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BTS made Big Hit a huge success. They also explain why its IPO is so risky |




The music label behind the planet greatest K-pop sensation turned that success into a multi-million dollar stock issue.

But Big Hit Entertainment’s extreme reliance on BTS could prove to be as much of a handicap as it is an asset.

The company raised nearly 963 billion won ($ 840 million) by selling shares during its IPO, making it South Korea’s largest IPO since July 2017, according to data compiled by Dealogic.

The early reception was very positive: the shares opened Thursday at 270,000 won ($ 236) each, well above the IPO price of 135,000 won ($ 118) each. They were last trading at 301,000 won ($ 263).

Before trading began, Big Hit was worth 4.8 trillion won ($ 4.1 billion), making it more valuable than the country’s three largest listed record companies combined. And that’s almost entirely thanks to the meteoric rise of BTS. The group accounted for 97% of Big Hit’s sales last year.

While BTS has erupted in a way that no other South Korean act has before, there are glaring risks.

Relying on the creative output of any celebrity talent comes with an array of potential problems, from scandal to unforeseen tragedy. But BTS has a unique complication that could threaten the company: South Korea is imposing more than a year of military service, and the group members are quickly approaching the deadline to enlist.

The group that fueled the rise of Big Hit

Prior to their rise, the South Korean music industry was dominated by three music labels JYP Entertainment, SM Entertainment and YG Entertainment, which turned out to be K-pop’s biggest artists including Girls’ Generation, SHINee, GOT7, Big Bang and PSY.

But BTS, acronym for Beyond the Scene, was created by the much smaller Big Hit. The label was founded in 2005 by producer Bang Si-hyuk, also known as “Hitman” Bang.

In the seven years since their debut, BTS has broken records and become an unstoppable force in the industry. They sold more physical albums in the United States this year as Harry Styles, Billie Eilish or Justin Bieber, and were the first South Korean group to sell American arenas and win a Billboard Music Award.

And their run to the top of the Billboard Hot 100 charts, they were the first fully south korean act to do this has contributed to contribute 1.7 trillion won ($ 1.5 billion) to the South Korean economy by boosting tourism and increasing demand for South Korean products such as cosmetics and food, according to the Ministry of Culture and the Korea Institute of tourism research.

The group’s success transformed the fortunes of Big Hit. Last year, Big Hit posted sales of 587 billion won ($ 512 million), nearly double the previous year’s total.

But it also highlights the need for Big Hit to diversify.

“Ninety percent of Big Hit Entertainment’s revenue comes from BTS, so the risk is there,” said Park Ju-gun, business analyst at business analysis firm CEO Score. “But he started to shift his income structure into a multi-faceted portfolio.”

Over the past year, the company has acquired other music labels so that it can incorporate more acts and launched the boyband TXT, or Tomorrow X Together. Big Hit also launched a platform called Weverse where fans can view exclusive content and message their favorite artists, a service that sets the company apart from other big labels, according to Ji In-hae, analyst for the company of Hanwha titles.

The changes were not revolutionary. BTS still accounted for nearly 88% of sales in the first half of this year, according to the company’s IPO prospectus released in September. And there is no guarantee that new bands will repeat BTS’s success.

“We don’t know if there will ever be another group that can reach BTS’s level of popularity,” said CedarBough Saeji, professor at Indiana University at Bloomington and expert in K-pop.

Imminent military service and other risks

BTS, meanwhile, may soon face a massive disruption: compulsory military service.

In South Korea, almost all healthy men must enroll in the military and serve 18 months. People can delay their service for reasons such as higher education or special training until the age of 28.

BTS ‘oldest member Kim Seok-jin, also known as Jin, turns 28 in December, while rapper Suga, real name Min Yoon-gi, turns 28 in March.

Big Hit recognized that military duty is a risk for investors. But the company also suggested the group still had time: Big Hit told CNN Business that Jin had enrolled in a graduate program. This would allow him to delay his service just before his 29th birthday in 2021, according to South Korean law.

Whether BTS and other pop groups should have served their mandate has become a topic of national debate. Unlike other artists, classical musicians, and sportsmen, the best K-pop stars cannot qualify for exemptions from full military service.

“The value of their contribution to Korea Wave and to our country cannot be estimated,” Noh Woong-rae, a member of the ruling Democratic Party, said at a National Assembly meeting earlier this month. “Now is the time to discuss how these proud young men could better serve our nation.” The country’s parliament is considering a bill that would allow K-pop groups to delay military service for two years beyond the current deadline.

The rules as written, however, could confuse the group for years.

This probably means more solo projects, although the group tends to do better as a unit.

BTS is incredibly prolific, releasing eight studio albums in seven years, along with elaborate music videos, candid vlogs, behind-the-scenes videos, mini-series, solo projects, mixed bands, and TV appearances.

Korean K-pop fans are used to their idols disappearing for military service, but it will be unfamiliar territory for international fans who have been introduced to the genre through BTS. Saeji, the Indiana University professor, said it could mean an “uncomfortable transition period,” although she is optimistic fans will remain loyal to BTS while they are away.

Big Hit also noted the group’s reputation as a potential risk in its filing.

Other labels fought against the scandal. Last year, YG Entertainment’s action plunged after a member of one of its acts, Big Bang, was investigated for a series of allegations, including an alleged violation. of South Korea’s Prostitution Law. The deputy, Seungri, leave the industry and has been charged on charges of prostitution and habitual gambling in January of this year. Seungri claims he is innocent except for a violation of the currency trading law, according to his former lawyer Son Byoung-ho.

“There are things that can happen that can seriously hurt a business, and we’ve seen that with YG Entertainment,” Saeji said.

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

The members themselves are also encouraged to avoid doing anything that could compromise the group. They each received shares of Big Hit in August 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 group of seven,” Saeji said.

What does the future hold?

Despite the risks, Big Hit has plenty of reasons to be happy with its superstars.

Even though the coronavirus pandemic has forced BTS to cancel a world tour this year, the group seems to have managed to become even more popular.

In June, the group broadcast a live concert called Bang Bang Con which drew more than 750,000 fans from around the world. The event caught them a new Guinness world record title for most viewers of a live music concert.

“What they offer in terms of positivity has been so perfectly suited to the time we live in,” Saeji said.

The continued popularity of BTS saved Big Hit’s results during the pandemic. Concert revenue has fallen almost 99% in the first half of 2020 compared to the same period a year ago. But album sales climbed 80%. Overall turnover was only 8% lower than last year.

“If the company is highly regarded today in the midst of a pandemic, this will be an opportunity to gain even more momentum next year after the pandemic,” said Park, CEO analyst at Score.

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

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