Organizing K-Pop: Emergence and Market Making of Large Korean Entertainment Houses, 1980–2010
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This paper studies the connection between the emergence and market making activities of the large Korean entertainment houses and the global level success of “K-pop,” an increasingly popular type of Korean popular music. We review a set of conventional explanations, respectively pointing to cultural factors, government support, and technological development as core factors that led to the global success of K-pop. We find all three explanations unsatisfactory and, alternatively, building on studies of market intermediaries, argue that the roles of three large entertainment houses—SM Entertainment, YG Entertainment, and JYP Entertainment—have been the most crucial in the development and success of K-pop. Through combining data from Korean music charts, newspaper articles, and revenue data, we trace the increasingly systematic musical production strategies of the entertainment houses and the macro-consequences of their organizational activities.
KeywordsK-pop Popular music industry Producer driven production Intermediaries Media groups Globalization of music
Introduction: Korean Wave and K-pop’s International Success
South Korea is widely touted as one of Asia’s “four dragons,” as a country that has experienced unprecedented growth through its success in export-oriented manufacturing. The country’s political and market institutions and the growth process have been extensively studied as providing a model of economic growth based on various low- and high-value-added manufacturing—ranging from garments to televisions, ships, and cell phones [1, 4, 26]. More recently, among its thriving exports are not merely semiconductors, automobiles, and more sophisticated versions of goods that were produced for the past half century but also products rather unforeseen, its popular culture.
Hallyu (韩流; Hánliú in Mandarin Chinese), or “Korean wave,” is the term used to describe the popularity of Korean popular culture. Starting with the popularity of a 2002 soap opera “Winter Sonata,” Korean TV dramas, music, and, to a lesser extent, movies, have become staples in Asian countries including the neighboring Japan and China as well as in Southeast Asia. Since the mid-2000s, the popularity of Korean dramas and music has spread further to countries including Iran and Turkey (where the drama Jumong was a smash hit), Chile, and Peru, as well as France and Germany.
Although hallyu describes an overarching diffusion of South Korean popular cultural products of multiple genres, there are genre-based differences as to which specific expression eventually becomes part of the hallyu grouping. While dramas of all themes have been widely successful, for movies, it is the rather critically acclaimed art house director-made movies, including Ki-duk Kim’s and Chan-wook Park’s or the blockbusters of Joon-ho Bong, that made it to large-scale international fame. However, for music, it has mostly been what is called “K-pop” or “idol music,” which does not denote all popular music with roots in Korea but a sub-genre that is the most strategically produced and commercially tailored among Korea’s cultural exports.
traditional Korean music was pentatonic, the singing style stressed melismatic and raspy vocalization, and the performer stood still: the stress was on the sound. K-pop is uniformly diatonic, lyrics peppered with English phrases, the singing style is resolutely syllabic of “Western” pop, and dance is an integral element of the performance.
According to Lie, there is nothing inherently or traditionally “Korean” about K-pop. It is “foreign” in its form and hardly existed before the mid-1990s, yet quickly became an industry, which contributes 2 billion dollars annually to the Korean economy .
The biggest names in K-pop are the “idol” groups like SHINee (reads “Shiny”), f(x), Super Junior, Girls’ Generation, 2NE1, and Big Bang and usually include a large “assortment” of young boys or girls. They wear shiny stage wear, dance in sync, and often possess superior appearances than singing abilities. The most popular K-pop groups make repeated rounds of TV appearances not only on the music shows but also on the weekend game and variety shows. Retail stores display life-size cutouts of the idols, and their photos appear on products advertisements, and even on the products themselves. They are cast as actors and actresses in dramas and selected by government agencies to represent Korea as “cultural” or “PR ambassadors.”
They also make frequent rounds of international concerts. JYJ’s spring concert tour in 2012 included 15 venues worldwide including Chile, Barcelona, Berlin, Peru, and Tokyo, where hundreds of fans lined up from 4:00 am to get a glimpse of the stars, holding presents and balloons whose colors symbolize allegiance to the idol . Their fans, more devout and passionate than popular culture has ever seen, have also formed fan groups of various formats. Each singer has fan clubs with bureaucratic and often hierarchical structures, where members become financial supporters and “interest groups,” ensuring that record sales are high and that the singers are fairly represented in charts. There are also informal (mostly) online-based communities, where fans participate in exchanges with likeminded people from around the world. The bilingual fans devote a vast amount of their time translating every interview, song lyric, and newspaper article to share with others, while others write and consume “fanfics” or form dance “covering groups.”
The K-pop world has organized quickly with high domestic and international success. Given nobody expected K-pop’s wide-reaching international success as recently as the late 1990s, it is all the more surprising that K-pop arose as a distinct genre of music and gained global popularity over a short period. All this leads to an empirical puzzle: How can we explain the sudden surge and success of K-pop?
Explaining the Success of Hallyu
Existing studies on hallyu generally focus on either the factors associated with the individual consumers that trigger the demand (i.e., culture) or the macro-environmental factors (i.e., government or Internet) that have triggered the development of the Korean cultural industries as reasons for success. For example, those utilizing cultural studies frameworks often examine the success from the perspective of the consumers in the countries where Korean cultural products are successful and link it to the context of modernity and the growth of youth culture mostly around Asia. Chua and Iwabuchi , in studying the factors that led to the wide reception of Korean dramas in Asia, argue that feelings of nostalgia, emphasis on family values, and themes of morality commonly portrayed in Korean dramas led to their popularity. They argue that these characteristics distinguish Korean dramas from Japanese products that are seen as representations of “imaginable” and “desired” futures. Others studying K-pop point to its “modern” attributes, hybridization of Western music forms with dance and visual aspects as producing “transcultural imageries, whose origins are ambiguous” yet appealing  (p. 39).
If the cultural explanation emphasizes a set of values that Korean popular culture promotes and its synchronicity with or appeal to the values of the consuming end, the other two explanations examine the success strictly from the production side. One such explanation emphasizes the government’s role in promoting K-pop , providing financial and business support to companies and openly supporting hallyu as a way of enhancing the nation’s “soft power.” Also included in the explanations are the government’s release and distribution to China a CD called “Songs from Korea” and the establishment of Korea Creative Content Agency to support the growth of the cultural industry.
Another explanation emphasizes the central role of technological development. Proponents of this perspective emphasize the change in music distribution from record producers and distributors to online-based distribution  and argue that the rise of online video-sharing sites such as YouTube played the most important role in globally diffusing Korean music, that the number of YouTube hits for K-pop music videos have reached 2.3 billion views from 235 countries , and that many singers use YouTube as a platform to showcase their songs, oftentimes through live broadcasts simultaneously watched by millions.
While the explanations focusing on the consumers, the government, and technology all point to factors clearly present in the making of K-pop, we believe that these perspectives only provide partial explanations. Korean popular music has undoubtedly appealed to a large global audience, but explaining the success only from the consumer’s side misses the mark in that it fails to examine how the industry, which was nonexistent merely two decades ago, grew so quickly. The latter two perspectives confuse the causes of the success with the background factors that partially shaped (or accelerated at most) the success. The government-centered explanation not only overemphasizes the role of the government by crediting them for singlehandedly creating the Korean music industry while overlooking the actual industry players but also suffers from lack of credibility in providing systematic evidence showing continued government involvement throughout the formative years of the cultural industries. While the current K-pop industry clearly has the government’s backing, the government has only recently enlarged its role from providing piecemeal and incidental support throughout the 1990s and early 2000s. The government at best represents a lagging factor in monitoring and providing support to already budding industries, rather than a force “causing” the formation of specific industries. Similarly, while technological factors did bring decentralization of the music distribution process, traditionally dependent upon record label contracts and television and radio airtime, the proponents of the technology-centered perspective fail to explain why it had to be Korean popular music, not Japanese or Chinese, that ultimately rode the wave of globalized technologies.
Most importantly, we believe that all three conventional perspectives ignore the most important players that drive the organizational dynamics of the K-pop industry: the singers, producers, record labels, the studios, and, most importantly, the agents that put elements of music production together and push the products into the market, the entertainment groups. Thus, we propose an alternative approach: Instead of isolating the social and market factors present in Korea and the countries of consumption as core explanatory factors, we highlight the role of the large Korean entertainment houses in organizing the market for K-pop.
We argue that the large Korean entertainment houses, as market makers, played significant roles not only in creating and developing the market for K-pop but also in reshaping the overall market for Korean popular music. We pay special attention to how the entertainment houses emerged, and adopted and refined their organizational strategies. We also trace how, as these entertainment houses formed and grew larger, their activities systematized the K-pop market. Lastly, we discuss the macro-consequences of their activities in creating a feedback loop, which resulted in the rapid homogenization in the availability of musical genres and consumer tastes and a marginalization of alternative types of music.
In examining the rise of K-pop, we also hope to comment on three related issues. First, we hope to provide an alternative to the view that regards K-pop as “inherently foreign,” something that is not and cannot be “Korean.” We believe that, despite the Western influences that have morphed Korean popular music into an expression unrecognizable from the standpoint of traditional music, K-pop has undeniably clear origins, which is nowhere else than contemporary Korea. The particular types of music that K-pop is have resulted from localized negotiation of global forms of art, wherein Koreans have used “them as resources through which…to construct their own cultural spaces”  (p. 38). This hybridization of the global and the local results in what contemporary Koreans living in a globalized society can claim their own, not anybody else’s.
Second, the “Korean-ness” of K-pop emanates itself nowhere more than in its production strategies, which stem from organizational recipes institutionalized within Korea. The organizational structure and strategies of the entertainment houses in smaller scale replicate those of the dominant industrial groupings called the chaebol, whose competition revolves around large degree market control by vertically integrating related activities rather than coordinating intergroup . Just as this competitive dynamic led to a high concentration of the overall Korean economy, the Korean music market has been increasingly concentrated by a small number of new entrants. This trend contrasts sharply with popular culture production systems in other contexts revolving around increasing flexible specialization . We believe that the concentrated and domineering musical production system that the K-pop industry has become reflects the organizational strategies of the larger economic system.
Lastly, and more generally, we hope to illustrate the importance of incorporating an analysis of the production system into the study of culture and consumption. Interrogating the connection between the micro-dynamics of consumption, a major focus of cultural studies, and the macro-system of production necessitates an understanding of the producers and industry actors as key players. We believe that our approach not only contributes to an understanding of the production process of popular cultural products but also helps clarify consumption as a market process, during which time consumer tastes and preferences are incorporated into production through various business strategies.
Theory: Outlining an Organizational Approach
During the 1990s, a few entertainment houses rose to the forefront of the Korean music industry and brought forth a production strategy that gradually integrated the previously overlooked or loosely coordinated steps of music production. Since these entertainment agencies appeared, they have grown in size; incorporated in-house the processes of talent discovery, training, music production, recording, promotion, and management; and refined their market-making strategies. This span of years also coincides with the period of formation, growth, and stabilization of the K-pop industry. Only through their activities have Korean idol groups emerged, their musical style defined and tailored, and domestic and international markets for K-pop organized. Thus, we examine K-pop’s rise and how its domestic and international success is tied to the entertainment groups, most notably the three groups of SM, JYP, and YG.
In doing so, we follow Spulber’s conception of intermediaries, those market players whose activities “create and manage markets by acting as intermediaries between buyers and sellers”  (p. 135). We also take cue from Petrovic and Hamilton’s  idea of “market makers,” which emphasizes the role of large retail firms in creating and making mass markets for consumption.
Intermediaries in the K-pop World
Intermediaries seek out suppliers, find and encourage buyers, select buy and sell prices, define the terms of transactions, manage the payments and record keeping for transactions, and hold inventories to provide liquidity or availability of goods and services.  (p. 135)
Spulber sees market intermediation as a ubiquitously occurring, vital process where the role of the intermediary extends far beyond serving as an additional step between the seller and the buyer. He views intermediaries, especially market-making firms, as key in shaping the markets as they make crucial decisions regarding which products will be supplied to the market, how they will be allocated, and in what form. He also notes that they sometimes even engage in value-adding activities of designing, packaging, blurring the line between the merchant and the manufacturer.
Focusing on retail trade, Petrovic and Hamilton expand this idea of market making, where the market makers’ activities not only involve a “number of routine business activities, such as pricing and contracting, finding and retaining trading partners, and getting products into and through the market” but also exhibit “an element of institutional entrepreneurship” (p. 37), which emphasizes continuous development and improvement of existing methods of facilitating trade. This perspective clarifies the nature of markets as relying on a concrete set of organizers who play crucial roles in maintaining market operations and steers away from abstract mechanisms that are somehow self-occurring. The markets need to be made, maintained, and reinforced through organizational actors.
In the K-pop world, entertainment houses are intermediaries who mediate between the musicians and the consumers while also doubling up as producers. While the first international successes under the entertainment house system were rather coincidental and sporadic, the entertainment houses have learned from experiences and modified their strategies to see wider-reaching successes. As they incorporated a number of strategies, which helped secure their domestic and international fan base, they have learned to systematize and expand their production models to organizational forms that resemble somewhat the vertically integrated “studio system” of movie production of the bygone days, from which Hollywood has gradually moved away .
By vertically integrating in-house the process of artist selection, musical and performance training, image making, song writing, management, contracting, and album production and growing into large domineering entertainment empires, they have made the transition from small recording studios and niche producers of exotic music to central players that define the contemporary Korean music scene. Their activities completely changed the commonly adopted strategies of musical production and the availability of genres and styles of music. Their strategies also gave birth to a mass Korean youth culture oriented toward obsessing over idols: Their influence over both the production market and the market for demand have become hegemonic, where few market players can challenge their status quo.
That a large proportion of the internationally successful idol groups belong to the top entertainment houses again demonstrates the importance of examining the success and strategies of the entertainment houses.
The following empirical sections will be divided into three sections. The first section describes the dynamics of the Korean music market before the entertainment groups and the events that have led to their emergence. Then, we describe the pioneering role of Lee Soo Man and his group, SM Entertainment, in starting a new age of musical production. In the second and analytical section, we examine the strategies of entertainment groups, focusing on how SM Entertainment and two other entertainment houses, YG and JYP Entertainments, have developed and elaborated their production strategies to expand the domestic and international markets for K-pop. Lastly, we present our analysis of the top 20 songs from 1988 to 2012 in the Korean music chart to demonstrate the macro-level consequences of the organizational activities of these entertainment houses.
Emergence of Large Korean Entertainment Houses
What were the conditions of the music market prior to the emergence of the entertainment houses? This following section briefly describes the system that was in place.
Background Conditions: Korean Music Industry Before the Entertainment Houses (1980s)
Korean media were highly censored in the 1980s. President Chun Doo Hwan initiated the Basic Press Law to control media after his military coup, closed down private stations, and licensed only two state-run TV channels, KBS and MBC. The music industry was subjugated under this tightly controlled system as television remained the most important platform for music promotion, as well as talent discovery . In what was called the “star system,” singers were chosen through contests hosted by broadcasting stations. Broadcasting systems “employed resident backing bands, music arrangers and conductors, dance groups and choreographers”  (p. 83). The singers chosen for TV presentation were expected to perform songs given to them. This system, coupled with the lack of copyright control, did not create close association between singers and songs, but made songs popular only because they were sung widely. Singers “were not expected in real life to assume their stage persona”  (p. 84) or develop their own identities apart from the broadcasting station.
The record production process was controlled by the studio system. There were only 24 recording companies in the entire country in 1981 , and the studios, which were also music labels, directly controlled the songs and the hits . The largest Seoul studio was “the place to make music…”, “defined the Korean music sound,…creating sounds that were instantly recognizable”  (p. 141).
The genres of popular music then showed large differences from the contemporary market. Traditional folk singing and “trot,” a variation of Japanese enka, were popular in the countryside. Cho Yong Pil, the largest star of the 1970s and 1980s, owed heavily to “trot,” although later he tried westernized genres including rock . A number of ballad singers, notably Byeon Jin Seop and Lee Sun-hee, were discovered through musical contests and became popular. Some singers dabbled in dance (Kim Chu-ja and Kim Chong-mi, Sobangcha, and Kim Wansun) or rock (Sanullim). However, the music industry was small and highly local and based on a rather un-innovative and marginal production system that simply pushed a lot of blasé products into the market to somehow connect with consumers.
In the 1990s, a number of factors contributed to the heightening vibrancy of the music market. First of all, as the Basic Press Law was repealed in 1987, the private television market expanded. Furthermore, musical styles that were still undeniably local but more westernized were starting to gain popularity. Starting with “SeoTaeji and Boys,” a three-person rap group that revolutionized the music scene by popularizing rap, an increasing introduction and appropriation of foreign genres occurred. A number of singers experimented with musical styles imitating reggae, hip-hop, house, and R&B. An incipient youth culture formed, and so did grounds for a growing music market.
The diversification of musical genres and beginning of a Korean youth culture were the fortunate contexts in which a number of entrepreneurs started seeing opportunities to systematize the music market. Especially pioneering was the role of Lee Soo Man, who started a small studio, which later developed into SM Entertainment, the largest and most successful entertainment house. As we explain below, Lee developed a system to recreate the small number of rather accidental initial successes through incorporating various production strategies into his star production process. Others soon took advantage of the trend and adopted similar production strategies. The simultaneous adoption of a set of production strategies by a number of music producers resulted in a rapid transformation and crowding of the music market.
Founding of SM Entertainment (1985–1996)
SM Entertainment was founded in 1988 as a small studio, named SM Studio. Lee Soo Man, the founder, was once a popular Korean folksinger, TV host, and a DJ who spent some time in the USA. He is said to have been influenced by the changes that occurred in the US music market, the start of MTV and music promotion through music videos, and had hopes that he would be able to “replicate U.S. entertainment in Korea” .
In SM Studio, instead of following the traditional studio formula, he tried to do things differently. Lee filled the studio with digital equipment imported from Japan’s Akai Electronic Musical Instruments and hired composers who had interests in synthesizer-based music . Lee provided directions to employees as to how to create electronic dance music and, based on his understanding of Korean tastes in music, started looking for talent.
Lee kept on refining his techniques, confident that he could find the right formula for his young protégé. He switched Hyun into baggier, more hip-hop-like clothes, raise the music tempo, and added a stronger rap feel.  (pp. 151–2).
After trial and error, Hyun’s following albums saw bigger and bigger success, with his third album selling 400,000 copies, a huge success in what was then an extremely small and fragmented Korean music market.
Growth of SM Entertainment
This experience of success led the studio to learn the value of systematically “producing” the artists rather than supporting only the minimal recording and contract functions. Based on the initial success, the studio decided to systematize the star production business  and adopted a system for training and developing artists. In search of talent, Lee held auditions all over Korea, the USA, and Japan and hired a “casting manager” to identify the best dancers from local schools and survey teenage girls to ask what they wanted. Once an aspiring singer made the cut, s/he was brought to SM for training—to learn singing, dancing, and how to act like a star.
He worked over the strategies over 1995–1996. The name, SM Studio, was changed to SM Entertainment in 1995, and a five-member boy band, H.O.T. was put together, a group consisting of five handpicked members who each had different strengths. They debuted in 1996, became an instant success, and arguably started K-pop .
Period of Market Crowding (1996–2005)
The next phase of development occurred as other entertainment agencies appeared and began systematizing their production strategies. YG Entertainment, a record and talent agency founded by Yang Hyun-Suk, once a member of Seo Taeji and Boys, appeared in 1996 and began producing hip-hop artists like Ginusean and 1TYM. In 1997, Park Jin Young, a singer and songwriter in the mid-1990s, started JYP Entertainment. With the arrival of JYP, the three-tier entertainment agency system as currently existing became complete. The following decade roughly over 1996–2005 was marked by various efforts at devising new systems of artist production and management. The agencies experimented with various styles of music, singers, and production models and gradually defined their strategies.
The trainee programs most notably started taking shape during the first half of this decade. In the late 1990s, the average period for training artists was shorter than after 2005,1 less rigorous, and each house produced artists focusing on (slightly) more varied musical genres and less defined styles. Casting managers focused on finding talented high school students who could already dance and sing. However, as competition intensified, agencies placed larger emphasis on internal production, which trend led to lengthening of the overall traineeship, a selection of younger trainees, and preference for in-house training than selecting artists with already defined styles. Later, a global market focus was added to the list of these production strategies.
Recipes for Success: Further Defining of Production Strategies and Organizational Identity (2000- )
These current star-producing strategies came into place around 2000. These strategies enabled the entertainment house to gain more control over the artists and continuous profits. Each house further refined their organizational identities through focusing on cultivating a coherent “brand image,” narrowed the range of genres and styles of artists they produced, and instead focused on getting the “formula right.”
This following section focuses on examining the “tried and proven” recipes that the entertainment houses used and systematized to take over the Korean and global music market. We argue that these set of strategies—recruitment and training strategies, strategies to refine organizational identities, globally conscious star production strategies, and market domination strategies—were at the core of K-pop’s success. They initially represented systematized ways of producing and marketing to popularize dance and other Western genres of music within the Korean market, but later become strategies targeting the global audience.
Recruitment and Training
The first and most important strategy to take shape was the star recruitment and training system. Although SM Entertainment is most frequently credited for developing this system of star production, the other entertainment houses also adopted similar production strategies over this period. Heavy control of the products and outputs (stars and their music) by the entertainment houses was emphasized throughout the processes of recruitment, training, team formation, music production, and debut.
Trainees were recruited through street recruitment, open competitions, and auditions. While other methods were not uncommon, auditions within the entertainment houses have become the most common way for aspiring artists to make it into the trainee system. These auditions are so cutthroat that, out of the 3 million aspiring artists that audition annually with SM Entertainment, only about a handful makes the cut . Auditions are held weekly at the company, and also through public auditions held twice a year in Korea and once a year in Asia and the USA .
The starting age of the average trainee also has greatly reduced. While many started in their early teens, some started as early as age 5 or 6. Once the entertainment house selected the trainees, they secured the time to train the teenagers through long-term contracts. It was not uncommon for trainees to have 7+-year contracts and to sign another 10+-year contract upon debut, especially before the Fair Trade Commission’s request to reduce the traineeship in 2010.2
The systematized traineeship involved training the artists in subjects ranging from singing, dancing, rapping, composition, and musical instruments to foreign language and manners. As the depository of to-be stars and potential moneymakers, the training program itself became of large importance. SM Entertainment now reportedly invests more than US $5 million annually into their training program .
The youth and “malleability” of the trainees also became of obvious concern. The entertainment houses gradually aimed for a complete start-to-finish manufacture of the product rather than taking into consideration what the artists already have to offer. Selection of young tweens and teens, considered “not yet tainted” by outside influence and without their own musical style, gave considerable power in the hands of the entertainment houses to systematically produce the star. The trainees are completely dependent upon the entertainment house for becoming stars and future success.
Refinement of Organizational Identity Through Promoting Coherent “Product Image”
While all three entertainment houses of SM, YG, and JYP invariably adopted these elements of long-term traineeship, early recruitment, and in-house production of musical talent, each house internally developed a distinct and internally consistent packaging strategy for their entertainers through emphasizing a coherent identity or brand image.
For example, while R&B artists like Fly to the Sky (1999) had been part of SM Entertainment in the earlier days, more recent agency efforts focused on producing multimember dance groups. SM Entertainment defined harmonizing dances as key to their style and promoted a dance style known as “military style dance” (gun-mu), which stresses all members to dance perfectly in sync. “SM style music” was gradually defined as electronic-based, fast-beat, and strong with memorable lyrics with repeating “hooks.” They also trained their artists to be “proper,” and “perfect and elite-like.” Their members are known to be multilingual, articulate interviewees, and polite .
In contrast, YG Entertainment put the free and rebellious style of their artists at the forefront of their brand image. YG’s artists are “trained” to have “individuality” and to leave a lasting impression on audiences. Rather than promoting artists who are uniform-looking and artificially coordinated on stage, YG performances feature singers who freely run around the stage and provide a party-like atmosphere. YG’s groups such as 2NE1 or Big Bang are known to be “un-conforming” not only in their music and dance style but also in fashion and even facial features (e.g., members of 2NE1 are often referred to as “non-traditional beauties”) .
Lastly, JYP Entertainment boasts artists whose styles appeal to different segments of the mass. While the female group singers are usually the most sexually suggestive, the male singers give out humane and friendly “neighbor-like” images. JYP Entertainment is known for producing songs that become widely popular, even among the middle-aged and elderly crowd, and therefore is also called the most “Korean” of the three entertainment groups.
The emphasis on a set of coherent imagery of the group singers has led the fans to equate each artist with the entertainment house (the “brand name”) and identify the different singers that belong to each group as “allies.” These groups, further reinforcing these identities, often have joint concerts around the world, under the names of “SM Town” and “YG family,” with lineups that include most member singers of the group.
Emphasis on the Global Market
Since the 2000s, the entertainment houses incorporated more globally conscious strategies. Most notably, many started overseas ventures as subsidiaries and pursued partnerships with foreign entertainment companies and record distributors. In 2000, SM Entertainment established SM Entertainment Japan as a JV with Avex and, subsequently, its US and Beijing subsidiaries. Similarly YG Entertainment established YGEX with Avex Group in 2011 and announced the launching of YG USA and YG Hong Kong in 2012.
Additionally, the companies sought foreign partnerships to promote their artists. YG Entertainment has had partnerships with Nippon Columbia and Universal Music for the Japanese release of Se7en and Big Bang and teamed up with Live Nation (California) in 2012 to produce “Big Bang Alive Galaxy Tour.” SM Entertainment partnered up with Interscope Records to collaborate on projects involving Girl’s Generation, while YG Entertainment established partnerships with Will.i.Am, whose 2012 studio album included features with 2NE1. YG Entertainment entered into partnership with Creative Artists Agency in 2012 for the US representation of rapper PSY (who in 2013 signed with William Morris Endeavor).
With their foreign subsidiaries and partners as platforms for overseas talent discovery and market penetration, the entertainment groups have targeted overseas markets since the 2000s. The strategies they adopted defy the conventional approaches to internationalizing pop culture products. While conventional wisdom guides the singers to first achieve domestic success, these groups have taken into consideration the overseas markets from the design stage of their products. SM Entertainment was especially fast to adopt a globally conscious strategy from the production stage, especially as seen with the training of the female dance singer, BoA.
BoA debuted in 2000 at the age of 13, when she was already trained to speak Japanese and English. Her debut album <ID: Peace B> was only a moderate success in Korea, but the Japanese release reached the top 20 on the Orion chart and her subsequent singles <Amazing Kiss> , <Listen to my Heart>, and <Valenti> all ranked top of chart. With the backing of SM Entertainment’s joint venture with Avex, she was assisted by Japanese dance teachers who helped her “localization,” musicians who produced her album with the strong rock-beat typical in J-pop songs, and stylists who helped her visualization that suited the local taste . She is only one of three artists to have six-consecutive number 1 studio singles on the Orion. She also consistently produced albums in Chinese and English, which helped her region-wide popularity across East and Southeast Asia.
SM Entertainment’s boy group Dong Bang Shin Ki (also known as TVXQ or Tohoshinki) also became extremely popular in Japan through similar strategies: production of Japanese language albums through hiring local producer Matsuo Kiyoshi and featuring their songs in local dramas and movies.
While the entertainment houses focused on Japanese market penetration through cooperation with local media groups, producers, and musicians, they actively tried to create groups that will appeal to the Southeast Asian and Chinese markets through similarly produced Chinese language and English albums. All three groups actively hold global auditions to recruit artists of non-Korean nationalities and members of the Korean diaspora. SM Entertainment’s boy band, Super Junior debuted in 2005, included a Chinese national, Han Geng. In 2009, they debuted a five-person group, f(x), including Chinese Song Qian and Korean American Krystal Jung. JYP Entertainment’s four-person girl group, Miss A, also includes two Chinese members, Fei and Jia, and boy band 2PM includes Nickhun, an American of Thai-Chinese descent. These groups consisting of members with diverse backgrounds have been, from the formation stage, designed as products to target the overseas markets.
Market Domination Strategies
More recently, the entertainment houses have simultaneously adopted strategies to achieve larger control over the domestic market. First, in 2010, the three groups have established a JV, KMP Holdings, with four other talent agencies including Star Empire, Ken Entertainment, and Music Factory. The venture is intended as an official distributor of their releases, especially in the digital music market, and to challenge the existing duopoly by Loen Entertainment and Mnet in domestic music distribution. Second, in April, 2011, the companies joined forces with television talent agencies, KeyEast, AM Entertainment, and Star J Entertainment, to create a management agency named “United Asia Management” in an effort to push hallyu and “pioneer a global market.” They have also used the management company to collaborate for a production system that links movies, dramas, and other media.
In addition to these market domination strategies, the respective entertainment houses have established subsidiaries in related and unrelated businesses and also tied up with other chaebol for further promotion of their products. YG has tied up with Samsung’s Cheil Industries to launch a fashion line. SM Entertainment has launched SM Pictures, a film producer subsidiary in 2007, and produced a number of films that featured SM Entertainment’s stars. They have also announced acquisition plans of Mediaplex in 2012, a film distributor. SM, in 2012, acquired a Hawaiian travel company and renamed it “SM town travel” and introduced various travel and concert packages for their overseas fans through its “global package” program.
Development of Feedback Loops in the Music Industry and Their Macro-consequences
As we have shown above, the competition between major entertainment houses and their repeated following of successful production strategies were keys to K-pop’s development and domestic and international successes. These developments have also occurred concurrently with a set of organizational and (domestic and international) market changes, such as the concentration of the domestic market, homogenization of genres, and an establishment of a feedback loop that heightens K-pop’s international visibility.
Concentration of the Korean Music Market
K-pop’s growth has occurred concurrently with a complete restructuring of the Korean music industry. The strategies that emphasize direct control over the artists and in-house production of music and musical talent has gradually enlarged the sizes of the entertainment houses themselves. Between 1996 and 2010, the largest entertainment houses became more successful and influential and produced a larger lineup of artists while further developing their strategies. The result was a large concentration of the overall music market and the largest three entertainment houses accounting for an increasing share of the music market.
Homogenization of Korean Music Sphere
Lack of choice becomes a miserable sort of feedback loop. When Korean consumers demand fewer options, so consumers are less likely to learn and more likely to see their taste narrow even more. Sean [creator of the internet music downloading site, Sori-bada] sees the data from his company, where there are zero restraints on what someone can listen to, and he says that choice is declining. That decline is no corporate conspiracy, no heavy-handed distributor. That is consumer choice.  (p. 186)
Constant monitoring of the tastes and preferences of the consumers and factoring the successful elements back into the products led to the development of a feedback loop on a larger scale. This makes successful products increasingly predictable and guarantees a continuous stream of revenue for the entertainment houses,3 but also homogenizes the entire domestic music scene.
To show the increasing homogenization of the domestic market and concurrent domination by the large agencies, we used historic music chart data published by an online music streaming service, Melon Music. We coded the top 20 domestic songs of each year from year 1988 to year 2012 (a total of 500 songs) by genre and whether the musicians belonged to the three large entertainment houses. Genre is coded dichotomously into the following categories: (1) “hip-hop and dance” (most representative of K-pop) and (2) “all others.” Belonging to the entertainment houses is also coded dichotomously based on whether the artist behind the song belonged to one of the three major entertainment houses at the time of the release. The data are organized annually in order of song popularity and calculate the weighed average of national record sales (70 %) and media appearance of the song (30 %).4
What we find is an increasing domination of dance and hip-hop music and also an increase in the number of songs being accounted for by the largest entertainment houses. Although the results indicate a sizable presence of dance and hip-hop music in the early to mid-1990s, what the binary coding of genres does not reveal is that the dance music produced before the emergence of the large entertainment houses was qualitatively different in style from the music promoted under the entertainment house system. The dance music performances from the early 1990s looked and sounded nothing like today’s K-pop.
The results also do not show the composition of the “next tier” of the K-pop production scene, which is populated by smaller entertainment agencies such as Loen, Starship, and Cube Entertainments. These agencies are smaller in size and produce singers with relatively more diverse musical styles, but many of their productions can still safely be categorized as “idol music.” The strategies of these smaller agencies mimic those of the Big-3, and they often soak up singers who once belonged to the larger entertainment houses.
Global Feedback Loop and K-pop’s Increasing Visibility
Various demand-monitoring strategies that the entertainment groups adopted also contribute to the heightening global visibility of K-pop. One factor that has particularly aided this process is technological, especially the global diffusion of the Internet and worldwide accessibility to web sites like YouTube. Users’ instantaneous access to released contents allows not only for companies’ quicker demand monitoring but also easier identification of potential consumers.
These technological advancements enabling both efficient demand monitoring and production, like what just-in-time production and point-of-sales systems did to the retail industry , helped tighten the feedback loop between demand and production: People’s interests are aggregated numerically in real time via YouTube hits, iTune downloads, or Twitter shares, enabling companies to monitor demand instantaneously without waiting for weekly album sales data or without having to spend large amounts of money “testing markets” with unclear prospects. Digital platforms also allow companies to reduce the risk by releasing “digital singles” instead of full-length albums. Thus, YouTube is increasingly relied on as a platform for content distribution by media businesses, leading to a surge of “professionally generated contents” over “user-generated” ones .
What technological advancement leads to is an increasing democratization in entry opportunities, however not an equal chance of success. Online channels are open to everyone, but only those producers that effectively monitor demand and flexibly respond through their production processes can see systematic and continued success in international markets. What the Korean entertainment companies have developed is a system to enlarge their domestic and global markets through factoring consumer preferences into their production while developing a coherent brand image that would enable consumer recognition of the products as unique and appealing.
In this paper, we have studied the development and success of K-pop. We showed that a group of Korean entertainment houses were at the center of this process and argued that cultural, governmental, and technological explanations ignoring their roles miss the mark. Our analysis points to the importance of market intermediaries in facilitating market processes by tying together the markets for production and demand. In this regard, the largest Korean entertainment houses are not merely passive “takers” of market signals but also crucial makers of trends and drivers of the production process. We also show that this producer-driven model  of K-pop production has led to a number of consequences domestically and internationally, including concentration of the Korean music market, increasing homogenization of domestic genres availability and increasing the visibility of K-pop in the global market.
An underexplored point, which deserves further attention, deals with the inherent tension between innovation and “newness” that are valued in the most competitive segments of the global music market and the K-pop production strategies that emphasize predictability and replicability. Despite the high levels of popularity around the world, the uniformity and cookie-cutter images of K-pop singers, the dissonant ideals of sexuality between the USA and the East, and the highly manufactured feel of K-pop, among many possible reasons, have made the breakthrough of K-pop relatively difficult in competitive music markets such as the USA, where musical ingenuity is often deemed more important for success than high production value. Due to the inherent contradiction in applying the K-pop production strategies to produce musicians that are “different,” not to mention the financial risks such individualized investments entail, most “non-mainstream” artists are not backed by the idol-generating entertainment groups, nor are they ever trained to become potential hallyu stars. While the decisions to select and train young artists with high potentials to commercially successful products generally are on target, there can be “upsets,” as seen in the case of PSY who achieved some fame domestically throughout his 12-year career, but was deemed too unconventional (musically and appearance-wise) to even be considered a hallyu star candidate. However, as his 2012 hit <Gangnam Style> has unexpectedly brought the singer to a level of global success no other K-pop groups has seen, Korean entertainment groups are now recalibrating their strategies and trying to analyze every possible factors that led to PSY’s success. It is unclear how PSY’s penetration of the ever-desired US market would affect the future production strategies of the major entertainment groups, and whether it will actually lead to loosening of the entertainment groups’ highly standardized production strategies. Such will be an interesting topic to devote future attention to.
Finally, we conclude this paper by stating that more attention should be placed on the industrial processes of generating consumption goods and its relationship to final consumption. The micro-dynamics of consumption should adequately be studied in conjunction with industrial and organizational processes, which give shape to the very products of final consumption. This interrelating of the micro and the macro, which we demonstrated through using the concept of a feedback loop, can be a crucial strategy for bridging together the study of culture, consumption, and market processes.
The average training for the early groups like H.O.T (debut in 1996) and S.E.S (debut in 1997) lasted for around a year and, in the case of Fin.K.L. (debut 1998), only 4 months. In comparison, members of more recently formed groups such as Girls’ Generation (debut in 2007) and 2ne1 (debut in 2009) trained for an average of 5.2 and 3.5 years respectively, with some members like Jessica and Hyo-yeon (Girls’ Generation) training for more than 7 years.
The nine Girls’ Generation (SNSD) members trained for an average of 5.5 years. After their debut, SM Entertainment secured a 10-year contract with SNSD to collect the capital they invested, which they shortened to 7 years after Fair Trade Commission’s correction request.
SM Entertainment’s quarterly reports list the groups’ product release plans, which strategically space out the album release dates of the company’s top groups to ensure continuous revenue and satisfy shareholders.
Melon Music <Historic chart rank calculation> from (http://www.melon.com/cds/chart/web/chartage_list.htm).
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