SM, YG, JYP Report Record Combined Sales of USD$106 Million for First Quarter 2014

It has been a few months since we last looked at the financial health of the three major entertainment agencies. Now seems like a good time to see how they are doing in 2014. In May 2014, SM Entertainment (KOSDAQ: 041510), YG Entertainment (KOSDAQ: 122870) and JYP Entertainment (KOSDAQ: 035900) posted their 1st quarter financial results (For the period 01/01/2014 to 31/03/2014).

The results were interesting to see the least and there is a lot of information to digest so here is a brief summary of all the information we are about to cover in the rest of the article

• Total combined sales for first quarter 2014 from the three agencies was approximately USD$106 million, which is a USD$33 million increase compared to last year
• SM Entertainment’s total sales revenue was approximately USD$60.19 million, operating profit was approximately USD$4.27 million and net profit was approximately USD$2.59 million
• YG Entertainment posted total sales revenue of approximately USD$39.5 million while operating profit was approximately USD$7.4 million, with net profit being approximately USD$5.2 million
• JYP Entertainment posted a total sales revenue of approximately USD$6.79 million, with operating income finally back in the black at approximately USD$298,000 and net profit also in the positive at approximately USD$843,000
• All three agencies posted percentage increases in total sales YOY (Year over Year) while both YG and JYP saw percentages increases for operating profit and net profit
• YG Entertainment has broken their previous first quarter records, helped by the success of 2NE1
• JYP Entertainment has finally manage to post positive operating profit thanks in part to their merger last year

The numbers

First off, let’s talk numbers. It will help if you read up on how the companies were doing during the first half of 2013 in our previous article.

Just to make the comparisons between previous results contextually accurate, we will be assuming an exchange rate of 1000 KRW to 0.90 USD. Actual exchange rate is closer to 1000:0.97 but given that these companies declare finances in KRW, there should be no major issues doing our general finance comparisons using the previous exchange rates.

SM Entertainment

The first half of last year was not the best of times for SM Entertainment. Their operating profits were down YOY (Year over year) and they saw significant decreases in their music export sales compounded by a large increase in expenses.

For first quarter 2014, SM Entertainment’s total sales revenue was approximately USD$60.19 million, operating profit was approximately USD$4.27 million and net profit was approximately USD$2.59 million.
Obviously big numbers don’t mean much with context so let us compare it with previous results.

SM Entertainment hopes that EXO’s Asia Tour will boost their sagging profits

Total sales and net profit both went up YOY by 33% and 44% respectively, however operating profit were down by 6.5%. However these results were still 45% below market expectations. The under-performance has been attributed to a lack of high margin Japanese activities in the first half of this year compounded by the weakening of the Yen, which has negatively affected SM’s potential profit for this quarter.

SM Entertainment will likely not meet market expectations until at least the latter half of this year due to the weakening Yen and the continued impact of the Sewol Ferry disaster, which put a stop to most artist activities in the first half of this year. However during the latter half of this year, EXO’s Asia Tour along with TVXQ and Girls’ Generations Japan Tour is expected to provide the company with a much healthier financial boost.
 

YG Entertainment

YG Entertainment has been all smiles for the last couple years, posting constant healthy increases in total sales, operating profits and net profits. They have seen plenty of success in the last year thanks to continued interest in PSY along with the relative success of  2NE1 and Taeyang during the latter half of 2013.

In first quarter 2014, YG Entertainment posted total sales revenue of approximately USD$39.5 million while operating profit was approximately USD$7.4 million, with net profit being approximately USD$5.2 million. These figures are also fairly impressive when compared YOY. Total sales revenue is up 36%, operating profit is up 31% and net profit is up 33%, which means that YG Entertainment has once again beaten their own records and has posted their best ever first quarter results. 

The success of “Crush” has helped YG Entertainment break their own records once again

These results were largely thanks to the success of 2NE1’s second album, “Crush,” which made up 13.5% of YG Entertainment’s total sales in first quarter 2014, bringing home approximately USD$5.35 million. 2NE1’s 2014 World Tour and Big Bang In Seoul concerts also contributed positively to YG Entertainment’s first quarter results with total sales revenue of USD$4.57 million or 11.6% of total sales revenue. 

YG believes that performances like YG family family tour will help to maintain their momentum

YG Entertainment also expects to continue this momentum through the rest of this year with the 2NE1 world tour concert, YG family world tour, PSY’s comeback and Big Bang’s comeback all scheduled to occur throughout the rest of the year.

Next Page – JYP Entertainment posts healthy figures and we delve a bit deeper into each company’s financial reporting

JYP Entertainment 

The last time we talked about JYP Entertainment in a business sense was in September 2013 when they published the results of their extraordinary general meeting to confirm the merger of JYP Entertainment and JYP-Parent. Their forecast for 2014 was that they expected to post a positive operating profit and a substantial increase in gross sales. Given their lofty goals, how did JYP Entertainment start off in 2014?

For first quarter 2014, JYP Entertainment posted a total sales revenue of approximately USD$6.79 million, with operating income finally back in the black at approximately USD$298,000 and net profit also in the positive at approximately USD$843,000, extremely positive results for the smallest of the trio listed here.

In terms of percentages, JYP Entertainment’s gross sales has increased by a staggering 168% YOY while operating profit has also risen by a massive 133% with net profit rounding out these impressive figures with a increase of 188%. 

The merger means that artists like 2PM are now considered a part of JYP Entertainment rather than JYP-Parent

However, one thing to remember about these results. This time last year, JYP Entertainment’s results did NOT include sales figures for groups such as 2PM as they were operated under the JYP-Parent company. Therefore some of the increase in sales and profit can be attributed to the inclusion of these groups into JYP Entertainment’s finances. Regardless, the results are clearly positive and it means that JYP Entertainment is finally making a positive operating profit. As for why net profit is greater than operating profit, JYP Entertainment’s statement of incomes shows substantial non-operating income listed as “extra profit” and “financial profit,” which includes items such as foreign exchange gain and interest gains.

JYP expects to continue their good form, boosted by new albums from artists like GOT7

JYP Entertainment expects this momentum to continue through the rest of the year, helped largely by new album releases from rookie group GOT7 along with new albums from veteran groups such as 2PM and Miss A. The JYP Nation Asia Tour concerts is also expected to help boost their finances during the latter half of this year.

Some other interesting items

Now lets take a brief moment to talk about some other stuff we managed to find while we looked through each company’s financial reports for this quarter.

The first item that really stood out was a table of total album sales and digital content distribution for 2013. This was reported in both the YG and SM Entertainment reports.

Total CD Sales in 2013

The table should be pretty self-explanatory. It’s interesting to see thou that SM Entertainment and related division make up almost 46% of total CD sales within the domestic market. For comparison, let us look at the digital sales table.

Total digital sales in 2013

These figures were supposedly supplied by GAON charts and represent GAON’s internal measure for digital music consumption. The items included in that tally are music streaming, downloads, BGM sales and mobile content sales. Here we see a much narrower gap between all of the agencies and more interestingly, we see that a lot of the agencies listed in the top 10 for total CD Sales do no appear in the digital charts. The only ones that do appear are YG Entertainment and SM Entertainment.

Other interesting items from the financial reporting were

• YG Entertainment strangely declares Lee Hi as an actress
• 71% of JYP’s total sales come from festivals, concerts and advertisements
• In 2007 to 2010, Musicals make up the majority of the domestic concerts and performances market, with pop music and classical performances roughly equal
• SM Entertainment’s music sales much up just 33% of their total sales, the rest is from advertisements and appearance fees. 
• SM Entertainment Japan and SM C&C are two of SM’s biggest subsidiaries in terms of net profit
• Under “Rookie casting/training,” YG Entertainments states that their trainees undergo 25 hours of vocal, dance, acting, English and Japanese training per week. 
• YG Entertainment is looking to greatly expand their business in China and South East Asia, with proposals being considered to open local offices in Thailand, Singapore and the Philippines. 

That’s about all for today. There is a lot of information to digest here but hopefully it was useful reading. We unfortunately couldn’t cover the other agencies within the scope of this article, but if there is enough interest we will consider writing another article in future about the other entertainment agencies.