Korean popular music, also known as K-pop, is about to expand 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 make the 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 build a large following in the West,” said Morgan Stanley Research analyst Seyon Park. “Now many of the latest artists are incorporating Western pop elements, including contributions 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 on the part of an industry bent on creating a genre that transcends niche regional offerings to reach global appeal. Along the way, Korean music companies have learned how to optimize content, train artists, and improve interactions with international fans.
“Currently, K-pop represents only about 3% of the US recorded music industry, drawing less than half the revenue from the Latin and country genres,” says Park. “We see a long path for K-pop to grow and expand its share in this market and more broadly in the $130 billion global music industry.”
Loyal followers
The K-pop industry thrives on its devoted fan base, and the Korean music agencies that manage artists are particularly adept at cultivating a relationship between stars and followers. For annual fees, members can get a peek into artists’ 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 example, leading K-pop group Blackpink is ahead of superstar Taylor Swift in terms of global subscribers on the leading video-sharing platform, while tying with her in terms of views per month, although it underperforms in terms of streamed songs or concert ticket sales.
“This loyal fan base also provides a solid foundation for future album sales and concert attendance, and differentiates K-pop from Western pop, whose consumers tend to be more casual fans,” says Park.
A growth track
The rise of K-pop fandom has led to significant revenue growth for the genre’s four biggest Korean music agencies. Between 2019 and 2023, their combined revenue tripled to nearly 4 trillion Korean won ($3 billion), while operating profit reached 600 billion won ($450 million).
This growth was driven by an increase in the number of artists, album sales and live performances, all of which boosted concert and merchandise sales. While globally recognized groups such as Blackpink and BTS still dominate, newer entrants to the K-pop scene are increasingly contributing.
“The fact that the expansion of the industry is not limited to a few artists, but includes a growing number of newer artists with their own concepts and target audiences, should be a good sign for future growth,” says Park.
Potential risks
However, analysts warn, the Korean entertainment industry comes with its own set of risks that could weigh on growth potential. Recent challenges such as contract renegotiations with key artists, fan friction over stars’ personal lives and declining album sales in China, where Korean artists have been restricted from performing in recent years, have prompted an industry correction in recent months.
“Given the potential effect on revenue continuity and the fact that protracted negotiations could put pressure on the managing agency’s share price, upcoming contract renewals will be key to watch,” Park says.
In light of these challenges, the industry needs to demonstrate sustainable growth potential through a combination of new talent, higher streaming revenue and more gigs from existing artists. News of strong album sales, entry into the Billboard charts and high demand for concert tickets will be key to the next phase of the industry.
“Companies that can continually evolve their business models to penetrate deeper into new markets and expand their audiences will be the most successful,” says Park.
For more in-depth insights and analysis, ask your Morgan Stanley representative or financial advisor for the full note, “K-Pop: It’s Time to Turn the Music Back On” (March 4, 2024).
