K-pop still a mixed bag of fortunes for foreign investors
[THE INVESTOR] In December, Big Bang’s Seungri celebrated his 30th birthday, lighting candles in front of some 100,000 followers on Xiaohongshu, a fast-growing Shanghai-based social network service.
The social media firm flew in the K-pop superstar, who in turn invited three of his Chinese fans to ride a private jet, visit the YG Entertainment headquarters in Seoul, and go clubbing with him.
A scene fit for a Hollywood movie star has become a reality for K-pop groups as the industry has grown over the past five years from “a niche genre to a US$5 million global industry,” as Rolling Stone put it.
Music has become a major export item, second only to games, logging in US$45.5 million in 2017, according to Korea Creative Content Agency. And now, the figures will be much bigger as the next generation of K-pop bands appeal to global fans.
Leading the wave: BTS & Big Hit
The global phenomenon is led by BTS, a seven-member boy band generating more than US$3.6 billion a year. Approximately 800,000 tourists came to Korea in 2017 because of BTS, more than 7 percent of the total visitors and over US$1 billion in consumer exports were associated with the group, according to Hyundai Research Institute.
As BTS rose to the top, breaking records on music charts and YouTube, its management company is being eyed by many investors.
Unlike the first wave of hallyu, or Korean Wave, which saw many failed investments in movies, the entertainment industry has proved that it can be a jackpot. Korea Investment Partners, the nation’s only venture capital manager with over 1 trillion won (US$893.35 million) assets under management, was the second-largest shareholder of YG Entertainment when it invested 7.4 billion won in 2009. Three years later, it reaped 69 billion won.
Now all eyes are on Big Hit Entertainment, which has managed to renew its contract with BTS until 2026 -- well before the initial contract expired. The firm’s revenue in 2017 has surged 163 percent from the previous year to 92.4 billion won and operating profit by 214 percent to 32.5 billion won. The figures will easily top 200 billion won and 80 billion won, respectively, for 2018, experts estimate.
The entertainment firm is estimated to be worth as much as 2 trillion won if it goes public. The only two factors that worried investors were when BTS members are likely to serve their military duties and whether the group will renew their contract. When the news of contract renewal spread, so did expectations for the IPO.
Foreign investors still not in
All this is significant in a wider perspective as it could play a role in luring more foreign investors, according to Hanwha Investment and Securities. So far, SM Entertainment, the first agency to go public, has shown that IPOs can do wonders for getting overseas funding. Given the attention BTS is garnering from around the world, an IPO would likely have a similar effect for Big Hit, says analyst Ji In-hae.
For now, though, producer Bang Si-hyuk appears to be reluctant for an IPO, free from the related regulations. A big part of the reason is because Big Hit has more money to burn. In April last year, Netmarble, a major games developer founded by self-made mogul Bang Jun-hyuk who also happens to be the Big Hit chief’s cousin, invested US$190 million to become the No. 2 shareholder with a 25.17 percent stake.
Having replaced venture capitalists -- except for a few, including STIC Investment -- with strategic investors, the entertainment label now has less pressure to get listed, according to market insiders.
So for the time being, Netmarble will focus on creating synergies between its new game “BTS World,” and Big Hit is looking at long-term returns.
Whether investors with deep pockets will pay more attention to entertainment agencies also remains to be seen. Instead of betting on the slim opportunities of discovering the next BTS, investors appear to be shifting their attention back to established firms, some experts note. Indeed, the industry remains attractive as it is one of the few with growth potential. However, returns are seldom big unless investors hold large stakes and making money with a successful artist is close to impossible for smaller labels.
By Hwang Youmee (email@example.com)