Shares of Big Hit Entertainment, the company behind South Korean boy band BTS, begin trading this week. A top-of-the-range IPO valuation of $4.2 billion implies rock-star earnings multiples. Institutional investors have piled in anyway, displaying impressive confidence in the staying power of ultra-groomed youths and their obsessive followers.
To live up to the hype, billionaire founder Bang Si-hyuk needs to turn a one-band wonder into something closer to Universal Music Group, adding artists and spreading their hits widely. An alternative would be to go further, surfing the Korean Wave to become a proxy for a booming cultural economy, expanding into the many other forms of Korean content already grabbing consumers’ attention: television drama, cinema, gaming and more.
A mix of hip-hop and pop, with synchronized dance moves executed by perfectly chiseled starlets, the K-pop phenomenon already reaches far beyond Korea. Rapper Psy’s “Gangnam Style” made the horse-ride dance popular in 2012. Yet BTS, thanks to social media, is arguably the first band to really resonate with Western audiences. The floppy-haired outfit tackles issues like mental health and current affairs. A formidably active fan base means the band holds the Guinness World Record for Twitter engagement, based on average retweets.
There’s little debate over whether BTS is a lucrative musical phenomenon -- its latest album was the fourth in under two years to reach the top of the US Billboard 200 chart, and the group’s first all-English single went straight to No. 1. Its live concert popularity isn’t far off Elton John’s, and remains undimmed by the pandemic: A streamed performance in June attracted a record 756,000 viewers from more than 100 countries.
The bigger question is whether BTS’s manager is worth a celebrity price.
Its dependence on the band strikes a dissonant note. While Big Hit has other idols, BTS accounted for almost 90 percent of sales in the first half. That’s uncomfortable, given questions over the members’ eventual absence for military service, which is compulsory for Korean men between 18 and 28. Or indeed the experience of rival agencies like YG Entertainment in 2019 -- a year marred by suicides, sex and drug scandals in an industry that has long cultivated a demure image.
Clean-cut BTS has committed no such transgressions. Still, even superstars have a lifespan. The seven-man group officially debuted in 2013. The Beatles, whose popularity is often a point of comparison, lasted less than a decade.
Considering estimated 2020 net debt and annualized earnings before interest, tax, depreciation and amortization as provided in the listing prospectus, a debut price of 135,000 won ($117) per share puts the company’s enterprise value at more than 40 times this year’s Ebitda. That’s well above local rivals like SM Entertainment, JYP Entertainment and YG Entertainment, which trade at an average of closer to 22 times forecast Ebitda. It’s above Warner Music Group too, and suggests expectations of breakneck growth. The company’s comparisons to chat-app owner Kakao and tech giant Naver, meanwhile, appear wishful at best.
Part of the problem comes from the sheer difficulty of putting a price on a talent agency, as US powerhouse Endeavor Group Holdings found out last year. There is biotech’s element of chance, the faddish buzz of fitness startup Peloton Interactive, and, with a band like BTS, a touch of soccer clubs’ promise that loyal fans will stick with a successful house. It doesn’t help that the entertainment industry’s size and market power in South Korea discourage critical scrutiny.
Once COVID-19 restrictions lift, Big Hit has good reason to believe that tours will prove money-spinners once more. It will need to move quickly to diversify while Bangtan Boys (to give BTS its full name) are on top, though. The company has already snapped up a rival label and fosters new artists, but barriers to entry remain relatively low. Another option is to do more to capitalize on the breakaway success of Korean drama and film too, on top of BTS’s cross-national appeal. The Korean Wave rose higher this year when “Parasite” became the first foreign-language film to win the Academy Award for best picture.
It’s not without risk, given much of that dabbling so far has been outsourced. Yet mobile game developer Netmarble is a shareholder and, as Big Hit itself points out, its existing business is already about grabbing the attention of fickle, time-poor consumers. Absent that, this may be a one-hit wonder.
Clara Ferreira Marques
Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. -- Ed.