Dynamite: Will the BTS hiatus blow the Kpop industry up?

Sascha: [00:00:02] From Equity Mates media. This is the dive. I'm your host, Sascha Kelly. Move over and saying Boyz two, man, one Direction and Backstreet Boys. The biggest boy band, actually the biggest band in the world for the past few years is the Korean K-Pop group Bts's. And why are they in the news? They released a YouTube video last week announcing that they'd be taking a break like many bands before them. 

Audio clip: [00:00:27] This really is really big news for a lot of people because the BTS Army. That's what their fans are called, huge. 

Sascha: [00:00:33] Group of people, an indefinite hiatus they explained as they want to develop individually, and that the pressure of being in BTS was taking its toll. Now, a pop band admitting that they want to take a break is not in itself ground breaking news, but in this case, this announcement then resulted in a tumbling stock price. The listed company behind BTS fell over 35% since that announcement. It's Friday, the 24th of June. And today, I want to know what is the business of K-Pop? To talk about this, I'm joined by my colleague, Dorsey Cordell. Dorsey, welcome to The Dive. 

Darcy: [00:01:11] Thanks for having me, Sascha. 

Sascha: [00:01:12] We're talking about music. One of my favourite topics. No secret, but this is an area I don't know a lot about. So first of all, just explain K-Pop to me. 

Darcy: [00:01:21] K-Pop, short for Korean pop. It started in Korea in the nineties, but has now established a pretty global fan base. 

Sascha: [00:01:31] Okay, that's K-Pop. But what about BTS? I've seen them on Instagram and I know that the biggest band in the world, but I actually don't know a lot about them beyond that. 

Darcy: [00:01:40] You're not alone there. Not many people I know have heard of them, despite their global popularity. Although they're my partner, Abba's favourite band. 

Sascha: [00:01:48] So you've been brought up to speed by a reliable fan then? 

Darcy: [00:01:51] Absolutely. All the research done for me, you're more likely to recognise a few of their songs. Okay. So the little girl, my mother. 

Sascha: [00:02:00] I have heard this one on the radio and I didn't realise it was five eight yet. 

Darcy: [00:02:04] So Bts stands for Bullet-Proof Boy Scouts in Korea they've got seven members and they've had six songs that have reached number one on the charts in the last two years. They also have some incredibly die hard fans who call themselves the Bts Army. 

Unidentified: [00:02:19] Back with. And in the world beating. Yes. Okay, you guys. I know. It's very exciting. There's the close. 

Sascha: [00:02:27] Proximity, so I'm not surprised by this news story. I remember the headlines when One Direction announced their split. And personally, I was inconsolable as a five year old when the Spice Girls announce their Break-Up. But what's unusual about this one is I've seen this story pop up in the business news section. So why is that? 

Darcy: [00:02:47] It's because the success of BTS is really closely aligned to the performance of a company previously called Big Hit Entertainment and now known as Hybe, and they're publicly listed on the Korean Stock Exchange. In 2010, Hybe discovered and trained the group known as BTS, their founder and the producer of BTS. Bang C Hook has grown the company to over 1000 employees. They appeared in late 2020, and that coincided with BTS releasing what turned out to be one of those number one hits. Dynamite is. So between their IPO and November last year, the stock of high was up over 100%. 

Sascha: [00:03:28] Not too shabby. 

Darcy: [00:03:29] It was travelling well. But last week's announcement that they'd be taking a hiatus was crushing news for Hot. The stock's down 35%. BTS is one of the biggest bands in the world, so it's not surprising that their hiatus had a big effect on the stock price. But Hive does also manage several other high profile K-Pop groups. 17 J friend and Tamara Ex together are the first that come to mind. 

Sascha: [00:03:53] I love the names of these pop groups. They're so they're so typical of what you'd expect. And I think what you're saying there, Dorsey makes sense. You know, it's you could say it's the equivalent of when we see a senior executive leave a company and the share price also has a similar reaction. What springs to mind? Sheryl Sandberg recently announcing that she was going to leave Facebook and we saw up price movement as well. Now, I'm not a K-Pop fan as we've established, but I'm not completely living under a rock either. I understand it's huge business. Can you give me the specific stats about how big it is? 

Darcy: [00:04:30] And the K-Pop industry is worth about 5 billion USD and it contributes around $750 million to South Korea's exports every year. It began in the nineties, as I said, and it appealed to a pretty specific Korean audience in the beginning. But in the last couple of decades it's gained more global popularity and a big part of that popularity is thanks to BTS. They started making headway into the US in 2018 and they began to release more of their music in English. Also with more of a hip hop influence included in the style. Probably the most telling sign of their mainstream acceptance is that Bts performed at the Grammys in Las Vegas early this year with this concert. 

Sascha: [00:05:13] And its destination. So wow, that is big for a K-Pop band. And I personally, I saw that it was a Rolling Stone profile on them. And that's the kind of masthead that traditionally only covered a really Western style of pop and mainstream music. So clearly the industry is really getting behind them. But K-Pop as an industry works quite differently, quite separately from the Western pop music style. And I've read that these bands are highly manufactured, but I think the same could be said for any of the acts that come out of American Idol or X-Factor. So can you elaborate a little bit more on what this structure is with K-Pop? 

Darcy: [00:05:52] Basically, entertainment companies and talent agents scour South Korea and they find talent and sign them on as trainees. So that K-Pop label, it takes on all the expenses to train these artists. And that generally costs about $50,000 a year. 

Sascha: [00:06:07] And that's $50,000 per individual in these groups. 

Darcy: [00:06:11] Yeah, that's right. Per idol, per year, 50,000. And this actually accumulates as a debt for these artists. When they start releasing music, they usually have to pay back that debt from the training. So the talent agency takes 90% of profits and the artists get just 10%, leaving the average idol making about $16,000 a year. 

Sascha: [00:06:32] This really reminds me of the Lou Perlman documentary I watched, which was about the Backstreet Boys and NSYNC. It's going to be May. 

Darcy: [00:06:40] I haven't seen that, but I think the key takeaway here is that it's very different to the royalty system that we often hear artists talk about. 

Sascha: [00:06:48] Okay, can you quickly explain royalties? For me. 

Darcy: [00:06:51] Royalties are essentially dividends from the success of the song you wrote. It can be a little complicated, but simply the more you own of the song, the greater percentage of your profits from its success. It's actually playing out right now for Kate Bush, who's seen a huge resurgence in the popularity of her 1985 song Running Up That Hill. It was just used in the latest season of Stranger Things. Now, Kate, Bush owns 100% of the publishing and licencing rights to that song, and she's now receiving about 300,000 USD a week from the new found fame. And making phone calls in K-Pop, though, that money would go towards the company first. 

Sascha: [00:07:36] So, Dorsey, it sounds to me like the world of K-Pop is pretty brutal. And, you know, they're really measuring the funds for a group like BTS where they're seven members. You know, they're looking at a debt of $350,000 a year for training these artists, and that's before they get any music out there on the charts. And you told me in your research that these production companies are just pumping out groups year after year to keep up with trends. It's a bit like fashion houses do. They're trying to predict what the audiences are going to like. And so it's understandable that then there's a big turnover. Bands get older, people get less popular, audiences change their mind. There's a limited shelf life. But BTS have unusually been together for almost a decade, which is completely bucking the trend. So let's take a break now. And when we come back, I want to hear you tell me more about other Korean entertainment companies who are in competition with this production company. Hi. Welcome back to The Dive. Today we're talking about K-Pop. We've done some background on the industry. We've heard about Bts's, that massive super group, and we've talked about Hybe, the production company behind them. But what I really want to talk about is the competition. Who else is operating in this K-Pop space? 

Darcy: [00:08:57] Sascha think of K-Pop entertainment companies as a kind of venture capitalist. So a venture capitalists invest money into a Start-Up and they hope it'll grow and that they make money on their investment. So this is how these K-Pop labels operate. They go out and find the talent. They invest in them through that training, which we spoke about. And then they hope eventually the investment pays off with revenue from album sales tours, live shows and merchandise.

Sascha: [00:09:23] And also that kind of hedging their bet because they're putting the debt for training back on the artists anyway, aren't they? 

Darcy: [00:09:31] It seems pretty risk free in some ways. The artists are always paying back their debts and then they're taking 90% of the profits too. And there are three companies in South Korea known as the big three of the K-Pop industry. 

Sascha: [00:09:44] The Big Three, a bit like, you know, the big banks or the big accounting firms. Okay. I'm assuming that Hybe is one of these big three then. 

Darcy: [00:09:51] Surprisingly not. I'll come back to that in a moment, but I'll give you the names of the Big Three. First we've got SM Entertainment, JVP Entertainment and YJ entertainment. So SM Entertainment is the biggest of the three and they're worth about $1.3 billion. They're also listed on the Korean stock exchange and their stock is up 130% over the past five years. A lot of the success of these companies comes down to the K-Pop bands that are under these companies banner. At the time, SM Entertainment is profitable at the moment, and they make over $100 million of profit a year. Some of the groups they currently manage are Girls Generation SHINee, Exo and Red Velvet. 

Sascha: [00:10:34] All right, so that's one of the groups who are the other two? 

Darcy: [00:10:37] JV is the second of the three and they're valued at $800 million. Okay. This can get also listed on the stock exchange in Korea, but their stock is up over 400% in the past five years. They managed groups like 2 p.m. Day6 and to us some other great names.

Sascha: [00:10:57] And so who's the final group? 

Darcy: [00:10:59] YG Entertainment is the smallest of the three valued at $500 million. You like? Also listed, but they haven't performed as well as the other two. Their stocks down 20% over the past year and up 30% over the past five. We could almost say why is a bit of a has been they previously managed big K-Pop groups like Big Bang and Blackpink, but they don't have as many notable groups at the moment. 

Sascha: [00:11:27] It really reminds me of Big Machine Records, which was a tiny little record company, but off the back of Taylor Swift became a massive player in the industry, like hit your wagon to the right artist and your set. 

Darcy: [00:11:40] Well, that's probably what we're saying with Hybe Sascha Hobbs now overtaking all three of these big three combined in value. And that is mainly thanks to BTS and a range of other investments. Hobbs invested in a subsidiary of Y J Entertainment, one of those Big three, and they've released an app called Wave Earth where K-Pop fans can actually interact with some of their favourite artists. And another big factor in the success for Hybe and Bts's has been that they've promoted the personalities of the seven members of BTS a little more than other groups. They've got a lot of freedom to be themselves, and they've also received a lot more money than most other idols. Bts's members got 70,000 shares in hard stock during the IPO, and now they're worth millions of dollars. 

Sascha: [00:12:26] Smart BlackBerry like criminal undercover. Okay, so by giving their artists a little bit more autonomy and a little bit more freedom, they, in turn have shared in the success of the company behind them. 

Darcy: [00:12:38] Yeah, and I think that's what fans are saying, too. There's a lot more personality and they've attach themselves to that with the Bts's Army.

Sascha: [00:12:44] So tell me what happens to Hybe now that BTS has announced this imminent hiatus? I feel like I've literally been through the five stages of grief. 

Darcy: [00:12:54] This is the big question. It's important to note this is actually Bts's third hiatus since 2019. So some of the Bts's Army is confident they'll be back sooner rather than later. And Bts's members have been quoted saying that Bts's is forever. But unfortunately for Hybe, the revenue that they're making from the CRO will decrease a lot as they move into individual ventures. Some of the members of trying out acting, others TV and some solo music. So there's going to be a pretty material dent in hi's revenue and clearly investors have taken that into account with the stock down 35%. Having said that, they do have other revenue streams and it wouldn't surprise me to see them actually acquire one of those big three companies.

Sascha: [00:13:38] Boyband hiatuses have not always ended with a reunion. One Direction said they returned back in 2015. 

Audio clip: [00:13:44] Now, you won't be doing that anymore because you're taking a yearlong break.

Audio clip: [00:13:48] It's kind of strange, actually. I haven't thought this through. 

Sascha: [00:13:50] I guess Hybe must feel confident in the fact that May one BTS. Surely they'll be able to make another one again. 

Darcy: [00:13:56] I think that's the key takeaway. K-Pop is here to stay and it's probably a matter of time before the next BTS comes along. It's important to understand how volatile these companies are, depending on their talent at the time. That might sound a little foreign to us, but we say it in other fields, like sporting teams, a star player, they might transfer to a new team, and suddenly the stocks of that team look far more attractive. So we might see this play out with these big South Korean companies. 

Sascha: [00:14:23] It's so interesting. I mean, I'm sure there's much more we could discover in the K-Pop universe and talk about, but let's leave it there for today. Thank you so much for joining us for today's edition of The Dive. If there's a story you want to talk about or if you just want to tell us that you are a Bts's fan, you're part of the Bts's Army, then get in touch with us. Our email address is. The dive at Equity Mates dot com or follow us on any of the social media channels. All those details as per usual in the show notes below. I want to say a huge thank you to everyone who has given us a review in your podcast app. It really goes a long way, so if you've got 30 seconds of time, open it up. Give us a five star review. It really helps us climb the charts and helps other listeners discover us. Thank you so much, Darcy, for coming on and talking about K-Pop with me today. 

Darcy: [00:15:11] Thanks, Sascha. BTS is forever.

Sascha: [00:15:14] Until next time.