The Chinese government's attempts to regulate its entertainment sector will affect the K-pop industry, because China is the top source of revenue for Korea's leading entertainment agencies.
The Cyberspace Administration of China issued a notice on Aug. 27 saying it will implement 10 measures to improve fan culture, including the scrapping of ranking entertainers and halting paid voting systems on entertainment TV shows.
Right after the notice was announced, Tencent's music streaming service, QQ Music, restricted customers from purchasing more than one copy of an album online.
Total exports of K-pop albums in July this year surged 3.6 times year-on-year to $26 million (30.7 billion won). Sales coming from China reached $8.25 million, which was the biggest amount ever. But the Chinese regulation is expected to affect this trend, while local securities firms say they will have to see the actual impact of the regulations during the third quarter of this year before estimating monetary losses.
"Because album sales are based on individual purchase, it is difficult to accurately predict the impact of the restrictions until we confirm the decline in sales in the third quarter," said Park Da-gyeom, a researcher at Hi Investment & Securities.
China's State Administration of Radio, Film, and Television (SARFT) also issued the "Directive on Increasing Oversight of Entertainment Programs and their Personnel" on Sept. 2, banning effeminate boy bands from starring in idol talent shows broadcast on TV networks and internet platforms.
Chinese authorities said these regulations aim to eliminate immoral entertainers who commit illegal activities, and television stations will cast actors and singers based on their political sophistication, moral conduct and social assessment.
A day after SARFT's announcement, the stock prices of Korea's three representative K-pop firms all declined.
YG Entertainment, SM Entertainment and JYP Entertainment witnessed their stock prices decrease by 2.54 percent, 1.94 percent and 1.57 percent, respectively. Keyeast, a management agency specializing in actors, also saw its stock price drop 4 percent on the same day.
But officials at domestic talent agencies are saying the impact of the restrictive measures from China on their financial soundness will be limited as the level of reliance in terms of generating money from the sale of music albums isn't that high compared to previous years.
JYP Entertainment has been investing in the metaverse and non-fungible tokens to strengthen its music business. SM Entertainment is planning to sell off a 19.42 percent stake, possibly to CJ Group or Kakao Entertainment.