Korean wave: Killer content

The triumph of “Parasite” at the Academy Awards earlier this year might come to be regarded as the apogee of CJ Group’s prolonged effort to cultivate international demand for Korean content.

“Twenty years ago, they started with music and movies in Asia, targeting China, Japan and Southeast Asia. Each time, they asked how the Korean content format could be successful in this market. From 2010, they started targeting the US more aggressively,” says Jamie Park, founder of ATU Partners. “It was difficult because of the language barrier and we didn’t think there was a way to do localization. But why were we thinking about localization? Korean content can be global.”

Park was formerly head of global business development at CJ ENM, the conglomerate’s media, entertainment, and home shopping division. Sitting at the center of a content and distribution web that stretches from film and television to music and performing arts – with gaming and cinemas housed elsewhere – CJ is a natural beneficiary of the K-wave, a helpful catch-all for global interest in Korea’s cultural exports.

It’s not just “Parasite.” With the likes of BTS and Blackpink leading the K-pop charge from traditional Asian beachheads into the US, Korean content creators big and small, across assorted media strands, are emboldened. VC investors are feeding on the frenzy, backing start-ups that have direct or indirect exposure to the K-wave.                      

“It feels as though people are more confident about their creativity and its appeal to audiences overseas. Much of it is driven by the recent Hollywood success and the success Kakao and Naver have enjoyed overseas,” says Han Kim, a managing director at Altos Ventures, which backs start-ups in Korea and North America. “Whether those become great investments, I don’t know.”

Film finance

“Parasite” took more than $257 million worldwide against a budget of $11.4 million, according to Box Office Mojo, and the investors who profited have received considerable attention. In addition to producer Barunson Entertainment & Arts and distributor CJ E&M, which put up most of the money, there were windfalls for the likes of Central Investment Partners, Company K Partners, KC Ventures, and Solaire Partners.

Exposure to the film industry is a quirk of Korean venture capital. In addition to the standard internet and biotech coverage, some firms have a “project” segment that takes in film, TV, and animation. Timewise Investment, for example, claims to have invested in seven of Korea’s top-10 films by tickets sold in each of 2017 and 2018 and four in 2019, including “Parasite.”

According to Jay Eum, a co-founder of Asia-US investor TransLink Capital, who recently departed to launch his own VC firm, the predication for film finance is in part a consequence of the venture capital industry’s evolution as a lending business.

“The movie industry was almost like a group lending practice. A group of investors would decide to invest in a production and chip in money equally. That practice has been around for 30 years,” Eum explains. “It’s only been relatively recently that larger companies – CJ and others – have really jumped into it. The ability to distribute a movie in Korea and maybe through other parts of Asia has been around for a couple of decades.”

The other reason for VC participation in film finance is government support. From the mid-1990s, Korea’s Small & Medium Business Administration and the Korean Film Council started committing capital to film funds. Latterly, they have worked with Korea Venture Investment Corporation (KVIC) – the country’s largest backer of VC funds – which has launched fund-of-funds dedicated to the film industry.

“The government, through KVIC, sets aside a portion of capital for content-related venture capital funds. Some of these investors specialize in content production, while others have to deploy a certain amount of their funds into content,” says Aaron Shin, founder of Ascendo Ventures, a local VC firm that doesn’t invest in films. “They have good networks, so they can source good content early on. If they think something has potential, they put money into it.”

For traditional VC investors, films represent too much of a risk: they are not going to put their capital behind a project with just one shot at success in an industry known for its volatility. Within the content sphere, there is a preference for distribution platforms or boutique product houses that create portfolios of material.

Platforms are a challenge because of the incumbent competition, but Eum points to Watcha, a local streaming start-up that is taking the fight to Netflix. The company started out as a film recommendation app and then used the artificial intelligence algorithms that underpin its recommendations to create a standalone platform. It has also moved into original content development. Watcha, which has received several rounds of VC funding, is targeting a domestic IPO.

Meanwhile, the Altos Ventures portfolio features a string of K-wave proxies, such as Collab Asia, a US-based multi-channel network (MCN) management company for YouTube stars in Asia, Makestar, a crowdfunding platform for K-pop stars, and PlayList, a web drama production company majority-owned by Naver.

“PlayList has a YouTube channel and, depending on what country you are in, the content gets translated. There is an international expansion angle,” says Kim of Altos. “For any content business, you have to charge a fixed amount [to users] or make money on advertising and product placement. Korea is not a huge market by itself – you have to go for more.”

Ascendo’s Shin lists MCN and short video businesses among the few he believes can achieve scale in the media space. Gaming is potentially another, although start-ups must pick their niches carefully given the high barriers to entry in terms of marketing when launching products into the mainstream. Several investors observe that the line between gaming and other forms of entertainment is becoming increasingly blurred as new releases are accompanied by drama content.

This dynamic is also evident – albeit with a different twist – in the strategy pursued by Park at ATU Partners. The firm closed its debut fund at $17 million last year and has deployed the entire corpus across three investments: a US-based e-sports talent agency, a US e-sports coaching platform, and one of Korea’s leading e-sports teams. ATU’s goal is to bridge the gap between Korea, home to about 70% of the world’s top e-sports players, and the US, which has a large audience base.

His team recently brought in Bae Yong Joon, a popular K-drama actor, as a cultural ambassador, essentially leveraging the K-wave effect to woo millennials and generation Z.

American appeal

The record labels and talent agencies that led the first generation of K-pop in the late 1990s – YG Entertainment, SM Entertainment, and JYP Entertainment – are now listed. Big Hit Entertainment, a more recent success story thanks to its backing of BTS, will soon join them, putting SV Investment, Legend Capital, and STIC Investments on course for exits.

All four are more mature examples of businesses that build a slate of content rather than tie their fortunes to an individual piece. Like Korea’s content start-ups, they are also increasingly looking at a wider selection of international markets, using the likes of BTS and Blackpink as a calling card.

“Despite their domestic success, they haven’t done much in terms of exporting Korean products to the West until recently. The earlier generation focused on Southeast Asia and China, but now they don’t see any boundaries,” says Eum. “Because of BTS and Blackpink, Big Hit and YG have the opportunity to go global.”

Indeed, it wasn’t until the late 2000s that the K-wave effect began to gain popularity in the West, culminating in Psy’s global hit “Gangnam Style.” Dal Yong Jin, a professor in the school of communication at Simon Fraser University in Canada, notes in a 2018 article that social media – as much as Psy himself – was responsible for the subsequent breakthrough.

“Social media has played a key role in circulating the local popular culture in global markets as BTS’ global popularity has been propelled by the support of its dedicated ARMY – Adorable Representative M.C. for Youth – a fan base that thrives on social media,” Jin writes. “In fact, transnational popular cultural products created in non-Western countries are benefiting from the rise of social media, because global fans have been enjoying locally produced popular content on various social media.”

YouTube and Facebook are the channels of choice for the latest generation of K-wave stars. They have put K-pop in a position to replicate globally what it has achieved in Asia, serving as a marketing tool of a long tail of consumer products and services. While product endorsements, notably cosmetics, are standard among Korean popstars, the halo effect is arguably wider.

“When I first started in Silicon Valley in 2000, no investors wanted to touch Korean companies; they just weren’t familiar with the region, they hadn’t heard of any successful start-ups coming out of Korea,” says Claire Chang, founding partner of igniteXL Ventures, which helps global beauty and wellness start-ups expand into the US. “Through K-pop, the whole K-wave, that familiarity has really increased, and so investor appetite has increased.”

Once again, government support is a factor. Chang previously ran an accelerator for Asian start-ups targeting Silicon Valley, in part piggybacking on a Korean initiative launched in 2014 to help start-ups go global. Demo days were being held monthly for Korean companies whose founders were flown to Silicon Valley on the government’s tab. Some came through several times on different funding programs.

When Chang established her accelerator, start-ups had to be encouraged to think beyond their home market. Increasingly, they are doing this from the outset. Chang credits government backing – as well as success stories like Sendbird and Memebox, both of which have raised significant funding from US investors – for enabling this change in mindset. “There has been overexposure on Silicon Valley-led global expansion,” she adds. “Familiarity has seeped through the start-up ecosystem.”

Looking for inroads

From a venture capital standpoint, large corporates will be important in shaping how the K-wave opportunity evolves. First, they are expected to become increasingly active investors in the US, targeting into technologies that can be applied back home. Big Hit is said to be in the process of establishing a global VC unit, while CJ has already made some strategic minority investments in the US.

Second, the development agendas of these corporates will ultimately influence where independent VCs operate, opening some doors and closing others. “We are going to see a lot of changes,” says Kim of Altos. “Naver is concentrating on distribution – it has the power to pull in content creators – but Kakao is trying to develop its own content. In the gaming space, NCSoft just formed an entertainment division to come up with TV and internet content.”

The enduring question is how long this content will remain relevant to a global audience. Local talent agencies, for example, have industrialized the popstar incubation and cultivation process, building up track records consistent enough to win over financial investors. But in terms of cross-border exposure, they are still riding a wave of popularity, which might not be sustainable.

Daniel Shin, a VC investor and senior executive at MCM World, a fashion brand owned by Korea’s Sungjoo Group, warns against reading too much into the K-content craze. “Audiences don’t care where it comes from as long as it’s appealing,” he says, adding that “Parasite” was fortunate to tap into the global zeitgeist, while BTS and Blackpink’s success is the result of hard graft.

So what happens if the K-wave is superseded by another transnational cultural phenomenon?

One answer is the Koreans will simply adapt. International threads have been woven tightly into acts with a view to binding them to audiences, with certain members originating from China and Southeast Asia or at least able to speak some of the local languages. Investors observe that a similar amount of thought now goes into positioning content for the US market, establishing what makes a brand acceptable to American audiences, how it is different from Korea, and reconciling the two.

“If you look at the executives in these companies, they have overseas training. A friend of mine went to Columbia Law School, became an executive at SK Telecom, and now he’s in a senior position at YG,” says Eum. “The quality of some of the executives is top-notch. That’s why you are getting folks who are successful at a global level – executives know the rules of the game and they can play it.”

Ascendo’s Shin isn’t a fan of the talent agency model, dismissing it as inherently unstable like many other areas of intellectual property ownership within media, but he recognizes the strength of the supporting infrastructure.

“When you see Korea movies, K-pop or other content do well, it’s not by accident,” he says. “There is a history of building ecosystems, whether it is networks of artists working together on high-quality movies or K-pop factory incubation system. From these kinds of ecosystems, I think more globally successful content will emerge.”

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• Topics
• North Asia
• North America
• Media
• Technology
• Early-stage
• TMT
• South Korea
• Translink Capital
• Altos Ventures
• ATU Partners
• Ascendo Ventures