generated by MNE (i.e., paying for commercial space) depend on the value of attractiveness of the content to the consumer, K-pop agencies play a crucial role in the production and marketing of their music.

The Korean Marketing Strategy

According to ‘Oh’, the three major K-pop agencies are YG, JYP, and SM Entertainment. These Korean music producers have adopted new globalization marketing strategy called ‘Global-Local-Global (G-L-G)’, which involves outsourcing raw materials (‘G’ – Global) as an intermediate goods, which will be proceeded into the local industry (‘L’ – Local) to be processed and transformed into a final and finished goods. These goods will then be exported into the world to buyers and distributors (‘G’ – Global).

The first ‘Global’ element involves outsourcing music composers from the center markets such as US, Britain and Sweden. In creating their music, K-pop agencies, especially SM Entertainment is seen to be incorporating Western elements into their music by collaborating with international songwriters and music producers as well as their respective agency. This collaboration with Western song writers, music producers, and choreographers abroad is what Karst Van Der Ploeg define as “the combination of western music styles with some distinct Korean cultural elements”.

As observed throughout the years of K-pop history, their initial success was attributed mainly from very large number of singers and dancers with distinct and beautiful physique and appearance, dancing simultaneously on stage in a perfect synchronization. The reason behind it is that K-pop undertook differentiation strategy to make the ‘L’ (Local) element unique to capture global audience – this is done through differentiating their music in terms of (1) voice-dance coordination; (2) numbers; and (3) physique.

These unique traits of K-pop music are a product of the entertainment companies acting as a venture capitalist where they actively seek for new young trainees, offered them a long-term contract with music labels, and train them for years to become global stars. To ensure that these trainees master the ‘voice-coordination’ elements, these trainees undergo intensive training involving vocal, dance, language and even acting lessons in hopes they would eventually generate high cash returns on their initial investment after they debuted. They rarely debut as a solo but instead are introduced as a group as larger group are believed to reduce the risk of unpredictable fan enthusiasm. In addition to that, K-pop agencies seek for slim, tall, and feminine looking individuals to create a visually appealing artists in terms of looks and bodies than their counterparts. The hefty amount of investment required in the training process naturally creates a barrier to entry for these K-pop agencies hence explaining why an oligopolistic market developed in K-pop music market.

Entry to the Global Industry

K-pop agencies concentrates on strategic alliances or joint ventures to enter the global industry – where two or more firms cooperate by sharing risks and profits as to enter the international market (i.e., where SM enters into a joint venture with Alibaba, Lidell noted that this was a beneficial exchange to both parties as SM gets the infrastructure while Alibaba gets the content. However, this approach involves a lot of transaction cost as well as long and hefty process of approaching foreign company, signing contracts and agreements, and sharing profits, a more natural and organic approach is through exportation. This involves recruiting young talented aspirants from other countries, train them local and foreign languages, and promote and export them as a part of a Korean Pop act.

South Korean Government

Since 1960s, the Korean government and domestic companies had tried to crack down on piracy, but none of them found were found to be effective. However, the year 1980 became the turning point for copyright regime in South Korea. At that time, South Korea was willing to enter into the foreign markets and Western countries, yet as a requirement they were asked reform the existing regulations. Copyrights regime was one of the required changes mainly because Korea was known as one of the countries that has the highest amount of piracy at that time, and international markets seek for legal security of their products. With such pressure and willingness to avoid trade disputes, in the mid-1990s Korean policy makers finally lift up previous bans on certain type of music and worked to improve the copyright laws and reduce piracy. However, the copyright regime adopted by the South Korean government are comparatively more liberal and much more creativity-friendly than their counterparts.

How is that so? Korea has a long history with piracy that no any other countries have had in general. Indeed, while piracy is blamed to be the source of decline in most music industries, it is piracy that helped the take-off of K-pop. In 1960s, because of its relatively cheap price, pirated albums helped contribute creativity of K-pop, which were used to be dominated by a single music – trot. Furthermore, since pirated albums offers range of new and trendy music which are relatively cheaper, hence the market for pirated music developed of which predominantly concentrated by young people (mostly students) who are price-sensitive and are more inclined towards trendy music. In fact, the domestic market size had been expanded to incorporate young consumers and new genres of music which continued until today. Nowadays, since most K-pop singers and the people in the K-pop industry grew up in the environment where piracy are prevailing, they did not insist on strict copyrights over their songs. Hence allowing K-pop contents to be available on the Internet for free of charge. In fact, Korean entertainment companies utilizes SNS to widely disseminate K-pop contents through the Internet such that international consumers can easily access to their content freely from legal official sources. By not limiting the access and distribution of K-pop online, yet protecting the revenues for the authors, it can be said that the South Korean government has implemented a well-balanced copyright regulation.

Revenues Collection

When measured by the intellectual property index, Korea ranked 34th in the world, compared to countries like Japan that ranked 8th and have more complicated and complete intellectual property rights. The effect of this problem is that artists are not able to profit as much from their work. This forces K-pop agencies to seek for other alternative to maximize their profits through live performances and physical album sales.

The global success of K-pop music in the 21st century prove that investments on young talents by K-pop agencies has been successful. The result of years of highly intensive training resulted in a perfect synergy between vocal and dance coupled with growing demand for visually attractive idols has made live stage performances appealing to K-pop music industries. The huge success of K-pop live concerts can be seen when YG Entertainment’s Big Bang managed to sell out the 50 000 seated Tokyo Dome. In addition to that, K-pop agencies utilized fan meetings as a method to soft launch music acts. Fan meetings are usually smaller and more personal where idols get to interact more with the fans, sign autographs and perform some songs at a cost. Hence allowing K-pop agencies to reap a huge benefit from fan meetings and live performances.

Another method that the K-pop industry utilize to maximize revenues from music is through the sale of physical albums. Despite the heated arguments that mobile platforms are increasingly replacing physical music album, yet the Korean market saw growth on their physical sales of albums and merchandises. Which is a result of the marketing effort of their respective agencies. Physical albums are often packaged and branded as a merchandise. Furthermore, they release several versions of an album to make it appealing as collectibles for the fans, especially targeting the hardcore fans. As an addition to the music itself, collectible photocards to photobook are included in the bundle, all packed luxuriously to make it visually appealing for people to actually buy and collect them.

Conclusion

The success of the South Korean industry is not a matter of luck but a strategic effort taken by both the local government and the private businesses in response to the changing macroenvironment. They carefully took steps to adapt their business structure, marketing strategies, laws and regulations to suit the era of digitization. Instead of considering changes as a threat, South Korea perceive this as an opportunity to gain popularity in the global market.

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Revealing the Secret of K-Pop’s Global Success

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