K-pop superstars BTS become multimillionaires after Big Hit shares surge in South Korea

Big Hit Entertainment, the agency behind K-pop superstars BTS, took South Korea’s stock exchange by storm on Thursday, reflecting investors’ confidence in the staying power of the seven-member group that is backed by obsessive followers.

The company’s shares soared to the day’s limit high of 351,000 won (US$305) on the first trading day after going public, up from an initial offering price of 135,000 won (US$118). It receded on profit taking to close 26 per cent down at 258,000 won (US$225).

After being valued at more than 11 trillion won (about US$10 billion) at one point in the day, the total valuation after closing on Thursday was 8.7 trillion won (US$7.6 billion).

This makes BTS members multimillionaires, with each granted shares as much as 24 billion won (US$20.94 million) each.

“The bright side of Big Hit Entertainment is that it is tied to BTS through a contract, while the dark side is that most of its sales come from BTS,” said analyst Lee Hyo-jin of Meritz Securities, whose target prices were at the lower end of the scale.

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Big Hit Entertainment raised 962.6 billion won (US$840.2 million) with the 7.13 million shares it issued in its initial public offering – 60 per cent of which went to institutional investors, with 20 per cent to company employees and the remaining 20 per cent to individual investors.

Shares were oversubscribed at a rate of more than 600 to 1, with a deposit of 100 million won only yielding two shares worth 270,000 won each, based on the finalised subscription rate. In an initial public offering, an investor’s chances of receiving shares is based on the size of their deposit – for Big Hit Entertainment’s IPO, 99.73 per cent of deposits were returned.

The company says it will use the money raised to pay off debts, expand its business by acquiring music labels in South Korea and abroad and foster artists in different countries.

BTS accounted for 97.4 per cent of the company’s sales last year and 87.7 per cent in the first half of this year, according to regulatory filings. Over the first half, Big Hit Entertainment generated 294 billion won in sales and 49.7 billion won in operating profit – surpassing the combined total of rival South Korean entertainment agencies JYP, with 22.5 billion won, SM with 14.8 billion won and YG Entertainment, which made a 300 million won loss.

But the activities of Big Hit’s big moneymaker are likely to be curtailed when the members of BTS, born between 1992 and 1997, are called up for their mandatory military service, Lee of Meritz noted. South Korean men are obliged by law to serve between 18 and 21 months in a branch of the armed forces before they reach the age of 28.

A senior lawmaker of the ruling Democratic Party has floated the idea of BTS’ members being allowed to serve an alternative form of community service rather than joining the military, however.

“Military duty is sacred, but not everyone has to hold a rifle,” said Noh Woong-rae, pointing to the 60 trillion won (US$52.3 billion) worth of economic gains BTS is forecast to bring South Korea over the next decade.

Some analysts have further cautioned that the massive amount of shares owned by institutional investors could flood the market once their six-month lock-up period has expired, causing Big Hit’s stock price to plummet.

But Kim Hyun-yong, an analyst at eBest Securities, is more optimistic. “Big Hit is coming out well from the Covid-19 crisis. It is acting like a trailblazer, creating a post-crisis entertainment business model through successful digital online remote performances by taking advantage of its own platform called Wevers,” he said.

Last weekend, BTS live-streamed their first concert in four months, with 990,000 viewers worldwide flocking to watch the “BTS Map of the Soul ON: E (ONline Edition)” show, which cleared an estimated 50 billion won.

Further boosting Big Hit’s prospects is its roster of up-and-coming artists such as TXT, NU’EST and ENHYPEN, said analyst Shin Su-yeon of Shinyoung Securities.

“By making a good use of its systematic management of fan bases, the company is likely to improve profitability”, she said.

To live up to expectations, Big Hit’s billionaire founder Bang Si-hyuk needs to turn his one-band wonder into something closer to Universal Music Group, adding artists and spreading their hits widely.

An alternative would be to expand into other forms of Korean content already grabbing consumers’ attention as part of the so-called Korean wave, such as television dramas, films and games.

K-pop, with its mix of hip-hop, pop and synchronised dance moves executed by perfectly chiselled starlets, has been making waves around the world ever since rapper Psy’s Gangnam Style took the charts by storm in 2012.

Yet BTS, thanks to social media, is arguably the first group to really resonate with Western audiences. Its members tackle issues such as mental health and current affairs on social media – content that is lapped up by their formidable fan base, which has handed the group a Guinness World Record for Twitter engagement, based on average retweets.

There can be little debate that BTS are a lucrative musical phenomenon – the group’s latest album was the fourth in under two years to reach the top of the US Billboard 200 chart, while their first all-English single went straight to number one.

Their popularity appears to be undimmed by the pandemic, with a live-streamed performance in June attracting a record 756,000 viewers from more than 100 countries.

The bigger question is whether Big Hit Entertainment is worth a celebrity price, given its dependence on one group and the experience of rival agencies like YG Entertainment, which in 2019 saw suicides, sex and drug scandals mar its previously demure image.

BTS’ clean-cut members have committed no such transgressions. Still, even superstars have a shelf life. The Beatles, whose own popularity is often used as a point of comparison, lasted less than a decade. BTS was formed in 2013.

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The group has also sparked criticism in China after its leader, known by the initials RM, made remarks about the Korean war, saying in an acceptance speech that South Korea and the United States shared a “history of pain” with regards to the conflict, which the two allies fought against China and North Korea.

Several big-name brands, including Samsung, appeared to distance themselves from the group in the wake of the uproar – but when asked about the controversy, a Chinese foreign ministry spokesman said all sides should look to the future.

Additional reporting by Reuters