SEOUL – Wanna buy a piece of South Korean boy band BTS?
That will actually be possible next month. And the price has been set.
On Monday, BTS’ label, Big Hit Entertainment, disclosed its initial public offering stock price. With 7.1 million shares being offered at the top of its desired price band, set between 105,000 won (US$99) and 135,000 won ($115) per share, the company’s IPO is poised to fetch 962.6 billion won ($821 million).
However, securities companies anticipate Big Hit’s value will top $4 billion in short order, given massive over-subscription for the stock.
Some 1,420 institutions ordered more than 1,117 times their allotted shares, Big Hit has disclosed. The two-day bookbuild for Big Hit’s listing was finalized by Seoul-based securities companies and underwriters on September 25.
The IPO will take place on South Korea’s main board, the KOSPI, on October 15.
Meanwhile, all the stars are aligning for Big Hit’s biggest asset. BTS boasts a massive feel-good factor at the worst of times, and despite the Covid-19 pandemic, the seven-member band has been sweeping all before it.
The “New Beatles” addressed the UN General Assembly via video on September 23. That honor followed the band nailing their first US Billboard Hot 100 number one hit, the English-language Dynamite, on September 1.
Last week, the band’s docu-drama Break the Silence debuted at the top of the Korean box office and a new album is expected in November.
While the worldwide concert sector has imploded amid Covid-19, BTS, as Asia Times has reported, is well-positioned to flourish amid the pandemic.
The band boasts a 360-degree online presence and are expert curators of their fan base. In this, they are underwritten by Big Hit’s Weverse platform, which weaves together free fan-band interaction services with subscriptions and merchandise sales.
This skillset and infrastructure make BTS arguably better equipped to ride out Covid-19 than any other major global pop act.
The Korean investment scene is frothy, too. With abundant liquidity in the market and a surge in day-trading among stay-at-home retail investors amid the Covid-19 pandemic, recent listings have soared.
Kakao Games – the gaming arm of the country’s top messaging service – was massively oversubscribed when it went public this month, following SK Biopharmaceuticals’ successful listing in July
Given the hype surrounding BTS and the huge oversubscription, Big Hit’s shares are expected to skyrocket once they list. Hyundai Motor Securities, in a September 15 report, suggested a band of between 3.5 trillion won ($3 billion) and 4.5 trillion won ($3.9 billion) for Big Hit’s market value.
In a September 23 report, Shinhan Securities named 290,000 won as a “fair value” price for a Big Hit share, more than double the 135,000 won price disclosed on Monday.
Shinhan assessed value based on anticipated profits and a price-to-earnings ratio of 50 times. For the valuation of three entertainment companies the securities company already covers, Shinhan applies a PER of 40 times.
For Big Hit Entertainment, however, Shinhan suggests a 25% premium, reflecting the company’s market leadership and added value from Weverse.
Is this all too exuberant? The Financial Times points out that the company’s valuations suggest that trading will start at 76 times Big Hit’s earnings for 2020. According to South Korean daily the Joongang Ilbo, the projected valuation of Big Hit is well beyond that of Korea’s “Big 3” entertainment companies combined, approximately 3.2 trillion won.
Beyond the explosive vibe, concerns linger over the limited scope of Big Hit’s portfolio and also BTS’ near-term future.
Big Hit lacks hits beyond BTS, making the company heavily dependent upon a single act, red hot though that act is.
This makes them far less diversified than the “Big 3” K-pop labels – SM Entertainment, YG Entertainment and YYP Entertainment – all of which boast long histories of consistently incubating and marketing multiple acts.
According to Big Hit’s securities registration statement, sales generated by BTS accounted for 97.4% of Big Hit’s sales last year, South Korean daily the Joongang Ilbo reported.
To diversify its offerings, Big Hit has acquired two smaller agencies, Pledis Entertainment and Source Music, with the result that in the first half of 2020 its dependence on BTS fell by 10 percentage points. But that still left Big Hit reliant upon BTS to bring in a whopping 87.7% of sales.
And nothing Big Hit has done to date has replicated the profit magic of pop gods BTS.
“Another Big Hit band made their debut last year,” said Lee Gyu-tak, a professor who monitors the entertainment industry from George Mason University in Incheon. “And they are trying to scout new boy and girl bands, but because of Covid-19 these projects are not going that well.”
All this makes Big Hit’s biggest vulnerability its biggest asset: BTS. And a very large unanswered question hangs over the band’s near-term future.
With South Korea facing off against North Korea over the ever-tense DMZ, all South Korean males face an 18-month military service obligation. That obligation is going to impact the band from late 2021, when its oldest member is required to report for duty.
German and South Korean officials have forecast that mass Covid-19 vaccinations will not be fully underway until spring-summer of 2021, vaccinations that will enable – perhaps – the resurrection of global travel and concerts.
If correct, that will grant BTS a very limited time window to connect with their global fan base with their present lineup.
Should the members of BTS – a virtual national treasure when it comes to the global brand of South Korea, a nation deeply sensitive to its international image – serve in the military?
“I hope that they will be exempted, they are such a big cultural asset for Korea’s contemporary art and culture,” Choi Jung-hwa, who heads the Corea Image Communications Institute, which rewards people and organizations that successfully promote Korea’s global image, told Asia Times.
When it comes to military service exemptions, a double standard exists in South Korea, Choi – an admitted BTS fan – said: Classical musicians can be exempted, but not popular musicians.
“A lot of people think it is not fair,” Choi said. “A lot of people are thinking about this, but it is so sensitive that people are not talking about it openly.”
South Korea’s Justice Minister is now embroiled in a brouhaha due to questions over her son getting cushy duties during his national service. And the entertainment industry is particularly sensitive.
Korean-American K-popster Steve Yoo found himself virtually banned from entering South Korea when he opted not to serve, leaving his career in tatters. Famous names like G-Dragon have done their duty, and Psy even did it twice, when it was alleged he had been granted an easy time on his first stint in uniform.
So all current indications are that the BTS members will don camouflage.
The question of army service is not publicly spoken of among the ARMY, the self-described fan base that comprises BTS’s keenest followers. Seoul-based reporters who have raised the issue have faced flak online from ARMY members angry that the journalists have breached a virtual taboo.
The example of Elvis Presley, who returned from service to ongoing adulation, suggests that not all is lost even if BTS is removed from the scene for the duration of its members’ service. And Big Hit does have some managerial flexibility.
The band is seven strong, meaning that older members could, feasibly, rotate through their terms in uniform, while the younger stars keep the act alive. This would result in BTS slimming down to a smaller act post-2021, before re-emerging and re-uniting as BTS in toto, once all members have done their time in the trenches.
But given the group chemistry that animates the band, that option looks unlikely.
“Actually, other boy bands have done this – one or two members do their service, while others do the job – but BTS are likely to see all members go into the service at the same time,” said Lee. “They don’t want to make BTS just three or four members, and don’t want one or two members to be more popular than BTS.”
“Personally, I don’t think the original members can be reduced,” added Choi. “The impact is not the same.”