Will Fans Create One of the Year's Biggest IPOs?

Issue No. 8

Creator fandom will hit a whole new level on October 15, when Big Hit Entertainment, the management group of Korean pop sensation BTS, will start publicly trading in South Korea. 

My kids are aware of the IPO and expressed interest to me to buy shares. Last Tuesday, retail investors bid 58.4 trillion won (US$50.3 billion) to get their hands on shares in the management company -- more than 600 times the value of shares on offer. My kids will have to settle for BTS merch. 

In 2019, BTS became only the third music group in the last fifty years to have three No. 1 albums on the Billboard 200 chart in less than twelve months. The Beatles and The Monkees share the feat. In August, the group’s single ‘Dynamite’ hit No. 1 on the Billboard singles chart in the US, and was the first time a group from South Korea has achieved this performance. 

Nearly 32 million people listen to BTS music on Spotify every month. Since the start of 2020, BTS has generated two billion views on YouTube, and added 13 million new subscribers. 24-percent of those views occur in the US market, followed by Brazil, Indonesia, Mexico and the Philippines. South Korea ranks No. 11. 

The global appeal of BTS on YouTube propelled ‘Dynamite’ to 98.3 million views in its first day on the platform, and 378 million views by the end of the first month. 

Billions of views and 226 million engagements year-to-date on YouTube has resulted in big business for Big Hit Entertainment. 

97.4-percent of Big Hit’s US$503 million in 2019 revenue came from BTS. Though the contribution percentage is forecast to decline in 2020, it will still be north of 85-percent of the company’s total revenue. In addition to the heavy reliance on one asset, Big Hit has to contend with the fact that each of the group’s seven members have to serve in the Korean military by the age of 28. 

Big Hit will raise over US$800 million in the offering, valuing the company at US$4.1 billion. The founder, Bang Si-hyuk, will become a billionaire. Korean gaming firm Netmarble, and private equity firm STIC Investments, stand to see a 500-percent valuation increase since they invested in 2018. 

How about the septet? 

The trainees turned stars have been allocated 1.68-percent of the company’s shares prior to the IPO. Each member should have a personal stake worth just shy of US$8 million on October 15.

Is less than 2-percent the right allocation for BTS? It is unclear to me what revenue or profit share deal they have with Big Hit, and how their stake in the company stands in comparison. How much are retail investors placing a bet on the future value of BTS versus Big Hit? 

One share in Big Hit is similar in price to one concert ticket, which fans cannot consume this year due to Covid. Show support instead by buying their merchandise, or spend disposable income on an asset? It is easy to see why the demand for the IPO is so strong. 

What is the equivalent in the US market to the Big Hit IPO?

I have heard top creators on YouTube speak in the past year to their audience and suggest they can be an ‘investor’ in the creator’s enterprise by buying their merchandise. Spend more on $25 T-shirts and $60 hoodies, and the creator can keep making content. Some will upgrade to a US$5 million home and thank fans in the home tour video for making it all possible. How is that for an exchange as an ‘investor’? 

Is the equivalent to Big Hit having Scooter Braun take his company public, allowing fans of Justin Bieber and Taylor Swift to invest in the company that discovered, developed, and manages Bieber, and also now owns part of Swift’s music catalog? Or fans of kids properties CoCoMelon and Blippi investing in the holding company that controls its IP? I don’t see the equivalent being fans of actors wanting to invest in the talent agency that represents the actor for a portion of their career. Institutional investors are the likely IPO targets for Endeavor, and if CAA or UTA ever try to go public. 

Blackpink in your area

In terms of a precedent in South Korea, one can look to YG Entertainment, the company that developed Blackpink. I overheard one of my daughter’s friends express earlier this month that she does not get the hype over Blackpink. My daughter would beg to differ. 

Earlier this month the group released ‘The Album’, billed as its debut Korean-language studio album. The group collaborated with US artists Selena Gomez and Cardi B. ‘Ice Cream’, a track produced with Selena Gomez, has over 330 million views on YouTube. Quite strong, but not at the same level as ‘Dynamite’. 

Blackpink does however surpass BTS in aggregate views. The female quartet has over four billion views year-to-date on YouTube, and has added over 16 million subscribers in the same period. 18-percent of their audience is in the US (their largest market), with Brazil, Indonesia, Philippines and Thailand rounding out the top five viewer markets. 

YG Entertainment was formed in 1996 and went public in South Korea in 2011. Their stock price is up 75% since the start of the year, and up 147% since March, adding US$457 million in market value. YG found success with Psy and his hit single ‘Gangnam Style’ in 2012. YG’s stock price peaked that year at a level 50-percent higher than it is today. 

YouTube global search trends since 2012 show the rise and decline of Psy (in red), the gradual rise of BTS (in yellow), and the related interest in Blackpink (in blue). 

YG has shown it can transition from the success of ‘Gangnam Style’ to nurture and develop new artists and assets to the company. Big Hit is already working on its diversification from a BTS-dependent business. It acquired two other agencies, Pledis Entertainment and Source Music, while nurturing and expanding trainees to debut new acts.

Lastly ...

  • While BTS has had no problem climbing the view charts on YouTube, the No. 1 Billboard position remained elusive without support from meaningful rotation on US radio. Big Hit’s US-based label partner Columbia sought to change that, and commissioned two British musicians to pen an all-English track for the group. The writing session was done in a day over Zoom. “We went for lunch, had some pasta, we had a coffee, came back and then, yeah, it was done,” said co-writer Jessica Agombar in a press interview. Agombar said she was seeking to write a track that fans worldwide could sing. “I looked at all the tweets from them,” Agombar said. “And I thought, ‘Wow, the fanbase are literally doing the A&R, the PR for this band.’”

  • On October 1, Blackpink paired up with YouTube for the live music video premiere of ‘Love Sick Girls’, the third single released from ‘The Album’. In the 15-minute pre-show hosted by radio DJ Little Bacon Bear, over 800,000 peak concurrent viewers tuned in for news and interview content. The pre-show garnered 7.5 million views in the first twelve hours of on-demand viewing. The music video that followed saw 1.6 million peak concurrent viewers, and 39 million views in the first twelve hours of on-demand viewing. There were over six million fan engagements with the music video in the first twelve hours.