SM Entertainment reports $185m in Q2 sales, driven by near-doubling of concert revenue

South Korea’s SM Entertainment has recorded a jump in sales from both albums and concerts, but weak performances at some of its subsidiaries prevented the company from seeing an improved bottom line in Q2.

In earnings released on Wednesday (August 7), the company behind such famed K-pop acts as NCT 127, EXO, Riize and aespa reported a 5.9% YoY jump in sales in Q2, to KRW 253.9 billion (USD $185.12 million at the average exchange rate for the quarter).

However, the company’s operating profit fell by 30.7% YoY, to KRW 24.7 billion ($18.0 million) while net income fell by 70.3% YoY, to KRW 8.4 billion ($6.12 million).

“Consolidated operating profit decreased due to the increase in the amount of content produced and the deficit of some subsidiaries,” Chief Financial Officer Jang Jeong-min told analysts on an earnings call.

Stripping away the subsidiaries, the core company’s earnings showed solid sales growth, rising 25.4% YoY to KRW 174.1 billion ($126.94 million), driven by a 31.9% YoY increase in digital music/physical albums, sales of which reached KRW 71.7 billion ($52.28 million), and by an 86.1% YoY jump in concert sales, which hit KRW 37.2 billion ($27.12 million).

Jang attributed the near-doubling of concert revenues to an “expansion of performance scale and internationalization of performance[s]” compared to the previous year.

“The fact that NCT Dream held a total of 15 large-scale performances in Korea, Japan, Thailand, Hong Kong, Singapore, and other Chinese countries was a major factor in the increase in concert sales,” Jang said.

Operating profit at the core company rose 4.6% YoY, to KRW 29.3 billion ($21.36 million). The core company’s net income came in at KRW 13.5 billion ($9.84 million), a 22.5% decrease compared to the same quarter a year earlier, which the company attributed to an increase in income tax.

SM Entertainment’s overall performance was dragged down by poor showings at some of its subsidiaries.

Overall sales at major subsidiaries fell 18.5% YoY, to KRW 112.8 billion ($82.24 million). The subsidiaries recorded an operating loss of KRW 2.2 billion ($1.60 million), and a net loss of KRW 6.5 billion ($4.74 million).

Driving that decline was a 78.4% YoY drop in sales at live entertainment unit Dream Maker, which recorded KRW 7.5 billion in sales, compared to KRW 34.8 billion in the same quarter a year earlier.

Also notable was a 5.3% YoY decline in sales at SM C&C, a talent agency, TV production and travel company which is the largest source of revenue among SM’s subsidiaries.

The company’s KRW 27.9 billion ($20.34 million) in quarterly sales fell below the year-ago number because of a decrease in sales of management services and content, SM said.

“Dream Maker and other [subsidiary] corporations turned to deficit due to the internationalization of performances, new… operating costs, and the decrease in US performances,” Jang said on the earnings call.

Jang highlighted a busy music schedule for the back half of 2024, which included last month’s release of NCT 127’s sixth full-length album, Walk, and the Japanese release of a new single from aespa, Hot Mess.

The fourth quarter of the year will see full-length album releases from NCT Dream, NCT Wish (in Japan), TVXQ!, and MINHO.

Additionally, Jang highlighted current and upcoming tours by SM artists, including aespa, whose most recent tour launched in June and will feature 25 performances in Japan, Singapore, Australia, Macau and elsewhere.

Meanwhile, Riize has a 23-show tour planned that will focus on Japan, Indonesia, and Chinese territories, while NCT Dream’s tour is scheduled to hit North and South America in August, and Europe in Q4, with 19 shows planned.

Notably, in Q2 South Korean regulators approved the effective takeover of SM Entertainment by Kakao Corp., the South Korean telecom giant that owns dominant message app KakaoTalk as well as music streaming service Melon.

The approval came a few months before the arrest and indictment of Kakao founder Kim Beom-su, who stands accused of being part of a plot to manipulate SM Entertainment’s stock price in February of 2023, when Kakao was engaged in a bidding war against K-pop giant HYBE for control of SM.

South Korea’s Fair Trade Commission (KFTC) gave approval to the takeover, on the condition that Kakao’s Melon continue to distribute music from SM Entertainment’s rivals. It also ordered the creation of a monitoring body to ensure that Melon doesn’t engage in anti-competitive practices.Music Business Worldwide