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K-pop: how South Korea turned round its music scene

Strict anti-piracy laws, pop production houses and clever marketing have helped this struggling market thrive once more

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K-pop: TVXQ, though now a duo, were massive sellers for SM Entertainment

South Korean music has, traditionally, never been on the radar of major labels and publishers. Being one of the most technologically advanced countries in the world (out of a population of 48.6 million, 39.4 million use the internet), the country's music industry suffered from rampant piracy for most of the past decade.

There was little revenue to be collected internally, and there wasn't much demand for Korean artists outside the territory. Though Universal Music Group opened an office in the country over a decade ago, the only local artists it would invest in were classical ones.

But about four years ago – when, perhaps not so coincidentally, South Korea introduced anti-piracy legislation – Pelle Lidell, European A&R executive of the company's publishing arm, turned his attention to pitching songs written by his roster of largely Scandinavian and British songwriters to Korean artists. Today UMG considers Korea to be one of the most important territories – and it's all because of K-pop.

The K-pop phenomenon emerged at the beginning of the last decade, with Korean music production houses taking the concept of pop factories to levels way beyond The X Factor. Companies such as SM Entertainment and Play Cube Entertainment tapped into the 360 degree model way before the major labels – being independent record labels, talent agencies and publishers with their own academies where they groom young teenagers to be pop stars.

SME even has its own merchandise store in Seoul. The SM Entertainment building, set in what Lidell calls "the coolest youth district" of the city, contains a coffee shop, luxury restaurant, a section where you can take pictures that look like you're sitting with the SME stars, and a store for SME artist memorabilia.

Though 55% of Korean music sales are digital, the company makes sure that physical CDs are attractive enough for the fans to splurge on them as well. It doesn't release records in ordinary CD cases; they're all in glossy luxury packaging. They're often released in up to five different packages – and the fans buy them all.

To call SME an independent is almost misleading, as the company has 250 employees and has sold more than 59m records in the last year alone. "What UK label sells that many records of local repertoire in a year?" asks Lidell. "They're the biggest in Korea. Today, many of the biggest US artists and songwriters, like will.i.am and Sean Garrett, shuttle back and forth to work with Korean acts."

He adds: "I've never had a single release [in Korea] that has sold less than 400,000. Mirotic, a single by the group TVXQ sold around 2m in Korea and Japan (the group call themselves Tohoshinki in Japan). SME boy band Super Junior is Korean, but they've also put together a Super Junior in China. So sometimes when I get a cut with a song I'll make three different adaptations: Korean, Japanese and Chinese."

There's also a lot of sync income in Korea. The song Top Billing Love – written by Karen Poole, Bloodshy and Avant, responsible for hits for artists like Kylie and Britney – almost made it onto a Britney Spears album in 2002. SME did a deal with mobile phone manufacturer LG and its biggest girl groups, Girls' Generation and FX, did a version each of the song, calling it Chocolate Love, since LG were launching a new brown phone.

Girls' Generation's version went straight to number one. A few weeks later they released the FX version , which also went to number one. Then they released a joint version for LG, which also went to the top of the charts.

It took a bit longer for the recording side of UMG to get involved with K-pop. "It's only in the past two years that we've seen proper growth in revenue from Korea," says Sandy Monteiro, the president of UMG International in South East Asia. "Investing in this kind of artist development is not cheap. Though local classical artists are more niche, they're a safer bet and require a tiny investment compared to K-pop acts. There are so many companies working with what we call 'the Idol format', so you've got a fight on your hands. But on 1 January last year we took the plunge."

That's when UMG decided to invest in Play Cube Entertainment, resulting in the label's K-pop sales jumping from 9% of total Korean sales to 29% in 2010. But K-pop isn't just a success in its country of birth. It's also big in countries such as the Philippines, Taiwan, Singapore, China and Japan. While Play Cube's biggest act, boy band Beast, reached six-times-platinum sales in Korea alone, it also sold gold in most other south-east Asian markets. Its biggest girl group, 4Minute, isn't far behind.

"Beast are as big in South East Asia as Backstreet Boys were in the west, 15 years ago," says Monteiro. Idol sales represent about 40% of all music sales in Korea, but they make up the bulk of all sales of Korean music in the rest of south-east Asia. That's why UMG is now also licensing Korean repertoire that is not signed to the label, including some of SME's acts, to countries outside Korea. "[The K-pop production houses] tend to be quite mercenary. But they've realised the value of partnering with a stable set-up like ours."

Monteiro doubts K-pop will ever become as big in countries like the US and UK, as music fans in those markets would just be too critical about the lyrics and the acts' accents when singing in English. That, however, doesn't seem to be a major problem considering that while UK revenue from record sales shrunk by more than 11% in 2010, Korean overall sales were up 11.7%. This is why, at a recent industry event in Abu Dhabi, UMG's head of digital, Rob Wells, indicated that K-pop was high on the label's list of priorities, and Monteiro says UMG is planning to double its investment in Korea.

The fact that South Korea has very strict anti-piracy laws – including a three-strike rule for illegal downloaders – has helped turn around the fortunes of the country's music industry. But UMG's Korean managing director, Beom-Joon Yang, believes that there's more to it. "We think the combined popularity of Korean megastar icons like Rain, Korean television soap dramas, top-quality music production in Korea, and a genuine love for Korean culture overall around Asia, have attributed to making K-pop part of mainstream pop culture."