The History, Development, and Future of K-pop and the Korean Music Industry
By: Hannah Waitt
The History of K-pop, Chapter 6: How the Internet Almost Killed K-pop, and How Idol Advertising and Acting Saved It
While SM Entertainment and its rival companies JYP Entertainment and YG Entertainment continued to perfect their training systems throughout the late 1990s and early 2000s, the Korean music market took a turn for the worse because of one major development: the Internet.
In the late 1990s the Korean government mandated and funded the development of a domestic IT industry that would result in Korea becoming the most advanced country in Internet penetration in the world, boasting the world's fastest broadband connections. The Internet swept through the nation, transforming it almost overnight. Internet cafes popped up by the thousands, and because Seoul residents typically live in highly concentrated populations in huge skyscraper apartments, it was easy for Internet providers to get massive numbers of people online quickly.
By 2002, over 10 million households - roughly 70% of all households in Korea - had either DSL or cable Internet connections. Comparatively, less than 20% of American households were online that same year. This sudden and pervasive change resulted in the flourishing of online activity in Korea, and the attendant easy piracy of music.
An overwhelming surge in Internet file sharing allowed people to easily and quickly upload and download music for free. In the same way that services like Napster and Limewire decimated American album sales, Korea's own domestic peer-to-peer (P2P) file sharing services stripped Korean artists and their companies of content profit.
CD and cassette sales plummeted and music stores closed at alarming rates. The logic was simple: why trek all the way to the nearest CD shop and pay $12 for an album when you can download it for free in less than 30 seconds from the comfort of your own home? Furthermore, Korea's yet-undeveloped music copyright protection combined with the inability of the still-infantile and unorganized Korean music industry to deal with this new online thievery, allowed for downloading to continue unabated. Piracy became a common practice, and one that nearly destroyed the Korean music industry just as it was beginning to take off.
Arguably one of the most popular file sharing services at the time was Soribada (often one of the charts that you will see listed today when an artist achieves an all-kill). The service was launched by two brothers in 2000, had 100,000 users at the one month mark, and more than a million users after only three months of operation. The service continued to provide free music illegally for more than two years, reaching 15 million users by 2002.
Soribada's founders were making truckloads of profit from charging each user a small subscription fee and selling advertising space on the site. Eventually, the Korean music industry scrambled to shut the site down via newly formed organizations like the Recording Industry Association of Korea (RIAK) and the Korea Music Copyright Association (KMCA), suing Soribada for massive industry and corporate losses, as well as copyright infringement.
After a long series of legal battles, a settlement was finally reached in a compromise that resulted in the elimination of illegal P2P file sharing, and the establishment of an alternative: online music streaming services. In other words, Soribada adpated itself to conform to the newly created copyright laws and now buys the content from the publishers and rights owners. Users can still stream the content online for a small monthly fee, much the same way that Spotify operates.
Other now-popular music streaming services like MelOn, which charged 4,500 won (about $3.80 USD) a month for streaming music and unlimited downloads, also began emerging in compliance with the newly enforced rules of the industry. As a result, the Korean music industry shifted from a hard-copy market to an almost entirely online music economy. Although music streaming services did not result in nearly as much revenue as selling hard copies of albums, the Korean music industry's ability to combat piracy with the development of a legal and organized digital music economy allowed the once surely dying industry to live to fight another day.
While the Korean music industry managed to keep itself afloat, it lost a crucial source of profit - hard album sales - to the digitalization of music. Thus, a music company's ability to stay in business was determined by how well it was able to cater to this revolutionized market. The answer was quite simple: adapt or die.
So what was the solution when you had the nation's most cherished and idolized celebrities, but you couldn't sell their albums? Endorsements and media saturation. These two concepts became absolutely critical for the success of idols and their companies. Lee Soo Man and his competitors made up for their financial losses by having idols hawk everything from the latest mobile phone to home appliances to fried chicken, and it worked (and still does).
Now, not only could Korea's rising stars be seen on advertisements plastering the streets and being broadcast every hour on TV, but the companies that they partnered with also saw massive profit increases as a result of idol endorsements. For example, Woongjin Coway, a company that manufactures and sells water purifiers, saw a 400% sale increase just three months after Girls' Generation endorsed their home appliances. When 2PM endorsed Look Optical, a franchise that sells glasses, the glasses model endorsed by member Nichkhun sold over 10,000 pairs in just one month.
Merchandisers and companies took note of the effectiveness of having a product endorsed by an idol star, and thus were willing to pay more money to entertainment companies for the use of their idols' faces on their ads. This strategy proved lucrative to the music industry, and entertainment companies like SM became adept at squeezing cash out of their idols' names and images, rather than their music.
Endorsements were just one facet of the overarching strategy that entertainment companies used to turn a profit in lieu of album sales. The idea was for entertainment companies to saturate every possible medium in Korea with their stars' presence. Not only would their groups appear on weekend music shows and in advertisements, but on dramas, variety and entertainment shows, talk shows, and even reality shows.
Popular programs like "Strong Heart" and "Running Man" were willing to shell out large amounts of cash to get Korea's favorite celebrities to appear on their broadcasts in order to increase viewer ratings. The entertainment company academy system also adjusted to include acting lessons on top of everything else, preparing their K-pop idols to star in the internationally beloved Korean dramas and movies that began Hallyu's climb to international recognition.
Now that idols had infiltrated the Internet through digital music sales and television through endorsements and broadcast appearances, there was only one medium left: the booming mobile phone market. Today in Korea, there are 52 million mobile subscriptions. South Korea has a population of approximately 49 million people. This means that at least 3 million Koreans have not just one mobile subscription, but two.
Furthermore, 57% of these mobile subscribers use smart phones, a figure that is excpted to rise dramatically in the next few years. The video, live TV, and lightening fast mobile Internet capabilities of Korean smart phones provided yet another profitable opportunity for entertainment companies, who immediately began selling their idols' songs as ringtones, endorsing smart phone apps including Korea's ubiquitously used texting and messaging service KakaoTalk, and providing easy mobile access to content such as music videos and album downloads.
In this manner, entertainment companies worked incredibly hard to exploit every channel and medium possible in order to generate revenue in the now digitalized music market. With the desperation that these entertainment companies faced in light of a newly revolutionized market, competition between companies for limited revenue sources became intense, and innovation and adaptation to the digital market proved essential to the survival of each company.
As a result, the big companies got bigger, and the bigger companies became the biggest. In the early 2000s, three major entertainment companies emerged as the definitive leaders of the Korean music industry: SM Entertainment, JYP Entertainment, and YG Entertainment. Until very recently, there were very few true K-pop idol stars that came from a company other than one of these three.
With a firm hold on the Korean domestic music economy, these three companies are able to manufacture culture in Korea, defining what the masses deem to be popular and as a result, what they spend their money on. They create their products, Korean idol stars, in accordance to what their consumers want, but in turn are able to define exactly what the end product will be, thus manipulating what the consumers want into what they have already created.
In the next chapter, we will discuss this end product - the idols themselves - and where they fit within the entertainment company system.
The History of K-pop, Chapter 1: The Politics of K-pop
The History of K-pop, Chapter 2: Video Killed the Radio Star
The History of K-pop, Chapter 3: Seo Taiji and the Boys
The History of K-pop, Chapter 4: How Lee Soo Man's First Big Fail Resulted in Korea's Modern Pop Star System
The History of K-pop, Chapter 5: H.O.T, BoA, and the Rise of the Idols