Analysts predict that YG Entertainment is facing serious long-term risks amid the ongoing Burning Sun scandal.
The Korea Times media outlet sat down with various analysts, industry experts and music critics to discuss YG Entertainment's ruthless quest for survival amid the huge scandal plaguing the company. According to the analysts, even though the ongoing investigation into former Big Bang Member Seungri will come to an end in the coming weeks, it won't be the end of the hard times facing YG Entertainment.
"Rather, the end of the investigation may mark the beginning of a new challenge for YG on the business and financial fronts, which will essentially test the company's ability to survive, " an analyst said. "If YG endures, the company could see a chance to rebound one day. If it fails to withstand the scandal, however, it will only drag the company deeper into trouble."
"BIGBANG has accounted for 40 to 50 percent of YG's total sales. But with Seungri ousted from the group and the group's name seriously tarnished, it is unclear whether the group will be able to make a comeback in the second half of the year as initially planned," a financial analyst who requested anonymity said. "This can be likened to the closure of the main factory at a manufacturing firm.
"YG may try to make up for the immediate loss with BLACKPINK's comeback on April 5th but it won't be easy to cover it all up because girl groups have their own limits. Most KPOP groups bring a majority of their revenues from concerts but most girl groups cannot hold as many concerts as boy groups because they have weaker ticketing power. Frankly speaking, BLACKPINK doesn't have enough fans to replace BIG BANG."
A music critic spoke to the outlet and said, "Before the scandal, being admitted to YG and trained there was considered to having grabbed a surefire ticket to stardom, because YG was so powerful and influential in the music industry. But the scandal has damaged the halo effect YG artists have benefited from. How will people react to new faces coming from YG?" the critic asked. "Cheers or jeers? Let's see what happens."
According to analysts, the recent sell-off by investors reflects widespread concerns that the scandal has chipped away at YG's core business structure. More than 220 billion won ($193 million) of capital has evaporated since the scandal hit the headlines nearly a month ago.
The analysts also discussed luxury brand LVMH's investment in YG Entertainment totaling 61 billion won (~$54 million) with an option to convert to cash by maturity date of October 17th. The deal positions LVMH as the 2nd biggest shareholder in YG Entertainment after founder Yang Hyun Suk. If LVMH pulls their investment by the maturity date (which is highly likely due to the fluctuating stock prices) then YG Entertainment will have to pay back 66.2 billion won in cash to LVMH. As of the end of the third-quarter of 2018, the latest data available, YG held 47 billion won in cash and cashable assets. This means that if the investor opts for the cash withdrawal today, YG will have to sell some of its assets, dealing yet another blow to its financial health.
"It's like the calm before a storm," the analyst said. "YG will soon confront grave challenges on its financial and business fronts, which will test its ability to survive."
Read the full analyst report here.
Read the full analyst report here.
