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'Squid Game' shows hard economics of South Korea's soft power

Success of cultural exports shows how the country's cultural wave is spreading

| South Korea
Netflix claims that "Squid Game" has generated $900 million.   © Netflix/Kyodo

Alice Wang is an Asia-focused portfolio manager at Quaero Capital, an investment manager.

Critics scoffed back in 2006 when South Korean entertainment company CJ E&M said that soon the world would be watching "two to three Korean movies a year, eat Korean food one or two times per month, watch one to two Korean dramas per week and listen to one to two Korean songs per day."

Yet as the runaway success of the South Korean drama "Squid Game" suggests -- now the most popular Netflix show in 94 countries -- at least one of the company's goals seems within reach.

Most Westerners discovered hallyu, South Korea's cultural wave, via the 2012 hit "Gangnam Style," the first dance video to reach more than a billion views on YouTube. But Chinese consumers were exposed to the phenomenon much earlier. In 2005, the popular broadcasts "Yellow Handkerchief" and "Dae Jang Geum (Jewel in the Palace)" kicked off an obsession with South Korean culture.

That first wave of cultural exports ran into trouble in 2010, when a stampede caused hundreds of injuries at a concert by the South Korean boy band Super Junior at the Shanghai World Expo, leading to a Chinese backlash against both "brainwashed" fans and hallyu. That was exacerbated by South Korea's decision to acquire the U.S.-made Terminal High Altitude Area Defense (THAAD) anti-missile system in 2016, prompting China to ban South Korean imports.

While Beijing's hard-line presented serious problems for cultural exports, South Korea has transitioned to more global markets, significantly reducing its reliance on China. Its unique position at the forefront of trends in technology, capitalism and consumerism allows its artists to comment effectively on the future outlook for societies everywhere.

Nowhere is this more apparent than with "Squid Game" and the 2019 Oscar-winning film "Parasite" and their focus on growing global inequality and the hollowness of so-called meritocratic systems.

A still from "Parasite." (Courtesy of NEON and CJ Entertainment)

But not only are shows like "Squid Game" and "Parasite" able to deliver powerful social commentary, they are also big business. "Parasite" has so far grossed $259 million, while Netflix claims that "Squid Game" has generated $900 million. The crown jewel of South Korean cultural exports is a boy band named BTS, which generates an estimated $5 billion a year, equivalent to nearly 0.5% of South Korea's gross domestic product.

The band's exceptional success rests on its content, with song lyrics that capture the anxieties of the N-po generation in South Korea -- young people who have given up on careers, marriage and home-owning because of asset inflation, lack of job opportunities and the rigors of the country's highly competitive environment.

These concerns mirror those of the so-called tangping, or to lay flat, generation in China and the millennial generation in the U.S., with their anger at being unable to match the material acquisition of the post-World War II baby boomer generation.

But unlike America's nihilistic rappers and social media influencers, BTS offers a sense of community, elevation and hope. The group's tag line is "Music and Artist for Healing," and its latest injunction to "Love Yourself" is being promoted as a contribution to good mental health.

BTS offers a sense of community, elevation and hope.   © Imazins/Getty Images

The group's focus on shared values rather than sex has helped create a sense of community that drives serious monetization, not least among the 40 million members of the group's official fan club known as ARMY -- Adorable Representative M.C. for Youth -- almost equal to the population of South Korea. A BTS fan community app called Weverse, owned by South Korea's entertainment giant Hybe, generates average revenue per user of $75 a month, compared to just $5.25 a month for Spotify's app in 2020.

There are many global critiques of commoditized, capitalistic and secular Western culture, but none are as lucrative as the vision of community and cooperation presented by BTS. The group has been the target of many critics, who point out that it exists not to serve South Korean culture but to take money from young girls' pockets. BTS released the song "Idol" as a direct response to this critique.

But I see ARMY as a community that young people can afford to belong to, which fulfills a spiritual need in the absence of realizable aspirations for homeownership or career satisfaction. It is this sense of group identity that has allowed South Korean cultural exports, once reliant on China, to emerge as transnational, allowing hallyu to prosper without the support of Chinese consumers.

Investors can put aside their skepticism; BTS, "Squid Game," "Parasite" and similar cultural phenomena demonstrate that South Korean companies' pivot to the world is sustainable. Netflix clearly shares this view, having recently announced a plan to invest a further $500 million in South Korean content.

As hallyu rolls across the globe, I expect South Korea to diversify away from class commentary and candy land K-pop acts. There is certainly plenty more to offer. If you are mystified by dancing boys, check out Hyukoh -- a feel-good rock band that would be at home in any global metropolis.

Quaero Capital's Asia ex-Japan fund, the "Bamboo" fund, managed by Alice Wang, holds shares in Hybe, which owns rights to products related to artists such as Justin Bieber and Ariana Grande as well as BTS.

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