Korean Media Outlet Analyzes SM Entertainment's K-Pop Strategy And Future Plans

On August 31, Maeil Business Newspaper published an article analyzing SM Entertainment’s K-pop strategy in the changing state of the idol market.

SM Entertainment is the first agency that set up an idol group system in Korea. It produced first-generation idol group H.O.T. which set the foundation for current boy group formations as well as the first generation girl group S.E.S. Since then, SM Entertainment has continued to create successful and innovative idol groups such as TVXQ, who dominated the Asian market, and Super Junior, who was the first Korean group to have more than 10 members.

In the past, a popular saying was, “What SM creates soon becomes the idol trend.” Since then, SM Entertainment has lost some of the dominance it used to have in the industry.

The once impenetrable North American market has been penetrated by non-SM groups such as BTS, GOT7, and MONSTA X. Other smaller entertainment groups have also been able to enter the global market thanks to new tools such as social media.

Furthermore, JYP Entertainment hit 1 trillion won (approximately $895.2 million) in market capitalization on August 22 before becoming the No. 1 ranking entertainment agency on August 29. Many reports have also estimated that when Big Hit Entertainment goes public, its market capitalization will also hit 1 trillion won, further shaking up SM Entertainment’s position that was once unchallenged.

Maeil Business Newspaper centered its report around the keywords “franchise” and “avatar” in order to explore SM Entertainment’s strategy in bringing about the fourth industrial revolution in the idol market.

The birth of the franchise-format idol NCT

In order to find the answer for, “Where is SM Entertainment headed?” the first group to look at is NCT.

This team is divided into groups NCT Dream, NCT U, and NCT 127 under the brand of NCT. Idol groups have formed and promoted as units for years, but this concept for NCT is different. Each team may share the brand of NCT, but do not promote in unison.

The teams are differentiated into names based on longitudinal degrees. NCT 127 is named after Seoul’s longitude of 127 degrees. In the same format, a future Vietnam team will be named NCT 105 after Hanoi’s longitudinal degree and Taiwan team NCT 121 after Taipei’s longitudinal degree.

NCT can be seen as an example of using brand power to create franchise-type idols to represent each region. This may be the outcome of the agency’s desire to create an idol brand that can overcome an agency’s limits created by an artist’s accidents and incidents, military enlistment, and the decrease in popularity, in order to create same-quality idols anywhere in the world.

In June, American media outlet “Variety” included SM Entertainment founder Lee Soo Man on its list of International Music Leaders of 2018, saying that he “wants to localize the Korean-pop aesthetic he helped design.”

SM Entertainment’s innovative idol concept doesn’t end there. At various public events, Lee Soo Man has said that in the future, people will be able to have and enjoy cultural contents at home with an AI robot in their homes. Not only does the agency plan to produce idol groups all over the world in the format of a franchise, but also aims to make them into AI and avatars for each home.

Last year, SM Entertainment made a large-scale mutual investment with SKT to combine shares. It also established a joint venture called “AI Star” with an American company to lay down the groundwork for the avatar celebrity era.

At the beginning of this year, SKT revealed an avatar of Red Velvet’s Wendy using hologram techniques at the 2018 Mobile World Congress. Through the “holobox,” the Wendy character tilted its head to listen to what users were saying then responded in Wendy’s voice. It garnered a lot of attention and showed that the idea of an AI celebrity may not be so absurd after all.

K-pop 4.0

The entertainment industry is watching to see if SM Entertainment will be able to pioneer K-pop 4.0. SM Entertainment only targeted the domestic market during K-pop 1.0, then aimed for the Asian market during K-pop 2.0 with popular artists such as BoA and TVXQ.

Defining K-pop 3.0 as the current trend of global targeting by most K-pop groups such as BTS and EXO, many are interested to see if a group based outside of Korea will be created in K-pop 4.0.

If SM Entertainment was to succeed at opening K-pop 4.0, then there may be a possibility of seeing NCT 127 and NCT Brazil competing for the No. 1 spot on the Billboard chart in the future. Also, If the agency were to succeed at creating an AI idol, a family in Ghana will be able to order and enjoy a K-pop idol avatar in their home.

The industry is, however, rating SM’s idol innovation as unfamiliar. Unlike its predecessors who quickly amassed fandoms, NCT has not yet been able to achieve this level of success in music charts.

Popular culture critic Kim Hyun Sik said, “In a franchise, the flagship store must be successful in order for its brand power to expand to its chain stores. It would be sequentially correct to develop a team that can be the center of NCT and then expand its influence to its derived teams.”

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