Big Hit IPO: BTS made its music label a huge success. But business is risky

But Big Hit Entertainment’s excessive reliance on BTS might turn into simply as a lot a legal responsibility because it is an asset.

The firm raised practically 963 billion gained ($840 million) by promoting shares in its preliminary public providing, making it South Korea’s largest IPO since July 2017, in response to information compiled by Dealogic.

Early reception was very constructive: Shares opened Thursday at 270,000 gained ($236) every, properly above the IPO value of 135,000 gained ($118) every. They had been final buying and selling at 301,000 gained ($263).

Before buying and selling started, Big Hit was value 4.Eight trillion gained ($4.1 billion), making it extra invaluable than the nation’s three largest listed document labels mixed. And that is nearly solely because of the meteoric rise of BTS. The group accounted for 97% of Big Hit’s gross sales final yr.

While BTS has damaged out in a means that no different South Korean act has earlier than, there are some obtrusive dangers.

Relying on the artistic output of any celeb expertise comes with a vary of potential issues, from scandal to unexpected tragedy. But BTS has a distinctive complication that might threaten the business: South Korea mandates greater than a yr of army service, and the group’s members are quick approaching the deadline to enlist.

The group that fueled Big Hit’s rise

Before their rise, South Korea’s music trade was dominated by three music labels — JYP Entertainment, SM Entertainment and YG Entertainment — that turned out Okay-pop’s largest acts, together with Girls’ Generation, SHINee, GOT7, Big Bang and PSY.

But BTS, an acronym for Beyond the Scene, was created by the a lot smaller Big Hit. The label was based in 2005 by producer Bang Si-hyuk, often known as “Hitman” Bang.

In the seven years since their debut, BTS has broken records and grow to be an unstoppable drive within the trade. They’ve bought extra physical albums within the United States this yr than Harry Styles, Billie Eilish or Justin Bieber, and had been the primary group from South Korea to promote out US arenas and win a Billboard Music Award.
And their race to the highest of the Billboard Hot 100 charts — they had been the primary all-South Korean act to take action — helped contribute an estimated 1.7 trillion won ($1.5 billion) to the South Korean economic system by boosting tourism and rising demand for South Korean merchandise comparable to cosmetics and meals, in response to the Ministry of Culture and Korea Tourism Research Institute.

The group’s success has reworked Big Hit’s fortunes. Last yr, Big Hit reported 587 billion gained ($512 million) in gross sales — practically double the earlier yr’s whole.

But it additionally highlights the necessity for Big Hit to diversify.

“Ninety percent of Big Hit Entertainment’s revenue is from BTS, so the risk is there,” mentioned Park Ju-gun, a business analyst from company evaluation agency CEO Score. “But it has started to shift its revenue structure to a multifaceted portfolio.”

Over the previous yr or so, the corporate has acquired different music labels so it might deliver extra acts into the fold and debuted the boyband TXT, or Tomorrow X Together. Big Hit additionally launched a platform known as Weverse the place followers can see unique content material and message their favourite artists — a service that units the corporate other than the opposite main labels, in response to Ji In-hae, an analyst from Hanwha securities agency.

The modifications have not been revolutionary. BTS nonetheless made up practically 88% of gross sales by way of the primary half of this yr, in response to the corporate’s IPO prospectus revealed in September. And there isn’t any assure that new teams will repeat the success of BTS.

“We don’t know if there will ever be another group that can achieve BTS’ level of popularity,” mentioned Indiana University Bloomington professor and Okay-pop knowledgeable CedarBough Saeji.

Imminent army service and different dangers

BTS, in the meantime, could quickly face a huge disruption: obligatory army service.

In South Korea, nearly all wholesome males are required to register for the military and serve 18 months. People can delay their service for causes together with larger training or particular coaching till they’re 28 years previous.

BTS’ oldest member, Kim Seok-jin — often known as Jin — turns 28 in December, whereas rapper Suga whose actual title is Min Yoon-gi, turns 28 in March.

Big Hit has acknowledged that army responsibility is a danger for buyers. But the corporate additionally steered that the band nonetheless has a while: Big Hit informed CNN Business that Jin has enrolled in a graduate college program. That would permit him to delay his service till simply earlier than his 29th birthday in 2021, in response to South Korean regulation.

Whether BTS and different pop teams ought to must serve their total time period has grow to be a matter of nationwide debate. Unlike different artists, classical musicians and sports activities gamers, prime Okay-pop stars cannot obtain exemptions from full army service.

Why the past decade saw the rise and rise of East Asian pop culture

“The value of their contribution to Korea Wave and our country cannot be fathomed,” Noh Woong-rae, a lawmaker from the ruling Democratic Party mentioned at a National Assembly assembly earlier this month. “Now is the time we must discuss how these proud young men could better serve our nation.” The nation’s parliament is contemplating a invoice that might permit Okay-pop teams to delay army service for 2 years past the present deadline.

The guidelines as written, although, might disrupt the group for years.

That doubtless means extra solo tasks — although the group tends to do higher as a unit.

BTS is extremely prolific, releasing eight studio albums in seven years together with elaborate music movies, candid vlogs, behind-the-scenes movies, mini-series, solo tasks, combine tapes and tv appearances.

Korean Okay-pop followers are used to their idols disappearing for army service, however this might be uncharted territory for worldwide followers who had been launched to the style by way of BTS. Saeji, the Indiana University professor, mentioned that might imply an “uncomfortable transition period,” though she was optimistic that followers would keep loyal to BTS by way of their absence.

Big Hit additionally famous the group’s status as a potential danger in its submitting.

Other labels have struggled with scandal. Last yr, YG Entertainment’s inventory plunged after a member of one among its acts, Big Bang, was investigated for a vary of allegations, together with allegedly violating South Korea’s prostitution regulation. The member, Seungri, quit the industry and was indicted on prostitution and ordinary playing fees in January this yr. Seungri claims he is harmless aside from one violation of overseas foreign money buying and selling regulation, in response to his former lawyer Son Byoung-ho.

“There are things that can happen which can deeply damage a company, and we saw that with YG Entertainment,” mentioned Saeji.

“No one should be investing in the creativity of artists and their connection with fans without understanding that there are things that can happen,” Saeji added. “This is not a get rich scheme.”

The members themselves even have an incentive to keep away from doing something to jeopardize the group. They every acquired shares of Big Hit in August that are now worth millions of dollars due to the IPO.

“The best way to preserve the stocks would be to keep working and stay as a seven-member group,” Saeji mentioned.

What does the long run maintain?

Despite the dangers, Big Hit has a lot of motive to be pleased with its superstars.

Even although the coronavirus pandemic pressured BTS to cancel a world tour this yr, the group appears to have managed to grow to be much more common.

In June, the band reside streamed a live performance known as Bang Bang Con which drew greater than 750,000 followers from around the globe. The occasion nabbed them a new Guinness World Record title for many viewers of a reside streamed music live performance.

“What they’re offering in terms of positivity has been so perfectly attuned to the moment that we’re living in,” Saeji mentioned.

The continued reputation of BTS has salvaged Big Hit’s backside line through the pandemic. Concert income plunged practically 99% within the first half of 2020 in comparison with the identical time a yr in the past. But album gross sales shot up 80%. Overall income fell simply 8% in comparison with final yr.

“If the company is highly valued now in the midst of a pandemic, it will be an opportunity to gain even more momentum next year post-pandemic,” mentioned Park, the CEO Score analyst.

— Joh Yunji, Yoonjung Seo and Gawon Bae contributed reporting from Seoul.

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