Posted : 2011-11-23 17:32
Updated : 2011-11-23 17:32

Will YG Enterainment’s IPO success last?

Yang Min-suk, fifth from left, CEO of YG Entertainment, Korea Exchange (KRX) officials and artists signed to the agency pose for a photo call at the Korea Exchange, Wednesday. / Courtesy of KRX

By Kwaak Je-yup

YG Entertainment, the country’s second largest entertainment agency, made a successful debut on the KOSDAQ exchange on Wednesday, yet it has yet to prove its commercial viability, say analysts.

The company may operate a pool of profitable artists but consistent growth hinges on aggressive overseas expansion and the ability to produce a larger, more diverse line-up.

Next year’s series of large-scale concerts in Japan will be a crucial test bed for the future success of the company.

YG shares closed at 78,200 won, gaining 15 percent from 68,000 won at opening. This put the market cap at 390 billion won.

The initial price offer was set at 34,000 won per share.

Analysts’ projections for the stock were universally tempered and careful on Wednesday.

“At the moment, there is no one who could (definitively) speak on the sustainability of hallyu (the wave of Korean culture), as the success is largely based on image and branding as opposed to the quality of the music,” said Na Tae-yeol, an analyst at Hanwha Securities, speaking about Korean pop music in general.

“The freshness appeal can build a small fan base but cannot expand it. The level of interest has been increased, but competitiveness is yet to be proven. I am cautious to be either positive or negative about their future performance or the stock valuation.”

The Japanese market has been singled out as the most crucial for YG, as well as other Korean artists, as it far exceeds the local one in size: the archipelago’s music market’s estimated value stands at 7 trillion won against the 0.2 trillion won for the Korean.

“The success of hallyu in the United States or Europe is exaggerated. The Japanese market is the most fundamental, and there is certainly a possibility for more success,” said Kim Si-oh, analyst at Korea Investment & Securities, downplaying this year’s hype surrounding Korean pop music’s overseas popularity.

“The concerts (of competitor SM Entertainment this year at Madison Square Garden in New York and Le Zenith of Paris) do not signify anything substantial: they are just singular events. Long-term business models have yet to be materialized. 2NE1 (YG's distant second act) staged a smallish performance this year in Japan, but next year YG hopes to attract audiences of up to 40,000. Next year’s concerts there will make or break the company.”

Such attempts to alleviate its overdependence on their most popular group Big Bang, which produced close to three-quarters of this year’s revenue, will be a key issue next year. As previously reported by The Korea Times this month, the value of the company suffered a 10-percent cut just before the IPO, after drug use of a key member of the group was revealed to the public.

Prospective investors wondered whether the management of the artists’ personal lives, as is usual in Korea, needs to be reinforced.

“I don’t think the issue is the musicians’ private lives. The freedom YG gives to its artists is consistent with their hip-hop style,” said Lee Hyun-jung, an analyst at SK Securities. “They just need to expand the artist portfolio to be secure from possible damages of this sort in the future.”

YG also admitted its reluctance to pop the champagne corks.

“We have waited (for the listing) for quite a bit of time now but we know this is only the beginning of the journey,” said YG Entertainment spokeswoman Lee Hyo-jung in a phone interview Wednesday. “We are focused on working along the pre-existing blueprint, rather than toasting the stock market success.”
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