Something that international KAMILIA might not have known about KARA. It's worth reading so please take your time to do so.

I didn't feel like going into an idiotic argument with some of the ignorant, naive or rabid, various girl-group-fans over at OneHallyu about the girl group popularity ranking that was posted on the Pann Board

First, I question many things of which one is which group had major impact on the social, cultural and financial sides of the business? SNSD? Yeah, I can say they did. But, f(x)? Really? And Sistar? Ok, they sell a lot of digital singles. They are popular on variety shows, but then what? My personal take is that what matter is the relevancy of the group that comes from both revenue generation and popularity through the support by their fandom and public in general. Plus, other extra things so called "alpha" that comes with the group.

I am going to give you guys a little of bit of history lesson about KARA plus relevant information about Korean Music Industry to give you a little more solid understanding about the business in general. Some of you may know some or many parts and other not. But, I am not sure if you know all the parts in here. Some of you may not be too interested. But, that's okay as well. 

I am writing this here because I like this forum, even with its annoying site usability. Furthermore, I wanted to enlighten some of the new fans not just about KARA but also about the business side as well.

I maybe slightly comparing different groups, which I know many Kamilias don't like to do. I won't go in too deep on that case, so don't get all upset. Furthermore, I couldn't write this at Karaboard, because it would take me forever to write in Korean and they already know all this stuff over there. Their knowledge regarding KARA and the industry is great. The reason is that, well they are in Korea, and there are a lot of older Kamilias there whom have friends and/or family members who are in or near the industry. They know, see and hear stuff first hand, unlike you international Kamilias. 

First, the current idol group (girls in general) market is different from past case (obviously so) because in major part due to KARA. 

Yes, KARA changed the idol group paradigm. The reason is that in the past, even during the early years of KARA, when an idol group didn't do well with their first single, they would get disbanded after a somewhat short effort. It has to do with money which you will find out further down. And KARA would not have been any different. KARA's first single "Break It" bombed. Then, their 2nd single "If U Wanna" was another bomb. Their 3rd single "Secret World" bombed, too. Plus, they suffered a devastating blow where their best singer left the group within one year. That would have been a deathblow to any idol groups at that time. 

However, KARA did not disband. They are a very unique case in this. There are many reasons why they didn't disband. One is that Gyul was lobbying really hard to the management not to disband the group. She had suffered several of her prior management companies going out of business. She was older then and she couldn't suffer another blow of losing a group at that point in time. She wouldn't have had another chance in music if KARA broke up. Hamtori was working like crazy on those cable shows to keep the KARA name going. Nicori was a problem. They couldn't put her on any shows then due to her language issues (she was not good with speaking Korean at the time). And in between their debut and her departure, Sunghee couldn't go on other shows due to her educational obligations AND her parent's pressure (issues like religion got in the way as well). 

Anyways, KARA is why many of these 2nd and 3rd rate groups DO NOT disband even after mediocre results in their early years. KARA is the benchmark for them now. This is a well known fact that everyone admits to. Look at Girl's Day, APink, Rainbow, Secret, AOA, Hello Venus, etc. Some of them debuted when? People in the industry realized, you cannot expect to hit popularity by debuting like the past. You have to work at it for several years and just keep plugging away. I've seen news articles mentioning how the members of Rainbow was putting in absolutely over 120% on some of their TV appearances, basically disregarding their idol image. Those things didn't happen before KARA time.

At somewhat earlier time then the debut of KARA, DSP Media was actually No. 3 in the music management companies in Korea. It was not JYP. The reason is that DSP had FinKle and ClickB, plus they were making dramas. Also, (this most of you MAY NOT know) DSP had reverse merged with an Auto Parts company which was at the time listed on the KOSDAQ (Korean stock exchange). Yeah, DSP was a listed company. Meaning, they were the first among the majors (SM, YG, DSP and JYP) to be a listed company. Go figure. And if you know anything about finance, your position in financing various activities including debt and equity support get much easier if you are a listed company. That's just the way it is. 

With the stronger financing line, Mr. Lee HoYeon, the CEO of the company, got a little greedy (maybe money wise or accomplishment wise) and made one of the largest scale dramas at the time called "Yeon Gae So Moon", a saguk drama. It was a $20 million project. And you know what? That thing bombed with low viewer ratings. It was a $15 million loss for the company. So, what happens when a listed public company suffers a huge loss like that? Of course, you call a board meeting. 

They had three board meetings. Majority of the stock ownership was with the Car Part company side in the merged company. DSP division Lee was in a weaker position. The listed company majority wanted to kill off the entire entertainment division, meaning KARA, SS501 and others entertainment related businesses including drama side. The business had to survive first before you can have these singers. 

So, what does CEO Lee do? He gives up all of the stock he owned in the merged company, took back DSP Media name and KARA and SS501 and divested DSP from the Car parts company. As a result, the then merged company (now separated) was de-listed from the stock exchange. CEO Lee lost much of his money there as from that deal (he gave up equity of the then pre-separated company). This was in 2006, KARA's pre-debut but the group was formed then. 

This is the reason why the girls always mention CEO Lee when they get awards. He had ("으리") major loyalty and honor to his own people. They get all misty eyed because he kept the group alive and believed in them even before they debuted in 2007 with their single. Now, you may ask what happened to them after and all that 2011 events. Well, I will get to that. 

So, after all that business crisis SS501 becomes the bread winner for the company, because they had debuted and was making traction at the time. They were running around in Korea and overseas (mainly Japan) to make income for their company family. And after debuting in 2007, KARA was running around trying to make money, too. They were even doing these small village reunion meetings (I really mean these little size "읍" level events; "읍" is a village level with like 20 to 50 houses) in the country side (yeah, KARA was doing these so called events, you know a little stage with older town folks; I kid you not; no, you won't find photos of that anywhere), to keep the group going. And you also have famous Hamtori running around on those small cable programs at that time too, especially in 2007 and 2008. 

Mean while, a little off track here, compared to DSP (which was basically on a deathbed) SM was going like gang busters. BoA and TVSQ were making so much money for SM in Japan and Korea it was no joke. With all that money coming in they were like a 900 pound gorilla compared to DSP or even YG; they debut SNSD in 2007. SM being a major force in the Korea Entertainment Industry (they are the biggest after all), SNSD becomes huge fairly quickly. They never had a hardship like KARA had. I mean, have you seen the SNSD apartments they'd got when they were dorming in their early days compared to the KARA's dorm at the time. And of course, we had Wonder Girls debuting in 2007 as well. JYP is not a small shop and WGirls had a good support from the company as well. We all know their story. The song "Tell Me" become a national anthem. That was in their first year. And they had multiple hits from their first album.

If you look at it critically, the situation for KARA in the beginning was totally different from these other groups at the time. DSP had no money. They didn't even hire voice coach to teach the girls. Did you know SS501 group member spent their own money to hire voice coach and helped KARA girls get voice training? Imagine that. In contrast, SM and YG are huge forces. Their marketing and management power are the best and strongest amongst all the other management firms. At that time, you were almost guaranteed to be successful if you debuted under their tutelage. 

No matter, the girls try and try and worked hard as always. They got some recognition with "Rock U" and then "Pretty Girl" in 2008. And in the 3rd year, they hit it with "Honey" in 2009, getting number one on chart. You must realize, at that time getting number one in the 3rd year for a girl group was like unheard of. You usually hit number one or top ten when you debut or you disband after one or two years. 

Now, here I am going off a track again and talk a little about how the songs are made. You must realize that it costs money to press songs. Unless you are genius song writers like Jaurim or other like them who also write songs and play their own instruments, you need to hire a whole bunch of people to get a singles album made. Those indie bands survive because they make their own music and play their own instruments. They can even produce their own albums. On the other hand, these idol groups under management companies have to hire lyricist, music composers, producers (arranger), engineers, mixing technicians, concept producers, session musicians, etc. to even press one CD. It probably costs around $20 to $50k to produce a decent singles album right now.

Oh, but how are you going to sell that CD? Well, you have to advertise! Um, how? Hey, marketing of course. Okay…? Make videos. 

That's right. And how much does it cost to make a video. Oh, craps. That's more money. You start hiring a whole bunch of people: directors, cinematographers, crews, makeup artists, art directors, concept artists, custom designers, set designers, set construction, set rentals, film equipments, cameras (oh, you gotta use those new RED cameras!), blah blah blah. How much does it even cost to make a video? Well, did you see the recent Brown Eyed Girls "Kill Bill" video? I guarantee you that thing cost minimum $300 to $400k. (OMG, they even have gun shots. Wait, now you need pyrotechnics and special effects people!) It probably took them about three days minimum with no sleep (get over it, it's Korea). Add that to the cost of producing one singles album. And you are talking serious money. And who is going to pay for that? That's even before selling one song.

(You won't hear this from most sources) In Korea, usually a management company structures the concept and chooses the songs for their idol groups. They are really what we call labels (in a sense) in Korea. Then, there are these investment (music production) companies in Korea that invests in song production (they lend money). They are your Mnet and Loen (those two also out distribution outlets), etc. They are almost like the major record labels in the US. However, they are different in Korea because these companies are not usually labels and do not own artists unlike the US model. Well, Loen and Mnet do have artists under them now. 

Anyways, these production firms lend money to the management companies so they can produce (make and press songs) songs and videos. And these production companies basically own the equity in the songs they invest. 

[You see Loen putting up Youtube video under their name for BEG and Ga-In, right? The reason is they were the production company (even though BEG is under Naga Network label). Loen put up the money to produce and Mellon (owned by Loen) distributes the songs, get it? Loen also got into artist management by owning IU and Sunny Hill. Also, Loen, in turn, is owned by SK Group, which is one of the top 5 Jaebol groups in Korea. They own the SK Telecom which is one of the three major wireless providers in Korea, think digital music distribution outlets through the wireless phones. That's why Loen is different. They have a lot of money.]

Yeah, the management companies do not have a lot of money (except for SM, YG and JYP). Actually, SM is the only company that does not need the funding from these giant corporations like Loen. Even JYP (Loen is their music distribution firm) had to borrow like $10 million from some Jaebol chairman recently (look it up). Then, the management companies have to pay back the money (principal and interest) by selling the albums and running the groups like dogs to produce income. Yeah, that's right. 

That's why they make squat selling those digital singles. About 10-20% is taken by the retailers like Kyobo Books (for physical) and Mellon, Buggs and KT (for digital) and production companies (they own the first income stream to recouping their principal and interest) take the balance because they have the right to control the equity on the songs. The production companies then give about 30% to the management company which gives the artists a portion (usually is 8 to 2 or 7 to 3 to artists unless you are big star). Yeah, the artists make crap on those digital singles. The physical is a little better. 

And the price for the digital singles in set by the Korean Music Federation and is around 50 cents per song (I kid you not). So, in general, they do not make money in Korea selling song digitally. You won't even recoup all the money for the production costs (including video) most of the times. So, the artist have to shovel ("삽질"), that's a term meaning work like a dog, around to make money so they can pay back the balance to the production companies. And this is one of the reason why those groups that didn't succeed in their first singles debuts didn't last long before KARA time, as I mentioned before. The management companies have what's called sunk cost (money invested) in training, housing, feeding, teaching, and general taking care of the group members before debut. Now they have to content with the production costs for the album and videos. For them, it was easier to cut the loss at earlier stage then wait longer. And this was the mindset before the paradigm shift due to KARA. Now, they are willing to take the longer investment duration and bear the costs longer. In a way, it's good for the group members. But, then it behooves them to work really really hard. You cannot get away with being lazy bum asses. You are expected to work like dogs.

The artists make money from the tours, goods selling, events and CF's. You can make huge money from the tours and selling goods if you are KARA or Big Bang. If you are individually famous and popular, doing CF's will also bring in a lot of money (like Suzy or Hara). You know how Hara bought that old house in Gangnam area and tore it down to build a new 4 story high retail/office building? Yeah, due to all those CF's she shot. These items do not involve those production companies. So, the management company and the artists make the net profit of anything after expenses. And the profit share is different for those individual activities. This is the same in the US as well. That's why you see all the artists doing tours almost every year both in the US as well as the Europe. 

Now, back to KARA: 

So, we have the girls working hard and all that. Then, "Wanna" and "Mister" happens. "Mister" just kills everywhere. It becomes the de facto dance song for the girls. It is their signature song. You cannot think of KARA and not think of "Mister". And…then "Mister" just dominates in Japan. They never knew that would happen. It was a total surprise. Plus, all those famous Japanese celebrities come out of wood work saying they love KARA. Can you imagine? That song really solidified their position in the music world in 2010. And they had an amazing debut in Japan as well thanks to that song. 

Then the Kara event happens in 2011. Here is unknown scoop to you guys.

What happened was that CEO Lee had an aneurism and collapsed, I believe in late 2009 or in 2010; he was a long time smoker (multiple packs a day). That and working 24/7 caught up to him. So, he was bedridden and in coma. 

So, what happens? Who owns the company? Mr. Lee. And his wife, Mrs. Choi (Koreans don't take husband's name like in the US) takes over. Now, mind you, this woman never had a management experience before nor had any experience in the entertainment industry. She then hires her daughter (early 30's at that time) as a vice president. Now, this daughter NEVER had any experience either. In fact, she owned a kindergarten business (and that failed!). And you know what they did? They fire all the long time managers and directors (who really helped KARA during the early days. One of them was often called Papa by the girls. He was that close to them. Yeah, he is the guy who opened that Pojang Macha restaurant. You saw the photos.) and hired all these other new people. Then, they really start shoveling ("삽질") again. They were working the girls like dogs, sending them every other event to capture the new song Mister's fame. And mean while, they also had this web site called "Karaya" which sold cute and bright clothes modeled by the KARA members. Yeah, those I am sure you saw the picture of them modeling (even has videos on the Youtube of them modeling). Plus, the girls were doing all these promotions in Japan. The girls never saw money from the sales of the clothes on Karaya (never got accounting results from the company) and were absolutely tired. 

What that woman did was that before contracting with Universal Music Japan, they set up DSP Media Japan. DSP Japan is owned by Mrs. Choi and is not a subsidiary of DSP Media Korea, which should have been the standard practice. Get it? And the contract is between DSP Media Japan and UMJ. In turn, DSP Media Japan is contracted with DSP Media Korea. Do you see double expensing somewhere here??? You should know that accounting practices in entertainment industry is never clear. And you know what else? At that time, she wouldn't even tell the girls where her husband was bedridden. The girls couldn't even go visit their CEO at his bed side.

The KARA event occurred because the parents of the girls got really fed up. Think about this, and especially from Nicole's mom's point of view, who lived in the US for over 14 years at least, does it make sense for their kids to be suffering like this? She has a different mindset then your typical Korean mindset. Money is fine and dandy but they were not happy at all. The management of their work and company was abysmal. It was being run like a village corner store. The management didn't tell the girls why or where they were going to do events. It was very top down and rigid. They all went into music business because they loved music, not because they needed money. 

That's another thing, these girls do not come from poverty. None of them really need the money if push comes to shove. Hara is a special case because her parents divorced when they were young and she grew with her cousins and grandmother. Her aunts and uncles are not poor. The reason she is so realistic and financial astute is that she grew up by herself under her grandmother and realized she had to take care of herself by herself. But, she was never in a poverty conditions. People don't know this. 

These girls were NEVER desperate for money, unlike many of the idol members. Yeah, you should know, many of your idol members come from poor economic conditions. That's a fact. Did you know that Lee Hyori basically fed her entire family and her parent's relatives as well? She is worth tens of millions of dollars now. Have you seen where she lived when she was a young girl and her father was working as a barber? I saw a documentary. It's the rare cases like Siwon of SuJu who is from a really wealthy family (I think his father owns some percentage of Samsung Electronics or something), most idols do not come from well to do life. 

Anyways, that's why the KARA parents went nuclear and went for the lawsuits. So, why did this event get resolved? I will say this, what you see from your forums and news on the Korean music industry is only what is shown on the surface. What goes on under the surface is more complicated and more convoluted than anything there is. 

This is my speculation but is not totally outside the realm of possibilities. I think someone very high up the chain of commands in the political/government power structure mentioned something to someone down the chain. And that person initiated Mr. Tae, Jin-ah., the famous trot singer and (the president of the Korea Singers Association at the time) who is the current CEO of the company that has Ailee as a singer, to mediate the whole situation. And I think that's how it got resolved. The jest is that KARA was a huge driver for the Hallyu wave to Japan. They were bringing a huge interest from the Japanese tourists and investment money. They were garnering a huge interest just being KARA and being a Korean Pop Group. It was not good to have KARA disband. That was NOT good for the country. So, I do believe that's partly why it got resolved. They were told this is good for the country. For your info, KARA won the 2010 Ministry of Culture 2011 Hallyu honorary award. That tells you something. (But, mind you, this is just my speculation.)

Now, after all that hardship and hurdles, the girls are doing very well. They sold numerous albums and singles in both Korea and Japan. We all know the story. They have a tremendous record. They've filled numerous stadiums for their 12 show 2012 tour and the sold out major show as the first KPop Girl band to stand at the Tokyo Dome in 2013. They have many firsts under their name now. And they are 2nd best money maker after SNSD. 

Fans of all the other girl bands don't realize how much difference there is between KARA and the 3rd best money maker. It is absolutely huge. You cannot compare the 3rd revenue maker to KARA and SNSD. KARA made over 437 billion won (that's around $41 million) just on album sales in 2012, and they were 9th top seller in music sales in Japan that year. If you add the tour, goods sale, CF and other revenues, they probably achieved close to $100 million in revenue or more in 2012. They know that KARA made over $10 million in revenue on just the Tokyo Dome show alone. You cannot compare the rest of the Kpop girl groups to KARA. I ask, which groups had their own animation made? Or, how about their own 10-episode TV drama? Or, how about their own omnibus one-episode each for each members special dramas? I mean, you cannot shoot these dramas unless they can sell them. DSP don't have so much money that they can go and make these expensive dramas unless there are buyers for this (meaning Japan). 

Some keep saying that, 'Oh, it's for the Korean market popularity.' Well, I say this to them. Listen, Sherlock, they don't make much money in music in Korea. That's why they are all going overseas market, mainly Japan, to make money. You cannot live in a bubble anymore in Korea regarding MUSIC business. Now, the idol group businesses HAVE to look at it internationally. Forget these stupid popularity rankings on that stupid Pann Board at Nate.com with all those rabid stupid world hating, computer-jocking young girls. 

Sistar and f(x) with their digital sales number will get by due to their so called "popularity" by getting CF's and ad campaigns and such. You don't make money by appearing on TV variety shows. For them to make real money, they need to fill stadiums. But, if you don't make money, they can't be a continuing concern. It is really financial. They won't be continuously attractive assets for their management companies once their contracts expire. They will disband due to them getting older and the fans moving on to some newer groups. They have to do more than just sell these digital singles. Ad and CF's are good. You can make decent money with those. But, you have to think in P/L and expense basis. 

KARA is special. The reason why KARA is special is that from a cold hard financial point of view, they are still very much a viable group with good revenues, good popularity, solid fan base, all attractive members with high appeal individually (a rare case), hard working due to what they've gone through (name one group which all the members can converse in Japanese after two years of debuting there), personable characters with excellent feedback from everyone who works with them, and because they didn't disband even with almost 100% guaranteed death blows from the failures of their debuting album sales, departing of their best singer member and the contract dispute in 2010, which is a miracle in itself. Historically, almost all of the KPop groups that had contract disputes with their companies disbanded. Only exceptional major group I know is Shinhwa. And TVSQ survives as two separate groups, one with a different name now."

 

 

Credits: Ultraman88 @allkpop KARA thread

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