Korean musicians must export or starve
PSY (pictured, also known as Park Jae-sang) is having the time of his life. On August 12th at a stadium in Seoul, the rap star's concert felt like the only party in town. He entertained 30,000 fans for almost four hours. And this veteran of the South Korean charts has suddenly become popular in the West, since the video for his song "Gangnam Style", in which he rides an imaginary horse around a posh part of Seoul, went viral on YouTube. The track even hit number one on the iTunes dance chart in Finland.
Korean pop (known as K-pop to fans) is turning into an export success. Groups such as Super Junior and 2NE1 now sell millions of CDs and concert tickets in other parts of Asia. As K-pop zooms up the foreign charts, share prices of leading labels, such as SM Entertainment, have soared too.
But the outlook at home is less rosy. With the world's fastest broadband connections, Koreans have embraced downloading. This in itself is not a problem, but the way they do it is.
In other countries, many music-lovers still pay for downloads, through the likes of Apple's iTunes shop. Fans typically shell out at least 99 cents per track (and more in countries such as Japan and Britain). Of this, 70% goes to music labels and artists.
In South Korea, the market works differently. Subscription-based services, which allow the listener to rent music, are extremely popular. For a period of one month fans of rock and pop music pay a fee of around 9,000 won ($8) for 150 tracks. Such services have helped to drive overall music sales to 430 billion won in 2011.
Alas for labels and artists, however, their payout is miserly. Under subscription deals, they collect as little as 30 won per track. This must then be split between performers, writers and the label itself. SM Entertainment's boss complains that even 1m downloads cannot cover the cost of making a music video.
The fear of illegal downloading keeps the average price per track of digital music low. That the subscription-service operators are a powerful oligopoly further reduces the labels' bargaining power. Thus, SM Entertainment took in a trifling 1.9 billion won in domestic digital sales in the first quarter of 2012. By contrast, the firm sold CDs worth 3 billion won, despite the physical format's supposed demise.
SM Entertainment and other purveyors of K-pop cover this shortfall at home by having their stars hawk the latest phone, or appear on television variety shows. The biggest labels have become adept at squeezing cash out of their pop stars' names, rather than their music. But only a handful of musicians are famous enough to benefit.
South Korea's old business model, perfected by its carmakers, was to use a captive home market as a launch-pad from which to invade foreign shores. The country's pop musicians have turned this model upside down: they have to export their tunes to make up for meagre pickings at home.