SM and YG Entertainment Demoted from Blue Chip Sized to Medium Businesses

SM and YG Entertainment
SM and YG Entertainment

Once belonging to the “big three” companies, SM and YG Entertainment are now demoted by Korea Exchange. These two had the most successful stars working under them. However, the pandemic hit us all, and so did the entertainment labels. The news has shocked many. From fans to the people in the business background. Everyone seems to be talking about the recent demotion.

Both, SM Entertainment and YG entertainment are considered as the house to the biggest Kpop stars. And they were the enormous entertainment labels in South Korea. However, now both entertainment agencies will no longer be considered as blue-chip companies under the Koreas exchange classification system. A couple of days ago, the Financial Supervisory Service’s Electronic Disclosures System announced that Korea’s exchange has relegated SM Entertainment and YG Entertainment from blue Chip Company to midsize businesses. Also, the labels will now continue working as midsize businesses. It is until they achieve their formal title again.

To be one of the blue-sized companies working in Korea, there are many factors available that need to check. One of them is to meet certain financial requirements. While other is to rising stars in the business world. And also grow in other criteria, like technology and business groups.

It looks like SM and YG entertainment were not able to meet the following deadlines. Go ahead to check out their statistics from the past couple of years, business-wise.

SM and YG Entertainment – Statistics

It looks like both SM and YG entertainment worked hard in some fields, but they were badly defeated when it came to net profit and return on equity. If we were to talk about their business skills individually, both the companies would not have been demoted. Last year, SM entertainment had a net worth that was more than eight times the required criteria to become a Blue-chip business. On the other hand, YG Entertainment also had a net worth that was reportedly six times more than the required criteria.

According to the past three years’ statistics, the average sales made by SM entertainment is more than 12 times the required minimum criteria. Meanwhile, the average sales made by YG entertainment is more than five times then the required amount.

SM and YG Entertainment

Things went wrong when the companies started showing negative results in net profit and return on equity (ROE). For the past three years, SM entertainment had an average net loss of 24.4 billion won (approximately $21.8 million). Whereas it had an ROE of -3.8%. Same with YG entertainment, it recorded a net loss of one 1.8 billion won (approximately $1.6 million) and had an ROE of -0.5% over the same period of time.

SM Entertainment manages artists like NCT, EXO, SM Town, Red Velvet, and more. Meanwhile, YG houses artists such as Blackpink, Big Bang, IKon, WINNER, and many others.

Where It All Went Wrong?

Things went horribly wrong for SM entertainment in 2020. The company suffered a net loss of 80 .3 billion won (approximately $71.7 million). Compared to the last year, sales made by SM saw a severe drop. Moreover, the company also faced a loss in its investment of up to 13 Billion won (approximately $11.6 million) via their subsidiaries and joint X Enterprises. SM entertainment tried to expand its merger in the years 2017 and 18. But, it suffered losses in advertising food and drink franchises because of the pandemic.

As for YG entertainment, it’s suffered a major slump in the field of the business of music production and artist management. Even though the company recorded business profits of 17 .6 billion won (approximately $15.7 million) into 2018, the profits dropped to 7 .6 billion won (approximately $6.78 million) in the next year. Also in 2020, the company suffered a loss of 7.7 Billion won.

SM and YG Entertainment
Traditionally known as “Big 3,” is comprised of entertainment companies-  SM, YG, and JYP Entertainment. However, now only JYP entertainment has maintained its status as a blue-chip business. The funny thing is that JYP’s average sale for the past three years is the lowest of the big three. But it somehow increased its net profit by 20 to 30 Billion won every year. Fortunately, at the same time, it recorded and an ROE of 18%.

Stock analysts believe that this fluctuation in performance is because of the large number of subsidiaries that SM and YG possess.

Also Read : HYBE Entertainment Reveals Earning For First Quarter