Big Hit Entertainment, home to K-Pop superstars BTS, floated a portion of its company on the Korean stock market last Thursday, October 15th. Thanks to stock-buying demand whipped up by BTS megafans, Big Hit’s share price opened at a wild $235 (270,000 South Korean Won) — double its initial public offering price of $117 per share — and took the company to a day-one market cap of $7.6 billion.
A few weeks prior to its IPO, Big Hit handed 478,695 common shares in the company to the seven members of BTS. So on Thursday, the company’s flagship group ended up with $108 million in shares, or $15.4 million per group member. The shareholding of Big Hit founder Bang Si-Hyuk, by contrast, was worth north of $2.8 billion.
Some debate has been sparked by BTS’s shares in Big Hit only comprising 1.4% of the company while Bang holds a 36.6% stake. Yet the fact BTS owns any slice of their recorded music and management company is a rarity. Why don’t other music companies reward their biggest stars with equity? And what is a fair amount to offer?
K-pop group @BTS_twt's agency, Big Hit, soars up to 160% more than its IPO price, giving it a market value of around $10 billion, reporter @soheefication tells @BloombergTV. The founder is now one of South Korea's richest people. https://t.co/WBgaudyor3 pic.twitter.com/6fQiT9yHwF
— Bloomberg (@business) October 15, 2020
When I interviewed Jac Holzman, legendary founder of Elektra Records, he shared that the popularity of a singular artist — Theodore Bikel — saved Elektra when the label was $90,000 in debt towards the end of the 1950s. As well as “thanking him profusely,” Holzman handed Bikel a 5% ownership stake in Elektra. In 1970, Holzman struck a $10 million deal to merge Elektra into what would become Warner Music Group; Bikel’s 5% stake liquified into half a million dollars, worth $3.3 million in today’s money.
There are modern equivalents to this gratitude-driven exchange: London-based indie record label Dirty Hit is home to the band The 1975, who signed to the company back in 2012 before becoming Platinum-selling stars in the US. Fiscal filings show that Dirty Hit, which re-signed The 1975 to a three-album deal in 2019, is part-owned by the members of that band — each of whom own 18 ordinary shares in the label.
A glance through Kobalt Music Group’s financial documents reveals that the likes of Sir Paul McCartney, Dr. Luke (Lukasz Gottwald) and Max Martin (via MXM Music) all own slivers of the company. The fact that Kobalt may currently be up for sale with a billion dollar-plus price tag suggests that McCartney, Dr. Luke and Martin, three of the firm’s earliest clients, could soon be fiscally rewarded for gambling on the Swedish-born, UK-based startup before it became one of the world’s biggest independent music operations.
Kobalt is famous for permitting its songwriters to keep hold of their rights, but the “take some of our company!” approach to client acquisition extends to firms who buy music copyrights, too. Earlier this year, Poo Bear — a long-time collaborator of Justin Bieber’s — sold his songwriting catalog to the aggressively acquisitive Hipgnosis Songs Fund. Poo Bear told MBW in July that Hipgnosis founder Merck Mercuriadis offered him shares in Hipgnosis as part of the firm’s offer to buy his copyrights. “That for me was everything, just allowing me to be a part of my catalog even after I sold it,” said Poo Bear, adding: “I don’t really feel like any other company would have offered that.”
“Any other company” in this case, may be directed at the major music companies who, to date, haven’t gifted company equity to writers or artists — no matter how huge a superstar they might be. Part of that is down to the sheer size of catalog at these companies. How could Universal Music Group, for instance, choose between giving equity slices to Drake, Taylor Swift, The Beatles or Queen?
But BTS is not the only group on Big Hit’s roster, either, and the company still offered a sizable amount of shares to its seven members. Could BTS’s much-talked-about ownership in its parent company change this industry paradigm, pressuring the majors to hand stock in their companies to blockbuster artists during negotiations and re-negotiations?
Universal, Sony and Warner have all previously agreed that, when they sell their shares in Spotify, they will pass on a portion of the proceeds to their artist roster. But now they have to wrestle with the Big Hit parallel as well: What happens when large-scale music companies bank a load of cash by selling stakes in themselves? In this situation, just as with Spotify going public, do a record label’s biggest artists deserve a mini-windfall for their individual contribution to that company’s value?
This is not a theoretical question. Universal Music Group parent Vivendi sold a 10% stake in UMG to a Tencent-led consortium for $3.3 billion earlier this year, with reports suggesting that the same consortium will swoop for a further 10% by January 2021. Vivendi is also planning to “spin out” and float UMG on the stock market by 2023. Warner Music Group successfully IPO’d on the NASDAQ in June, seeing the value of its company shoot up on day one.
The major labels would no doubt argue that transferring “free” equity to artists before such big-money moves wouldn’t make business sense. Giving away company stock to artists, they might suggest, is a situation which should be exclusively reserved for the early years of startups like Hipgnosis, Dirty Hit, Elektra or Kobalt, rather than for long-established industry giants. The majors might also point out that BTS contributed 87.7% of Big Hit’s revenues in the first half of this year, and that no single artist comes close to that kind of dominance of holistic turnover at Universal, Sony or Warner.
But artists and their lawyers, who have just witnessed BTS become multi-millionaires as a result of Big Hit’s IPO, might argue differently — ushering a new conversation to the negotiating table altogether.
Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis, and jobs since 2015. He writes a weekly column for Rolling Stone.