The Global Music Industry in the Midst of a Pandemic and Finding Success on the Stock Market

We know of the stock market to be the place where the buying and selling of a company’s shares takes place. A company may choose to open their business to the public by allowing others to have part ownership through the amount of shares bought. This process is beneficial to the buyer as well as the company, as the company is able to make money by selling shares and the buyer is able to make money if the business succeeds. Many different types of trading occur along the stock market, but overall shareholders have the ability to buy or sell shares how they see fit. Owning and selling shares comes with its own degree of risk, but provides potential for a strong economy.

South Korea, which has a booming entertainment market as a result of government support of national culture, tourism, and entertainment, has seen some recent changes with a new entertainment company joining the market. In previous years, the country’s entertainment industry could be considered an oligarchy, as three main companies reigned supreme - JYP Entertainment owned by Jin-young Park, SM Entertainment headed by Soo-man Lee and YG Entertainment led by Hyun-suk Yang. With the success of their global supergroup BTS, Hybe Corporation has effectively dismantled the system and become the leading entertainment group with profit margins four times higher than that of JYP Entertainment who led the so-called “Big Three.” Hybe Corporation’s decision to IPO (also known as initial public offering) has allowed for the private company to begin offering shares to the public. This was a huge decision for the company as it would allow an additional raise in capital for business expansion as well as potentially have major effects on the South Korean economy, which has already seen a gain of almost $5 billion due to the success of BTS. The initial price of Hybe’s 7.13 million new shares were valued around 135,000 KRW (roughly $120 USD). The final price for opening day on October 15, 2020 was decided at 270,000 KRW ($242 USD) by the underwriters working on the project: NH Investment & Securities, Korea Investment & Securities, JP Morgan, and Mirae Asset Daewoo. It was South Korea’s largest stock offering since July 2017.

It was predicted that Hybe Corporation would see a huge increase in value once public on the KOSPI (Korea Composite Stock Price Index). The October IPO was expected to raise between 748.7 billion won and 962.6 billion won, valuing the company at four trillion won (roughly four billion USD). Hybe CEO Bang Si-hyuk would be the largest shareholder with 12,377,337 shares (a 43.44 stake in the company) making the shares worth about $1.4 million USD and making him the wealthiest figure in the industry, surpassing the top seven figures combined including names like Jin-young Park and Soo-man Lee. Bang gave 478,695 of his shares to the seven BTS members, distributing them equally and each receiving 68,385 shares. Each member of the group increased their worth by about $8 million USD.

Opening day saw a few hiccups as shares plummeted from $225 to $175 in a day as they were sold even while retail investors (individuals) continued to invest. It was clear that investing in Hybe stock was of “high interest but volatile.” This is due to many reasons. The involvement of BTS within Hybe Corporation remains a hot topic as of 2020 the company was receiving about 90% of their income from the boy group alone. This is one of the biggest risks that the company has, as the Korean entertainment industry is known to be tumultuous as they rely on public opinion for success. A scandal or in BTS’ case, upcoming mandatory military enlistment could lead to a decrease in profit for any entertainment company. Hybe has plans to counter this risk by diversifying business, including the acquisition of other Korean entertainment companies as well as Western companies. Most recently, Hybe bought the media and entertainment company Ithaca Holdings, which oversees acts like Justin Beiber, Ariana Grande, and Demi Lovato. Business decisions like these will back up the corporation when BTS is no longer able.

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Figure 1 shows the current value of Hybe Co. as of June 2021

The question now remains: how does the success of a South Korean entertainment company differ from the Western industry, especially in the midst of a pandemic? While it seemed to take a hit due to the coronavirus pandemic, the music scene is on the rise globally. While the United States remains the top player in the music industry, there are many moving parts that contribute. Streaming services, live music venues, and entertainment labels work in tandem to create the booming industry in the States and since the announcement of the COVID-19 vaccine, stocks have seen a boost across the board. In November of 2020 companies like Live Nation, Madison Square Garden Entertainment, and CTS Eventim were +20.8% to $67.73, +21.4% to $84.44, and +23.5% to $51.90 respectively. This proves the analysis which predicted that while the music industry would ultimately see a 75% loss of revenue, the end of the pandemic would prove bountiful for entertainment. These projections extend into the future as well, with Goldman Sachs saying “global music revenues were projected to reach $142 billion by the end of the decade, reflecting an 84% increase when compared to the 2019 level of $77 billion.”

In the United States, entertainment is viewed differently both by the general population and by the government than compared to South Korea. Often criticized for being “manufactured,” the South Korean system of producing music artists just operates differently than we see in the States. Where Americans tend to prioritize individualism and “rebellion” in music, South Korea prioritizes teamwork and craftsmanship. Neither are better than the other, but it does lead to economic prosperity from different approaches. As a part of the Korean plan to rebuild the economy following the Korean war, South Korea buys into the entertainment industry and encourages the production of idol groups and musicians. The United States does not put this same emphasis on entertainment, but the vast economic resources of the US allow for new innovative ways of both enjoying entertainment and consuming it.

The main difference that we see when comparing the United States to South Korea is that the United States, while it has its key players, is not monopolized by entertainment companies. Despite the fact that music is produced in vastly different ways in each country, the United States leads the world in other ways besides simply producing music and artists. Companies like Spotify, Tencent Music, and YouTube join the ranks of entertainment companies like Universal Music Group and Sony Music as the “main beneficiaries” of the industry boom. This leads to more stability than an industry resting in the hands of just a few companies like Hybe Corporation. Regardless, Hybe Corporation is not to be overlooked by Western music companies as despite the cancellation of concerts in 2020, the company had an almost 50% growth in both sales and profit in just the first half of the year. It is clear that across the world, the music scene is both keeping itself afloat and rebuilding to be more powerful than ever before.

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Figure 2 shows Sony Group Corp stock as of June 2021. Sony is considered one of the top ten entertainment companies in the United States.

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