MOR 492: Global Management

1. The Globalization of East
Asian Pop Music:
SM Entertainment
Sanam Javid ⬥ Cameron Koziara ⬥ David Silvermintz ⬥ Zheng Xiao ⬥ Joy Xu ⬥ Yeung
Yuk Ling
!1

2. MOR492 Group ICA
Table of Contents
Introduction 3
East Asian Music Industry Analysis
Korean Pop Music Has Room to Grow 4
The Global Trends of K-Pop in the Digital Sphere 5
Corporate Overview of SM Entertainment
Key Strategies and Competitive Advantage 6
Market Analysis of Japan
Japanese Music Market Trends - CAGE Analysis 8
Porter’s Five Forces 9
Market Analysis of China
China’s Market is Growing but Underdeveloped – CAGE Analysis 10
Opportunity for Growth - Porter’s Five Forces 12
Market Analysis of Western Countries
Mounting Concerns and Bleak Future 13
CAGE Analysis of East Asian Pop Music in the West 15
Strategic Recommendations 17
Conclusion 18
!2

3. Introduction
In the latest report out from the RIAA (The Recording Industry Association of America), it stat-
ed that the global music industry totaled $16.5 billion US dollars in global music sales. Over
the past 15 years, this was the first time the industry had positively grown in global sales by
0.2%. One significant factor in global sales was the increase in digital downloads, which
brought in $5.8 billion in global music sales. The increase, of 0.2%, was tiny, and the total rev-
enue, $16.5 billion, wasn’t even close from the $38 billion that the global music industry took
in at its peak more than a decade ago. Even though the numbers are not as high, the figures,
reported by the International Federation of the Phonographic Industry, provide remarkable
encouragement for the global music industry as a whole.
While the global recording industry progresses onto the road to recovery, the East Asian mu-
sic industry, specifically has known to have phenome-
nal growth over the recent years. While global sales
were in a major decline until this past year, the East
Asian market was forecasted to grow about 18.5% in
only 4 years. Particularly, the Korean pop industry,
which has established itself as a phenomenon in Asia
and is rapidly extending its reach to new global mar-
kets. There are three popular record labels in Korea
known as the “Big 3” that control much of the music
industry in East Asia. They include: JYP, YG and SM Entertainment. In just 5 years, SM Enter-
tainment went from a small five-person operation to a multi million dollar entertainment con-
glomerate. With popular artists including H.O.T., BoA, TVXQ, and Kang Ta rose to stardom
very quickly in South Korea.The CEO and founder of SM Entertainment has quickly become
an icon for the Korean people and rose in popularity in neighboring Asian countries as well.
From the early stages of the company, it was always focused on the Asian market as a whole
and not just one part of South Korea, which expanded their opportunities far and wide.
!3

4. Korean Pop Music Has Room to Grow
South Korea and its role in the East Asian Music Industry – Why Expand?
While Asia in the late 1990’s is most often associated with the destructive financial crisis of
1997, an entirely different and far less deleterious
process was slowly taking place as well. This process,
known as the Hallyu (“Korean Wave”) featured the
growth and expansion of South Korean popular culture
and media into East Asian countries. The Hallyu began
with Korean television shows that have been increasing
in growth at a very rapid pace. Between 2001 and
2011, Korean television drama exports have risen from
$8 million to $155 million. Although the United States
boasts a very large audience, most of this growth has
occurred in Asian countries such as Japan, Taiwan,
Vietnam, and Cambodia because, according to a Korean broadcasting executive “US shows
have specific genres – cop shows or medical shows – but we have universal stories.” Through
this exposure, Korean music began to expand to these countries as well. The growth of this
industry bodes well for the continued exposure of Asian countries to Korean music.
Hallyu is not the first “wave” of
Asian culture to gain a foothold
in other Asian countries such as
Taiwan and Hong Kong; Japan
benefitted from the Harizu
(“People Favorable to Japan
and its Culture”) movement in
the late 1980’s and early
1990’s. However, Harizu was
neither a particularly large movement relative to Hallyu nor has it withstood the test of time.
The following Google Trends chart demonstrates the prevalence of Google searches for K-
Pop (blue) and J-Pop (red) from 2004 to 2014. (Note that the major spike in K-Pop is the re-
sult of Psy’s Gangnam Style, a YouTube sensation that gained the most views (1.9 billion) of
any video in history).
K-Pop has enjoyed a dramatic rise in popularity while J-Pop has declined. Most importantly,
the major regions from which the searches are coming from are, in order, Indonesia, Malaysia,
Kazakhstan, Vietnam, Philippines, South Korea, Saudi Arabia, Bolivia, Singapore, and Japan.
All of the aforementioned countries, except for Bolivia, are Asian countries, which indicates a
clear rise in popularity among Asian countries in particular. The following chart shows the
number of K-Pop videos viewed on YouTube by country.
The Global Trends of K-Pop in the Digital Sphere
!4

5. While the United States has a
Western-country lead with
240,748,112 views, the Asian
countries simply dwarf the
Western countries in terms of
views with Japan alone tallying
423,683,759. This trend certain-
ly seems likely to continue as
more people in Asian countries
gain access to the Internet. The
following chart demonstrates
the growth of Internet access in
Asian countries:
Between 2008 and 2012, there
was a marked increase in Internet access in every one of
these Asian countries. Furthermore, China, a country with
the world’s largest population at 1.35 billion people, has
achieved an Internet user penetration rate of 42.9% and
an Internet user growth rate of 9.9% per year. Given that
K-Pop is a very popular search term among Asian, it is very
likely that the popularity and exposure of Korean popular
culture will only grow in the coming years. The Asian mar-
ket is substantially larger that the Western market and the
combined population of Europe and North America, 1.27
billion. Additionally, this large market is much more hospitable to Korean music than Western
music. First, Korean music, unlike much of the music that is popular in the West, is much less
explicit and sexually focused. This certainly helps in a region dominated by a temperate and
conservative Confucian background. Specifically with regard to China, having less sexually ex-
plicit content is a vital quality if one hopes to expand in a country with China’s political struc-
ture.
Second, China, the largest of the Asian countries, has passed legislation limiting the import of
American music, movies, and literature. This has allowed for Asian countries to rule their own
market. However, intra-regional conflicts between China and Japan have led to situations like
the Chinese boycott of Japanese products in 2012 as a result of the dispute over the Senkaku
Islands. This leaves Korea as the only viable major player in the Asian music industry and it
seems as if Korea’s market share will only be increasing in the coming years.
!5

6. SM Entertainment as an Industry Leader
Corporate Overview and Strategic Analysis
SM Entertainment is one of the three big talent agency/record label combination firms in
South Korea (in addition to YG and JYP). The independent Korean Record Label was founded
by Lee-Soo-man in 1989 and is considered the company that really put East Asian music on
the international music stage. They released and developed the transnational stars such as the
likes of H.O.T., ShinHwa, TVXQ, BoA, Super Junior, and Girls’ Generation. From a one-man
company in 1989, in just over 20 years, the company’s market capitalization is now US$1.24
billion dollars.
!6

7. Key Strategies Competitive Advantage
“Star Factory” and Idol System
breeding multi-talented entertainers
SM Entertainment has found success by redefining the
meaning of the relationship between consumer and
artist. The Korean music industry is focused on creating a
connection between their talent and consumers, thus the
product is not just the music, but also the artist as a
human being. SM Entertainment has mastered the
systemic “star factory” that breeds trainees to
become top-notch performers. These trainees often
take 5 to 10 years to be trained before they are perfectly
tailored to the market demand of someone with
personality, talent (dancing, singing), and good looks.
The G-L-G Production Strategy
(Global to Local to Global)
and the “SMP” Music Genre
SM focuses on producing music with a Global to Local to
Global Strategy. This first Global part means importing
Westernized music, fashion, melodies, beats, language
and bringing it to a Korean production company. Here,
the gathered material is “localized” and translated into
Korean pop culture – creating a pseudo-hip Korean
culture. Performers are selected from local areas and
trained to play the part. Their global strategy is to then
take this localized Western material – “K-pop” – and
market it internationally, as music that is relatable across
cultures because of it’s unique production process.
SM has mastered its own version of this process and in
the K-Pop world is even known for their “SM Pop” genre
of music – a mash up of Western pop, hip-hop, and
dance music.
!7

8. Key Strategies and Competitive Advantages
Development Abroad
SM Entertainment’s highly structured, strategic, and successful
methods of pumping out stars (specifically BoA) attracted Japanese
entertainment firms – specifically AVEX. In 2001, AVEX and SM
joined hands and signed a licensing
deal in which they would distribute music for each other in their re-
spective companies. BoA’s intense training in dance, language, and
singing as well as her “star quality” quickly made her a big success
in Japan, even topping major Japanese music charts. This lead to
SM breeding a wave of similar cross-cultural stars, most notably the
boy bands Super Junior and TVXQ. In 2006, SM Entertainment,
AVEX, and AVEX China formed “SMAC”, a joint venture to utilize Japan’s business experi-
ence, Korea’s cultural content production, and China’s market potential to create a new mar-
ket.
Looking Forward
The focus of SM Entertainment has always been to become the biggest entertainment com-
pany of Asia. SM Entertainment has set off to a good start making K-Pop something to be no-
ticed internationally, specifically in Japan, but the biggest and most undeveloped country in
Restructuring the Revenue Channels
One of SM’s core business strategies is to alter
traditional revenue channels by shifting from a B-2-C
(business to customer model) towards a B-2-B business
model, where most of their business is done with
YouTube, TV companies, and merchandise distributors
rather than through direct record sales to consumers. By
making their music widely available and easily
accessible, they have reached much greater audiences
than they would have previously. In turn, they focused
their efforts on increasing consumer spending in areas
beyond record purchase. This strategy something that
the Japanese and Chinese industries have yet to adapt.
This is characterized by a large number of musical inputs
(i.e. performers, bands, composers, song-writers), a low
number of producers (i.e. SM as a production company)
and a distributor with a large reach (YouTube). SM acts as
a venture capitalist, investing large amounts of money
into training talent, and reaping most of the profit.
!8

9. East Asia had yet to be tackled. Becoming an industry leader in China is the ultimate goal for
SM Entertainment, but globalization of their company is the key focus.
Japanese Market is Stable but Saturated
A CAGE Analysis of Japanese Music Market
Market Growth
Japanese music industry has long been the second largest single market
in the world. However, Japan topped the ranking in 2010 which ob-
tained 44.5 millions of singles in the music market (IFPI, 2010). Accord-
ing to PwC, the market value of Japan music industry was around 5400
millions dollars with a positive 0.1 CAGR from 2002-2010. Although the
market had experienced negative growth due to economic recession
and Asian financial crisis from 2002-2003 and 2007-2008 respectively,
the growth rate has gradually stabilized and maintained a positive con-
stant growth rate of 0.8% from 2009 to 2011.
Target customers
In Japan, consumers in their teens and twenties are used to the buyers of the greatest amount
of records. However, as the population under the age of 25 shrunk, the middle-aged or 25
above are increasingly important to the company growth. According to report of IFPI in 2006,
22% of music buyers were between the ages of 30-39 while 15% of the sales are from the age
group of 20-29. Therefore, we expect that the target customers should be the age group from
30-39 in the near future in Japan music market.
CAGE of Japanese Music Market
!9

10. Competition in Japanese Market is Fierce
Porter’s Five Forces Analysis
The music industry in Japan is very well developed and a few dominant companies occupy
the entire market and the competition between them is fierce. There is little room for new
companies to move in. This means that in order to enter the Japanese music industry, it must
be through some sort of partnership with an existing industry leader –which SM has already
done (partnered with AVEX, with great success, i.e. BoA). The bargaining power of suppliers
and buyers creates some attractiveness to SM entertainment as it has the talent management
skills to mold idols to fit current trends of the music industry. To conclude, the attractiveness
of the industry is moderate, but SM has already grown with AVEX in Japan. While there
has been great success, there is little room for further growth.
CULTURAL - LOW GEOGRAPHIC - LOW
Same “idol” training system: scout and train
young people from the age of 13-14 with
singing, dancing, and acting lessons
• Idols are in groups, usually more than 5
idols in one group
Popular Music Style: Rock and Pop
Different Language: Japanese
Buddhism and Shinto vs. Christianity
Aging population = shifting target audience
Near South Korea (about 576 mils apart)
Similar Climate
Same Time Zone (UTC+9:00)
ADMINISTRATIVE - LOW ECONOMY - MODERATE
Different Currency: Yen
Free reign – no shared trading bloc
No colonial ties
Implementing for new business models in
order to create new business (i.e.
hybridization)
Existing developed entertainment markets: J-
Pop and Japanese Dramas
Higher GDP per capita: $46,720
Similar infrastructure and technology
available to consumers
!10

11. Chinese Market is Growing but Underdeveloped
An Analysis of Chinese Music Market (CAGE Analysis)
Newfound hunger for entertainment sparks
growth It is apparent that China’s entertainment in-
dustry lacks development and saturation. According
to PricewaterhouseCoopers’ industry research, in
2005 China’s entertainment industry
recorded the world’s fastest growth rate, with a 26%
CAGR. In addition to this, it is predicted
Forces
Power of Suppliers:
HIGH
Suppliers in this industry are usually the talent agencies. They scout and
train young people to become popular celebrities that dominate the
music industry. They also produce their own music for the singers in
their own company, avoiding commission fees to other organizations. In
addition, antitrust laws ensure that music albums produced in Japan
cannot be sold at a discounted price in other markets. This maintains a
pricing status quo and preserves the market influence of the suppliers.
Power of Buyers:
HIGH
The individual consumers have a high bargaining power due to piracy,
which often forces the music industry to drive down their album prices.
Also, music industry heavily depends on the preferences of consumers.
Companies need to compose media that matches with current trends.
Threat of New
Entry: LOW
The entrant barrier is high due to a few dominant market players. They
have established a well-developed supply chain to produce songs and
train idols to fit in the market, hence making it very difficult to break into
the market for any new company.
Threat of
Substitutes:
HIGH
There are a lot of substitutes available to replace J-POP. Entertainment
media such as manga, anime, and console games are very popular in
Japan. Manga generates around $6 billion revenue every year while
console game industry generates $12 billion.
Industry
Competitiveness
: HIGH
There are a few strong rivalries in the Japanese music industry. The Big
Four including Universal Music Group, Sony BMG, Warner Music and
EMI are powerful global companies that dominate the market share. In
addition, the largest indie label Avex Group Holdings dominates 15% of
the market share.
!11

12. that China would likely surpass Japan in 2009 as the largest entertainment market in Asia. Just
30 years ago the country was reopened to foreign investment. Going off the notion that, “The
Chinese were hungry for different kinds of entertainment. The market in China was huge and
people were getting more willing to spend” it is crucial for companies to capitalize on this po-
tential growth. It was forecasted that China’s entertainment industry would grow at an 18%
CAGR to $137.4 billion in 2011, the biggest increase in the world during the forecasted peri-
od.
Combating piracy and consolidating the fragmented market pave the road to success in
China
Trends that currently affect the Chinese market include the
rapid expansion of mobile phones. It was predicted that
mobile phones were expected to be the biggest platform
for the future recording industry in China. According to the
IFPI, in 2005 there were 417m mobile phone subscriptions
in China, as opposed to 41m broadband lines. The second
trend that greatly affects the economic side of the Chinese
entertainment industry is piracy. Piracy had forced record
labels to sell CDs at discounted prices. The cheaper pirat-
ed copies easily found their way into local markets. The IFPI estimated that about 85% of
recordings in China were illegal, representing a total value loss of $410m in 2006. Finally, the
last trend of slowly consolidating the geographically widespread businesses in the entertain-
ment industry presents a challenge.
Two targets with a mutual goal
Young adults dominate the growing Chinese market and they demonstrate a willingness to
experience new forms of entertainment. The market is being influenced by western enter-
tainment trends and Korean preferences. Chinese talent agencies and broadcasting compa-
nies had collaborated to host widely publicized singing contests and auditions. Furthermore,
buyers in China could be divided into two groups: consumers of music, and intermediate
buyers such as record stores, karaoke lounges, and TV networks. This gives the market a wide
base from which to exploit its consumers demand for new entertainment sources. Finally, live
entertainment is establishing a footprint. In some prosperous coastal cities, such as in Beijing
and Shanghai, a significant number of consumers were even willing to pay high prices to at-
tend live concerts.
CAGE ANALYSIS
China is an under developed market with a growing population that is receptive to new enter-
tainment options. The CAGE model clearly shows that the Chinese market has low cultural
!12

13. and geographic distance, moderate economic distance, and high administrative distance be-
tween Korea and China. It is clear that the over all distance is limited, yet it is
important to note that a lack of common currency, lack of laws, and the need to adapt to the
various fragmented regions throughout China are key challenges to overcome in future ex-
pansion.
Opportunity for Growth in the Chinese Market
Porter’s Five Forces Analysis
It is clear that the Chinese entertainment industry is crucial in the global expansion of any
company. With a massive population and even larger growth rate, the potential gold mine in
CULTURAL - LOW GEOGRAPHIC - LOW
Politically conservative music is less likely to
create issues with Chinese government –
similar Confucian historical backgrounds
Linguistically, Korean and Chinese are very
similar. Language: Korean vs. Chinese
Existing interest in Korean Culture (TV dramas)
Popular Music Style: Pop/Ballad, still mostly
undeveloped
No existing music industry structure –
entertainment dominated by TV and Movie
Industries.
Near South Korea (1,315 miles)
Similar Climate
One hour time difference
ADMINISTRATIVE - HIGH ECONOMY - MODERATE
Lack of common currency
Lack of laws to combat piracy
Lack of laws to protect individual property
rights
Nature of demand varies based on different
income levels throughout China
Companies need to be highly agile and
adaptive to local populations
Lack of Chinese entertainment industries
means there needs to be careful
development of infrastructure
!13

14. China is growing. The Chinese entertainment industry is under-developed and highly
fragmented, and therefore provides an opportunity for consolidation. Furthermore, it is impor-
tant to note that the people of China are receptive to music trends from other nations. Al-
though alternatives for entertainment exist in the country in the form of video games and
theme parks, the overall TV and music industry is yet to be saturated. Despite the exis-
tence of different companies that have established themselves in the C-pop market,
they are not currently consolidated to form a powerful entity. As time goes by, the Chi-
nese government progresses the development of laws that combat piracy and individual
property rights, leading to an environment that is regulated and friendly. Ultimately, the pre-
mature development and receptive environment create an opportunity for companies to
leverage cultural arbitrage and consolidate the Chinese industry.
Mounting Concerns and Bleak Future
An Analysis of the Western Music Market
Forces
Power of Suppliers
LOW
Two types of suppliers: Talent agencies that developed and
represented singers; and production companies that recorded
albums, and produced dramas and films.
Highly dependent on the popularity of stars.
Power of Buyers
HIGH
Two types of buyers: Consumers of music; and intermediate buyers
such as record stores, karaoke lounges, and TV networks.
Threat of New Entry
HIGH
The entrant barrier is high due to a few dominant market players.
They have established a well-developed supply chain to produce
songs and train idols to fit in the market, hence making it very difficult
to break into the market for any new company.
Threat of Substitutes
HIGH
Alternative entertainment options include video games, theme parks,
and TV shows
- 23.6% growth rate in China’s video game market
- By 2006 there were over 200 theme parks and more being
developed during the “theme park fever”
Industry
Competitiveness
Moderate
Industry competitiveness is moderate due to the fact that there are a
number of well-established companies that currently streamline the C-
pop market, but no one dominant player.
Companies are established in main cities and segregate the market
based on language and economic level
!14

15. Although the Asian music market has seen
miraculous growth, similar outcomes did not
appear in counterpart Western markets. Since
1999, the global music industry has witnessed
a steady decline of sales. Profits in the United
States dropped from $14.6 billion in 1999 to
just $6.3 billion in 2009. In 2010, the UK
recorded a loss of over 90 million Euros from
declines in CD purchases.
This decrease is largely attributed to the growing popularity and availability of digital music
and the diminishing demand of physical music copies. With the invention of Mp3 music play-
ers and the I-pod, consumers no longer need to buy hard copies in order to listen to music. In
fact, information processes have become so digitalized that newer generations of laptops
(such as the UltraBook) no longer come with CD readers. Nowadays, if a consumer wanted to
listen to a song, they could simply search it up on YouTube.
Due to the rapid growth of the internet, it has become exceedingly difficult to regulate the
online distribution of music. As a result, piracy rates have skyrocketed to disastrous levels. In a
study done by the BSA in 2007, the United States was estimated to have lost over $8 billion
dollars due to online piracy.
Glimmer of Hope
Despite these harsh economic conditions, digital sales have been steadily rising. According to
the IFPL, digital sales accounted for over 25% of total music revenue in 2010. After several
!15

16. consecutive years of growth, the revenues from the UK digital market (63 million Euros) finally
offset the loss from CD declines (39 million Euros) in 2012. This progress seemed to occur
globally, as the year of 2012 produced the first global revenue increase in 13 years. This per-
centage (0.3%), although small, presents a positive outlook for the future.
Furthermore, recent studies have also shown growing profits in the music performance sector.
In the United States, concerts have been earning more and more since 1999, almost tripling
the total revenue from 1999 in 2011. As international tours become more popular, with popu-
lar Western artists performing all over the world, this positive trend is set to continue.
Fig. 1: Source- Washinton Post
Fitting in or Standing Out?
!16

17. CAGE Analysis of East Asian Pop Music in the West
Despite its growing success in local and regional markets, East Asian pop music has had diffi-
culty maintaining steady levels of success in Western countries. Ever since the hit Japanese
song “Sukiyaki,” sung by Kyu Sakamoto back in 1963, no other Asian singer has managed to
top the Billboard’s singles chart. However, recent musical trends have shown that the pop
genre is on the rise, being the only music genre to show positive growth in 2011. This trend,
coupled with the success of Korean artist Psy, presents the East Asian Pop Music industry with
a positive outlook in the West.
!17
?
=
?
=

18. Recommendations:
The Korean pop industry creates direct economic value and product branding opportunities
for the country. Their songs, singers and fans provide opportunities for companies from other
countries nearby to develop new products and marketing strategies, as well as new ways to
expand their own markets.
The first K-pop strategy that businesses could use is to expand their markets in Korean televi-
sion dramas, the internet and the gaming industry. Specifically for the game and animation
industries to develop animated characters using K-pop stars. By connecting the Korean idols
with products, it would give companies an opportunity to enjoy substantial marketing effects.
CULTURAL - HIGH GEOGRAPHIC - HIGH
Language barrier causes issues in musical
expression and understanding - while American
lyrics are deemed “cool” in Asia, Asian lyrics/
language is not received as well in Western
countries.
Asian artists are often labeled “copies” of pre-
existing American artists (“the Asian Mariah
Carey.”) Originality is of a big concern to
Western consumers, not so much East Asian.
Physical distance between Eastern and
Western markets increases time gap between
tour dates; harder to accommodate fans on
both ends without losing popularity in either
region
Although communication links exist, becomes
harder to predict/understand trends if
different parts of management are stationed
in different locations of the world.
ADMINISTRATIVE - LOW ECONOMY - MODERATE
Lack of regulation against internet piracy -
Raises concerns given the increasing size of the
digital music market.
Differing government policies regarding the
sale and distribution of physical music
Mandatory military service for Korean artists
East Asian music has only found success in
niche markets in the West
Consumer distribution is very un-clear in the
U.S. (majority of viewers on Asian channels are
non-Asian) + no structured method of
targeting costumers
Difference in music industries; Korea has 3-1
market while U.S. has 3 separate industries
!18

19. Another strategy SM Entertainment could adopt is the “globalization” strategy in entering the
Chinese market. As stated in the CAGE framework, mentioned earlier in the report, there is a
cultural distance between China and South Korea due to the lack of originality. The company
should do something similar as it did with entering the Japanese market. They by localizing
their idols, to attract consumers. Such training included singing and greeting in their local
language, and also recruiting local Chinese people and training them to become idols. It is
traditional for Chinese people to have a strong sense of unity. With this said, it should be eas-
ier for them to accept idol groups from foreign countries. With the support from the Chinese
market, SM Entertainment is bound to experience a higher level of success.
The third safest and most profitable option for SM entertainment would be to adopt a trans-
national strategy within Asia, focusing on first developing a strong domestic market and then
expanding products and services regionally. Because of its location, Asian countries such as
China not only offer a huge consumer base but also decreases the distance created by lan-
guage barriers. A transnational strategy will also be able to take advantage of multiple corre-
lated media industries to music such as television and movies. By horizontal integration, SM
should be able to expand its services all across East Asia and become a dominant company in
the global industry.
Conclusions:
With the successes that the Korean pop industry has already had they will be able to win the
hearts of the East Asian market completely, in the next 10 years. With the world becoming
smaller and smaller, and with the help of technology, the digital sales in the global music in-
dustry is on the rise. With the rise in digital sales through YouTube will aid in keeping the in-
dustry alive for years to come. With the close proximity these East Asian countries have with
one another, SM entertainment will take over that entire population, meshing the various
countries into one.
!19

20. With Japan of course, it seems to be a little different. With a highly saturated market and a
shrinking population of the age demographic between 18-24, the middle-aged or 25 above
are increasingly important to the company growth. Therefore, the future of Japan lies in the
hands of the 30-39 age demographic.
Currently, China has the world’s second-largest movie and entertainment market right behind
the U.S., with estimated box-office grosses of $2.75 billion last year. Many analysts forecast
that China will take the number one top spot within the next five years.
Factors such as the digitalization of the music industry, and with the help of the Chinese gov-
ernment’s easing of controls over entertainment businesses, KResearch estimates that China
also will become the world’s largest overall entertainment market by 2020, at $65 billion.
!20