A pop group generates a $50 billion IPO and now owns a piece of their agency

Big Hit Entertainment  (aka Big Hit Music) the agency for the Korean K-Pop sensation  BTS, launched an IPO  in October that was oversubscribed 600 times.  Big Hit Entertainment offered 7.1 million shares at the US $115, each, valuing the agency at $4.1 billion. What they got was thousands of Koreans – ordinary folks, not big investors – rushing to pour more than $50 billion into the IPO for the agency that handles their favorite music group. When the dust settled, the share price was double the IPO price of $117 per share and the company ended the day with a market cap of  $7.6 billion.

If you don’t know BTS,  they are a trailblazing Korean septet that crashed into the US music market – the world’s largest – in August, when their all-English track “Dynamite” debuted at number one on the US Billboard Hot 100.  The song written by David Stewart and Jessica Agrombar,  crossed the 1 billion streams mark on Spotify on April 12 and has added almost 200 million since then.

The Grammy-nominated single also holds the YouTube record for the most viewed music video in the first 24 hours of release, racking up 98.3 million views on its first day. And “Dynamite” is no flash in the pan; their song “Butter” also debuted at #1 on Spotify. And they have been hitting the billion number since their YouTube video “DNA” reached one billion views in 2010, two years and eight months after its upload on Sept. 18, 2017, and it is still growing.

So, are they worth $50 billion –  or more correctly, is their management company worth the $7.6 billion it received, and if so, what does it say about the music industry?

The first thing it says is that one band can make someone a lot of money, and this band seems to be it. Big Hit Entertainment revenues exploded by  2,161 percent when their biggest act, BTS  took off in Korea and then worldwide. Big Hit Entertainment is now one of the largest and most successful entertainment companies in South Korea and among the world’s major agencies, representing acts like Ariana Grande and Justin Bieber, but BTS is responsible for 87% of their income.

So what does BTS get out of the IPO after they have generated billions of dollars for the Korean economy and made the owner of Big Hit a billionaire?

According to Forbes, before the IPO, the company awarded each member of BTS  68,385 shares, valued at about $8 million at the time (they also awarded shares to other top earners).  As of now, each BTS member’s stake in Big Hit is now valued at about $15.3 million. 

They are not the only artists to hold equity in their agencies or labels.  Theodor Bikel received shares of Elektra, the UK band The 1975 holds shares of their label Dirty Hit, and several artists hold equity in the  Kobalt Music Group, including Sir Paul McCartney.  Poo Bear received shares in Hipgnosis as part of the deal when he sold the agency his catalog  – meaning he still has a stake in his music even after he sold it.

Now, these are all big-time, million, and billion-streaming and earning artists;  they have unique relationships with their agencies and other music companies.  But, given the difficulty emerging and mid-list artists have in accumulating wealth (or getting out of debt), giving them stock or private shares in addition to sales revenues might be a way to lift the whole industry up.

It could be especially helpful in the case of small agencies who acquire a fast-rising emerging artist and works its tail off to make her a star – I can think of several examples of artists whose earnings enabled their small agency to expand, acquire other fast-rising talent and grow exponentially  The shares would not only be “gratitude,” but a smart investment to hold onto the talent as artists grow in popularity and income.  And it would give the artist a stake in something that creates wealth, damn hard for the average musician.

We will have to see how the BTS investments work out.  At least one and perhaps two of the group are due soon for mandatory military service, which could rattle investors. Or they could do an “Elvis joins the army” number and record songs and make films while on duty, staying famous. Regardless of BTS, look for more artists at all levels to start asking their agencies and labels for shares as well as earnings.  Maybe even Spotify and the other digital platforms…wouldn’t it be something if Spotify paid in shares as well as fractions of pennies.