Big Hit Entertainment Stands to Benefit Most
The authors are analysts of NH Investment & Securities. They can be reached at hzl.lee@nhqv.com and jaemin.ahn@nhqv.com, respectively. -- Ed.
− On Jan 27, Big Hit Entertainment announced a collaboration with NAVER and YG Entertainment. Details are as follows:
1) Integration of NAVER’s V LIVE and Weverse: NAVER will acquire 3.48mn shares in Weverse Company (previously beNX), a subsidiary of Big Hit Entertainment, by participating in a cash acquisition of 603,448 shares and paid-in capital increase of 2.88mn shares. NAVER will own a 49% stake in Weverse Company, and Weverse Company will take over V LIVE, NAVER’s fan community service platform. Based on the acquisition price, the Weverse platform is valued at W840bn. Expected synergies from the service integration include: 1) strengthened platform capabilities; and 2) increased cost efficiency. Big Hit will hold the remaining 51% stake in Weverse Company.
2) Collaboration with YG Entertainment: Big Hit will become the second-largest shareholder in YG PLUS, with a 19% stake. Big Hit will hold a total of 11.3mn shares in YG Plus (6,486,085 shares held by Weverse Company and 4,864,565 shares held directly by Big Hit). The total shares will be acquired via: 1) a cash deal with YG Entertainment’s largest shareholder & related parties (8,198,066 shares); and 2) the issuance of new shares (3,152,584 shares). Following the deal, 1) Big Hit’s album/digital music distributor will change from Dreamus Company to YG Plus; and 2) YG artists (BLACKPINK, TREASURE, BIGBANG, etc) will enter the Weverse platform.
− Big Hit Entertainment stands to benefit most. The effects of this disclosure on each company are as follows:
1) Big Hit Entertainment: Weverse’s platform capabilities should strengthen through the integration of NAVER V LIVE (addition of video chat function and improved server capabilities). In addition, through the collaboration with YG, Weverse will have access to content from Korea’s two most influential K-POP groups, thanks to the addition of content from BLACKPINK. Considering BLACKPINK’s lofty YouTube subscriber count (56.3mn subscribers, global No.2; Big Hit has 50.5mn subscribers), BLACKPINK’s addition to the Weverse platform should greatly boost Weverse’s subscriber number.
2) NAVER: NAVER, which does not have an entertainment agency, has always been concerned about the possibility of artists leaving V LIVE. By acquiring a stake in Weverse Company and integrating services, these concerns should ease, and the firm should grow into a global platform. We also expect NAVER to assist Weverse by helping the firm to nurture new business models and by operating its services. In addition, as the cost for transferring V LIVE to Big Hit will be set at W200bn, NAVER’s cash expenditure for acquiring a stake in Weverse Company will come to only W211.8bn. With this in mind, we view the deal as being a good financial choice for NAVER, as well.
3) YG Entertainment: As of 2020, BTS, the main artist at Big Hit, sold 8.6mn albums, while SEVENTEEN sold 2.7mn albums. The firm’s annual album/digital music sales are estimated to exceed W290bn. If YG PLUS begins to distribute Big Hit’s albums and digital music, additional commission sales of W6bn~12bn will be generated, and indirect sales will also increase on the promotion of MD sales through the Weverse platform. Of note, YG PLUS is a subsidiary of YG Entertainment.