Drug scandal hurts K-pop stocks, their reputation

The recent drug scandal in Korea's showbiz industry has negatively affected stock prices of major entertainment companies, such as CJ ENM and YG Entertainment.

Actor Lee Sun-kyun appears for questioning at the Incheon Police Agency’s Incheon Nonhyeon Police Precinct on Saturday. [NEWS1]

The recent drug scandal in Korea’s showbiz industry is hurting stock prices of major entertainment companies, increasing the reputation risk for the burgeoning business. Shares of entertainment companies, including CJ ENM and YG Entertainment, took a toll as celebrities such as actor Lee Sun-kyun and K-pop star G-Dragon got caught up in drug scandals.

CJ ENM shares dropped 0.59 percent on Oct. 23 and plunged 3.07 percent further on Oct. 26 after the police confirmed that “Parasite” star Lee Sun-kyun was involved in a drug abuse case.

CJ ENM produced and was scheduled to distribute a movie titled “Project Silence,” starring Lee in the lead.

CJ ENM shares recovered to close at 53,900 won ($40) on Wednesday, up 3.45 percent compared to the day before, after the company announced a subscription fee hike for its Tving streaming service.

Still, the share price is down 2.88 percent compared to more than a month ago on Oct. 4, and 48.42 percent down compared to the beginning of this year on Jan. 2.

Shares for film distributor Next Entertainment World (NEW) fell 2.84 percent to 4,270 won on Oct. 23. Compared to Oct. 4, shares fell 17.82 percent to 4,150 won on Wednesday.

They are the companies with releases lined up for big-budget films and drama series with Lee fronting Lee the cast.

“Project Silence,” produced by CJ ENM Studios, reportedly cost 20 billion won to make. The film stars big-name actors such as Ju Ji-hoon and Kim Hee-won, and received a four-minute standing ovation when it was screened at this year’s Cannes International Film Festival.

“The Land of Happiness,” distributed by NEW, cost 10 billion won and stars other established actors such as Cho Jung-seok and Yoo Jae-myung.

Korea remains relatively conservative compared to the West when it comes to the casting of celebrities after they become ensnared in scandals involving drugs, sex and drunk driving. The rule of thumb followed by most of the showbiz industry is to elaborately cut out the scenes involving the problematic celebrity, or replace them altogether — but that’s possible only during the early stages of casting or filming, or when the figure is not one of the main characters.

The convicted are often restricted from TV appearances as well, and the more serious the crime, the longer the public sentiment persists in punishing the offender — phasing them out.

Actor Yoo Ah-in serves as a prominent figure of the boycott. Yoo was indicted without detention on charges of illegal drug use on Oct. 19. Projects worth a total of 65 billion-won, such as Netflix’s “The Match,” “Good Bye Earth” and a film called “Hi.5” distributed by NEW, will have to indefinitely postpone their releases, with no guarantee on when they’d be out.

When the news hit that K-pop star G-Dragon was under investigation for suspected drug abuse on the evening of Oct. 25, the musician's former agency YG Entertainment’s shares plummeted 7.89 percent to close at 50,200 won the next day. Although the agency firmly drew the line to say that they “cannot comment on anything as the artist is no longer under our wing,” investor sentiment dwindled, open to the possibility of additional celebrities being involved in the drug scandal.

K-pop star G-Dragon [NEWS1]

YG Entertainment shares, however, climbed 6.56 percent to close at 58,500 won on Wednesday, but still falling 2.5 percent compared to Oct. 4.

Stock shares of companies unrelated to the drug scandal figure were also impacted by the news.

Shares of other K-pop agencies, such as HYBE and JYP Entertainment, each nose-dived 10.72 percent and 6.17 percent on Oct. 26. However, their shares have recovered since then as their artists remained unscathed. HYBE’s shares rose 5.01 percent to 230,500 won, while JYP Entertainment shares jumped 2.53 percent to 105,200 won on Wednesday.

Putting aside the stock prices, experts warn that such cases could pose a reputation risk for the local entertainment scene as Korean culture spreads across the globe.

“American media outlets such as The Hollywood Reporter and Variety were quick on their feet to report that the ‘Parasite’ star is under investigation for illegal drug abuse and that he’s dropping out of several projects,” Prof. Seo Kyoung-duk wrote on Facebook. “In the era where K-content is receiving the global spotlight, such news only damages our reputation. The global influence of K-content will continue to spread, and we must set this unfortunate precedent as a moral that ethics is a fundamental trait that a Hallyu star should have.”

Analyst Park Seong-guk at Kyobo Securities, on the other hand, projected positive outlooks for next year, influenced by the U.S. market.

“The K-pop scene is expected to flourish as local artists expand their reach in the U.S. market,” Park said. “The U.S. ranked No. 2 on the list of countries that streamed the most K-pop music for the first half of this year. We need to watch closely if K-pop will be regarded as the mainstream culture by monitoring the U.S. streaming charts.”

“The local content industry will also recover next year, boosted by recovering earnings from global streaming giant Netflix due to its price hike in subscription plans, and as the American production studios resume filming as the 2023 SAG-AFTRA Strike draws to an end.”

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]