BTS' Big Hit focuses on sustainable fandom-based business model

Big Hit Entertainment Co., behind the K-pop idols BTS, is switching its focus to online concerts, merchandise and character businesses from offline performances, said its senior executives on Sept. 22, with two of the seven boy-band members approaching their mandatory national military service, which lasts about two years.

“Big Hit has been building a business model to maximize profits even without its artists’ activities,” Han Park, Big Hit’s investment & strategy head, told a web-based conference before its Sept. 24-25 IPO bookbuilding.

“Bit Hit is well-versed in the fandom-based business model, targeting fans with blind loyalty to artists. We have expertise in transforming the fandom business into a value-added business,” he added.

During the IR session, the South Korean entertainment company aimed to dispel market concerns about the possible impact of the BTS members' military service on its earnings, heavily dependent on the boy band.

“Revenues from BTS’ activities account for just half our total revenues,” said Park. “We will help them grow as iconic artists, such as Rolling Stones or Metallica, who make money from performing just once every couple of years,” said Park.

When the two go for military service, BTS' individual members will be able to perform solo or in smaller groups. During this time, Big Hit believes it can generate a steady stream of revenue from BTS in many ways: through solo and smaller group performances; indirect participation through online concerts, mobile games and video content; as well as merchandise sales.  In 2018, BTS renewed a seven-year contract with Big Hit.

The indirect participation events made up almost half of Big Hit's revenue in the first quarter of this year, up from 31% in 2018. The company  takes a bigger portion of profits from indirect participation than from albums, concerts, advertisements and TV appearances.

ONLINE FAN COMMUNICATIONS PLATFORM

Big Hit’s online fan club platform, Weverse, has become a new source of revenue growth, accounting for 38% of total revenue in the first quarter, up from 4% in 2018. Weverse is also home to multimedia content for BTS and other Big Hit fan groups. The sales model based on the online platform differentiates Big Hit from other entertainment companies in the country, said Park.



Hana Financial Investment analyst Lee Ki-hoon said Weverse is an innovative fandom business model, with the average revenue per user of about 70,000 won ($60) a month. He likened Weverse to the online version of Disneyland, saying Bit Hit is building the BTS Universe, emulating Disney's Marvel Cinematic Universe built around a number of American superhero films such as Iron Man and The Avengers.

He said in a research note on Sept. 22 that Big Hit shares have room to rise to 380,000 won for a market capitalization of 14 trillion won. This target price is almost triple the top end of its IPO price band and the brokerage firm's previous projection. It's also higher than any of its peers' target prices.

“The biggest reason for our target price change is because the company continued to hold online concerts, despite the coronavirus pandemic,” he said.

In the first half of this year, Big Hit pulled in 2 billion won revenue from paid online concerts and 141 billion won from content and fan club-based sales, despite cancellations of all offline concerts and tours. Its revenue came to 294 billion won during the period.

The success of the recently released song, “Dynamite,” as well as the acquisition of Korean entertainment firm Pledis Entertainment, will push its revenue further higher this year than in previous years, the company said.

Big Hit is set to list on the Korea Exchange on Oct, 15, to become the first entertainment company to debut on the main bourse.

Write to Ye-jin Jun and Geun-Ho Im at ace@hankyung.com