Big Hit market debut takes a hit from reliance on BTS

Korea K-Pop band BTS

SEOUL: Big Hit Entertainment, the management label of South Korean superstar K-pop group BTS, hit the stock market with a 9.6 trillion won (US$8.38bil) valuation yesterday before worries over its narrow revenue stream pulled shares below the debut price.

Big Hit, which relies heavily on the boy band for revenue, opened at 270,000 won – double its initial public offering (IPO) price – and surged by as much as 30% in early trade before dropping back to close at 258,000 won.

Interest in South Korea’s third-largest IPO of the year was high, with almost half of Big Hit’s 10 million tradable shares changing hands yesterday morning amid a weaker wider market, according to the Korea Exchange website.

Analysts said the company had proven itself online-savvy, using Youtube and social media for market infiltration since in-person performances were cancelled because of the coronavirus pandemic.

But there are some concerns about Big Hit’s reliance on its star artists. The Billboard Chart-topping BTS, which has a huge global following, accounted for 87.7% of the label’s revenue in the first half of 2020, according to a regulatory filing.

It’s a scenario common among South Korean entertainment companies and one investors are familiar with, but it makes revenue especially vulnerable to any disruptions in output from key talent.

“The industry is booming, but it’s also very cyclical, and undergoes a lot of fluctuations, ” said Kim Hyun-yong, analyst at Hyundai Motor Securities, citing potential obstacles such as the country’s mandatory military service.

That service is looming for BTS, with the eldest member of the band currently required to sign up by the end of next year and the remaining six members over the following five years.

Calls have been mounting for the band to be granted an exemption from or postponement of the two-year commitment, with some lawmakers and fans arguing they are doing plenty for their country without wearing a soldier’s uniform. Earlier this week, BTS faced a barrage of criticism in China after the band’s lead member made remarks about the 1950-53 Korean War pitting the United States and South Korea against China and North Korea. BTS-related social media posts relating to big-name brands, including Samsung, FILA and Hyundair, subsequently disappeared from Chinese e-commerce platforms.

Yesterday’s float made the band members instant multimillionaires, with each granted shares worth 18.5 billion won (US$16mil) at the debut price, but BTS’ official Twitter account did not reference the listing, focusing instead on the group’s win at the coinciding US Billboard Music Awards for Top Social Artist.

Analysts said BTS’ successful online concerts have partly made up for performances cancelled due to Covid-19. Additionally, Big Hit’s unprecedented level of control over its revenue streams via its Weverse fandom platform that distributes BTS content and sells merchandise, differentiate the label.

“Although offline concerts are impossible for the time being, Big Hit’s results in the first half of this year show that the content and merchandise made profits; it was hardly affected on-year, ” said KTB Investment & Securities analyst Nam Hyo-ji.

Big Hit founder and co-CEO Bang Si-hyuk said the company planned to create “new value chains.”

“We will continue to research, challenge, discover innovative business models, and apply them to continue to grow in the global market, ” he said at the listing ceremony. — Reuters

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