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Media & Entertainment

'Father of BTS' tests investor appetite for K-pop with IPO plan

South Korean agency Big Hit eyes multibillion dollar valuation

BTS, South Korea's most successful boy band, is the creation of entertainment agency Big Hit.   © AP

SEOUL -- Bang Si-hyuk has, by his own account, spent much of his early career fighting the South Korean music industry. Now the man behind BTS, the most successful pop group in the country's history, is ready for an even bigger challenge: taking his talent agency public in the midst of a pandemic.

Bang, a composer and producer, founded Big Hit in 2005 as a challenger to the three established giants of South Korean pop music: SM Entertainment, JYP Entertainment and YG Entertainment.

Last week Big Hit received the green light to list on Kospi, the country's main stock trading board. Analysts expect that the company behind BTS -- a band with a fan base that numbers in the millions and a measurable impact on GDP -- will hit a market cap of more than 3 trillion won ($2.5 billion), which would make it the No. 1 entertainment company in the country. The IPO is expected to be completed this year.

"We forecast Big Hit's corporate value will mark more than 3 trillion won on the condition that it makes around 100 billion won of operating profit," said Kim Hyun-yong, an analyst at eBest Securities. "It is inevitable to see that its profit will drop in 2020 due to the coronavirus, but it is possible to recover to the 2019 level one year after it lists."

Bang, who studied at the prestigious Seoul National University in the 1990s, founded Big Hit after working at current rival JYP for eight years. In a speech to students last year, he spoke of the anger that got him to where he is today.

"The music industry was not fair, and I was angry with it. I will fight to make sure workers in the industry are treated and paid fairly," Bang said. "You may face unfair and unreasonable moments in your journey. I hope you get angry and fight against them, changing the society."

As CEO of Big Hit, Bang was instrumental in creating its biggest asset, BTS. He scouted the group's leader, known as RM, and even came up with its name, which means "bulletproof boys" in Korean, earning Bang the nickname "the father of BTS."

Bang controls a leading 43.4% stake in Big Hit, while game developer Netmarble is the No. 2 shareholder, with a 25.1% share. Netmarble Chairman Bang Jun-hyuk is a relative of Bang Si-hyuk.

Despite numerous concert cancellations due to the coronavirus pandemic, Big Hit posted a 49.7 billion won operating profit in the first half of this year on 294 billion won of revenue.

One reason the agency's listing is attracting so much attention is because of its dominant position in the K-pop industry, which itself is gaining a greater presence on the global stage. BTS is the first and only Korean act to sell more than 20 million albums, and measured by album sales and concert attendance, the group accounts for about 30% of the entire K-pop industry.

South Korea's BTS has garnered a global following, including in the U.S.   © Getty Images

The seven-member band has taken the world by storm, topping the Billboard 200 chart three times in 2018 and 2019 with "Map of the soul: Persona," "Love Yourself Tear" and "Love Yourself Answer."

BTS's overall economic impact is even bigger than its direct earnings. According to the Hyundai Economic Institute, BTS attracted 800,000 tourists to South Korea in 2018, adding 4.1 trillion won to the national economy. On the cultural front, BTS became the first K-pop group to speak at the United Nations in 2018, with a speech aimed at empowering the world's youth.

Even the fan base, known as the "BTS Army" for its size and loyalty, can grab headlines. In June, U.S. President Donald Trump's rally in Tulsa, Oklahoma, was embarrassingly underattended, with just 6,200 people showing up at the 19,000-seat stadium despite his campaign's claim that over a million people had requested tickets.

Teenagers on TikTok and self-proclaimed K-pop "stans," as particularly enthusiastic fans are known, soon took the credit, saying they had encouraged people to reserve seats for the rally without any intention of attending.

While most of Big Hit's revenue comes from BTS, the company is also attempting to reduce its reliance on the band. In 2019, the agency launched a five-member boy band called TXT, and in May, the company bought Pledis Entertainment, a smaller agency that manages eight-member girl group After School and others.

Analysts say a successful IPO would be good news not only for Big Hit but also for the broader South Korean entertainment industry, which has had to invest heavily in new, non-contact platforms due to the pandemic.

Naver, the country's No. 1 internet company, announced this month that it will invest 100 billion won in SM and support live streaming and community platform technology for the company. Naver and SM signed a strategic partnership in April with the aim of better cracking the global market.

JYP, meanwhile, is targeting the Japanese market. It plans to launch a nine-member Japanese girl group called NiziU this fall in cooperation with Sony Music. NiziU has already garnered 1.1 million YouTube subscribers with its single "Make You Happy" ahead of the group's official launch.

The K-pop industry exported $639.7 million worth of content last year, up 13.4% from the year before, thanks to the success of groups like BTS, Blackpink and SuperM in the North American market, according to Korea Creative Content Agency.

While the coronavirus is casting a shadow over the K-pop industry, analysts say the decline will be temporary -- and that BTS is still on the rise.

"It is clear that BTS has not reached its peak yet and is growing," said Kim at eBest. "Big Hit minimized losses from canceled concerts by selling albums and sound sources."

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