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YG Entertainment, which manages South Korean boy band Big Bang, is at crossroads as the talent agency is stretching beyond music business into fashion and cosmetics by the use of popularity of its artists such as "Gangnam Style" rapper Psy and girl group 2NE1.
As one of the biggest three South Korean management agencies, including SM Entertainment and JYP Entertainment, YG is reeling from earnings shock on weak Japanese yen and seeking to diversify business beyond music, in which YG's market share is falling in its home turf.
Big Bang's latest compilation album "The Best of Big Bang 2006- 2014," which features the boy band's hit songs as well as 32 music videos, ranked first on Japan's leading Oricon Daily Album Chart, local media reported Thursday citing the chart operator. A total of 93,226 copies were sold in Japan on the first day of its release on Wednesday.
Such big success in Japan is not expected to help improve YG's fourth-quarter earnings as the talent agency is in troubles for the Japanese currency's fall to the U.S. dollar, which hit hard its third-quarter profits.
YG's revenue rose 30 percent from a year earlier to 38.6 billion won (35.2 million U.S. dollars) in the three months ending Sept. 30, but its operating profit sank 28.1 percent to 4.6 billion won amid the yen weakness that reduced concert proceeds and album sales in Japan.
It compared with SM Entertainment that has a stable of Korean pop, or K-Pop, acts such as now eight-piece girl group Girls Generation and boy band Super Junior. SM's operating profit just fell 5.5 percent to 14.19 billion won in the third quarter, far lower than a 28.1-percent drop in YG.
YG's market share in music declined in its home turf. YG- produced music, which ranked within a hundredth in the third quarter, took up 6.9 percent of the total, plunging from 12.4 percent in the first half, according to the Korea Music Content Industry Association (KMCIA).
To diversify music business into fashion, YG set up a joint- venture fashion brand "Natural 9" in last October with Cheil Industries, the fashion unit of South Korea's largest family-run conglomerate Samsung Group.
In September this year, the "Natural 9" launched a casual fashion brand "NONA9ON" in a Seoul department store, which was sold out in three days after the roll out. The NONA9ON is reportedly seeking to enter famous overseas department stores and local duty-free shops next year.
YG's push into fashion with a back-up from Samsung came as the so-called "Korean Wave," including TV dramas and movies as well as K-Pop music, grew in popularity in Asia and even globally.
In September, YG signed a deal with the private equity arm of French luxury goods giant LVMH, under which the L. Capital Asia will invest up to 80 million U.S. dollars in the South Korean management agency. Yang Hyun-suk, head producer and major shareholder of YG, said after the signing event that he hopes to market and promote the brand "Korea" globally by way of music and fashion, which "go in tandem."
It marked the first time that the L. Capital Asia, which was launched in 2009 mainly investing in promising brands in China and India, made its investment into a South Korean management agency.
Helped by LVMH's investment, YG has partnered with local cosmetics maker Coson and China's Huanya Group to enter the makeup business. Codecosme was set up as a joint venture between Coson and Huanya Group and has developed and produced YG's makeup brand "moonshot."
YG opened its first flagship store of "moonshot" in central Seoul last month. Phoenix Holdings, a local advertising agency that was sold to YG earlier this month, reportedly plans to buy a 62.04 percent stake in Codecosme from Coson for 3.46 billion won ( 3.15 million U.S. dollars).
Market analysts awarded high scores to the new businesses, but concerns remained over excessive diversification beyond music. "YG 's cosmetic brand began to be sold both online and offline, and its fashion brand will expand presence next year," Kim Chang-kwon, an analyst at KDB Daewoo Securities in Seoul, said in a report, cutting its target price for YG shares from 58,000 won to 52,000 won.
YG shares have lost about one third of market value from a peak of 67,200 won on March 13. The shares fell 1.3 percent to 45,450 won at Thursday's close. Kiwoom Securities' analyst Hong Jung-pyo said in a report that YG's corporate value would be re-appreciated on fashion and cosmetics businesses, but he cut its target price for YG to 60,000 won.
