BTS management, Big Hit IPO rocks the music industry

On October 15, Big Hit Entertainment raised 963 billion won ($843 million) in South Korea’s largest IPO since 2017. Their stock price opened at 270,000 won ($236), more than double their IPO price of 135,000 won ($118) and closed at 258,000 won ($225). Their day-one market cap sat at a hefty $7.6 billion, making founder Bang Si-hyuk South Korea’s newest billionaire.

Interestingly enough, even after the pre-listing hype eased and with the steady decline of the stock price, Big Hit’s stock price has never dipped below the IPO price of 135,000 won. As of October 30, the stock is valued at 142,000 won, with analysts saying this price is “more reasonable and based on the fundamentals of a company which relies heavily on” one group for revenue.

Indeed, Big Hit’s success can be mainly attributed to K-pop superstars BTS and their enormous fanbase, officially termed the BTS A.R.M.Y. Since their debut in 2013 under Big Hit Entertainment, BTS has performed sold-out shows around the world and broken numerous Billboard chart records. With their Love Yourself: Tear album in 2018, they became the first Korean group to top the Billboard 200. They repeated the feat with Love Yourself: Answer and Map of the Soul: Persona, which was the best-selling Korean album of all time until BTS beat their own record with 2020’s Map of the Soul: 7. Similarly, on October 12, BTS’s remix of “Savage Love (Laxed -- Siren Beat)” has even beaten out their own recent all-English single, “Dynamite”, for the top spot on the Billboard Hot 100.

In 2019, BTS sold 6.21 million albums, while SEVENTEEN, the next most popular group under Big Hit, sold 1.45 million. In 2020, BTS sold 4.26 million copies of Map of the Soul: 7, while SEVENTEEN sold 1.2 million copies of their seventh mini album. It comes as no surprise, then, that BTS accounted for 87.7 percent of Big Hit’s revenue for the first half of 2020, and 97.4 percent of Big Hit’s 2019 revenue.

According to a September regulatory filing, the seven members of popular boy band BTS received 478,695 shares in the company in August 2020 “to strengthen long-term partnership with major artists and boost morale”; indeed, now that the members of BTS are shareholders, Big Hit has essentially eliminated any uncertainty regarding future contract negotiations with the group. With the IPO, BTS has earned $15.4 million. In the music industry, this is actually a rarity -- never have industry giants like Universal, Sony, or Warner given stocks to their artists. This transfer of equity is almost exclusively reserved for the likes of early startups, like Kobalt or Elektra, and it could very well change the industry paradigm.

A looming issue for the group, however, is South Korea’s mandatory 18-month military service for men: the oldest member of the group (at 27 years old) must report for duty by the end of next year, and none of the other members have completed their military service, either. Some have speculated that Big Hit will “either set up units with the remaining members or pursue solo acts while they serve in the military.” Others are confident in the fan base: collaborations with LINE FRIENDS, Samsung, Hyundai, and Starbucks, for example, have already generated enormous economic value for the company.

Presumably to reduce their dependence on BTS, Big Hit has been working steadily to vertically integrate the most profitable services, like online concert platforms. They have recently hired 100 IT personnel from companies like Naver and Kakao, and they have recruited IT veterans to the executive level. They are still recruiting in fields such as app development and management and game development. Already, they have been quite successful with their “Weverse” e-commerce and social media platform, which has allowed Big Hit to expand beyond music management. Sales of digital content have already more than made up for BTS’s cancelled sold-out world tour through the 22 billion won raised from ticket sales for Big Hit’s self-produced concert in June 2020.