Pop till you drop
K-pop may face its harshest critic yet: investors. Big Hit Entertainment, the music label behind global boy-band phenom BTS, is eyeing a public market debut. Sales are surging, but its fortunes largely depend on one act in a hit-driven business. With the coronavirus outbreak now eating away at concert sales, a premium valuation increasingly sounds out of tune.
BTS is an even bigger South Korean cultural export than Oscar winner “Parasite”. Thanks to Spotify, YouTube and viral-video app TikTok, K-pop’s reach has extended beyond Asia and into Western markets. The recently-released “Map of the Soul: 7” marks BTS’ fourth album to reach number one on the U.S. Billboard 200 chart in less than two years. The last pop group to achieve that milestone was The Beatles.
Big Hit wants to capitalise on BTS-mania. The music label, backed by video-games outfit Netmarble, has hired banks for an initial public offering this year, Refinitiv’s IFR reported last month. The privately held company recently said revenue nearly doubled to 588 billion won, or $474 million, last year, while operating profit reached 98 billion won.
Assume optimistically that the company can double its top line again this year and maintain the same operating profit margin. Applying the roughly 13 times multiple of expected 2020 EBIT that its rivals fetch implies the Big Hit enterprise would be worth around $2.1 billion.
Even so, the company is heavily dependent on BTS, whose members are nearing the age of South Korea’s compulsory military service. In such a fickle business, any extended hiatus could be career-ending. Moreover, K-pop stocks have been hit hard by recent scandals involving the country’s biggest names. YG Entertainment, for example, has lost over 45% of its market value since last March, when one of its stars quit on the back of bribery and prostitution allegations.
Covid-19 is also proving to be a literal showstopper. BTS has already cancelled this year’s Seoul tour, citing unpredictability of the outbreak which has wreaked havoc on major events including music and tech fest South by Southwest as well as the latest James Bond movie release. Against this backdrop, it’s hard to believe Big Hit can deliver a chart-topping market debut.